TORONTO, Feb. 24
Canada's housing affordability continued to improve in the fourth quarter of 2010, thanks in part to slight decreases in five-year fixed mortgage rates and minimal home price appreciation across the country, according to the latest Housing Trends and Affordability report released today by RBC Economics Research.
"Some of the stress that had been building in the housing market between 2009 and the first half of 2010 has been relieved, but tensions persist overall and the recent improvement in affordability is likely to be short-lived," said Robert Hogue, senior economist, RBC. "We expect that the Bank of Canada will resume its rate hike campaign this spring and with borrowing costs set to climb further in the next two years, housing affordability will erode across the country. That said, we don't expect this to derail the housing market because of rising household income and job creation from the sustained economic recovery."
The RBC Housing Affordability Measure captures the proportion of pre-tax household income needed to service the costs of owning a specified category of home. During the fourth quarter of 2010, measures at the national level fell between 0.4 and 0.8 percentage points across the housing types tracked by RBC (a decrease represents an improvement in affordability).
The detached bungalow benchmark measure eased by 0.8 of a percentage point to 39.9 per cent, the standard condominium measure declined by 0.4 of a percentage point to 27.6 per cent and the standard two-storey home decreased 0.4 percentage points to 46.0 per cent.
"We expect affordability measures will rise gradually in the next three years or so while monetary policy is readjusted, but will land softly thereafter once interest rates stabilize at higher levels," added Hogue. "This pattern would be consistent with moderate yet sustained stress on Canada's housing market. Overall, the era of rapid home price appreciation of the past 10 years has likely run its course and we believe that Canada has entered a period of very modest increases."
A majority of provinces saw improvements in affordability in the fourth quarter, most notably in Alberta where falling home prices once again contributed to lower the bar for affording a home. Only the standard two-storey benchmark became less affordable in Ontario and Quebec, as did the standard condominium apartment in Quebec and the Atlantic region.
RBC's Housing Affordability Measure for a detached bungalow in Canada's largest cities is as follows: Vancouver 68.7 per cent (down 0.4 percentage points from the last quarter), Toronto 46.8 per cent (down 0.5 percentage points), Montreal 41.3 per cent (down 0.4 percentage points), Ottawa 38.7 per cent (up 0.5 percentage points), Calgary 34.9 per cent (down 3.1 percentage points) and Edmonton 31.0 per cent (down 2.4 percentage points).
The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market in Canada. Alternative housing types are also presented including a standard two-storey home and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:
· British Columbia: Buying a home in B.C. became slightly more affordable in the fourth quarter of 2010, due primarily to a small drop in mortgage rates. After experiencing some declines in the previous quarter, home prices rose modestly for most housing categories; condominium apartments bucked the trend, however, and depreciated slightly. Prices were supported by a tightening in market conditions with home resales picking up smartly following substantial cooling in the spring and summer that saw sellers lose their edge in setting property values. Demand and supply in the province are judged to be quite balanced at this point. RBC's Affordability Measures fell between 0.8 and 1.0 percentage points in the fourth quarter which came on the heels of much more substantial drops (1.7 to 4.8 percentage points) in the third quarter. Notwithstanding these declines, affordability remains poor and will weigh on housing demand going forward.
· Alberta: Alberta officially became the most affordable provincial market in the country in the fourth quarter, according to the RBC Measures which fell once again by 1.0 to 2.4 percentage points, extending their declines since late-2007. In addition to the lower mortgage rates, the further depreciation of home prices contributed to lowering homeownership costs. Property values were negatively affected by a substantial downswing in demand in the spring and early summer, which put buyers in the drivers' seat. The significant improvement in affordability is near the end of its line, however, as demand has shown more vigour in recent months - alongside a provincial economy that is gaining more traction - and the market has become better balanced. RBC expects that this will stem price declines this year, thereby removing a potential offset to the negative effect of projected rise in interest rates on affordability.
· Saskatchewan: The provincial housing market finished 2010 on an enviable note as affordability improved even though home prices, for the most part, rose slightly in the fourth quarter. Generally, the price increases more than reversed declines in the previous period but were too small to negate the beneficial effect of lower mortgage rates. The home resale market gained back solid forward momentum in the second half of 2010, notwithstanding some softening in the final months, which re-established a stronger balance between demand and supply. The RBC Measures fell between 0.6 and 1.1 percentage points in the quarter, although the levels continue to be modestly above historical averages in the province. RBC projects the Saskatchewan market will take its current affordability position in stride as a rebound in provincial economic growth and continued strong migration inflows will support housing demand this year.
· Manitoba: Manitoba's market enjoyed the best of both worlds in the fourth quarter of 2010 as home price were higher but ownership costs were lower. Thanks to lower mortgage rates in the quarter and continued growth in household income, the negative effect of small gains in property values on affordability was more than offset. The RBC Measures eased between 0.1 and 0.6 percentage points in the fourth quarter, keeping Manitoba among the only two provincial markets in Canada (with Alberta) in which Affordability Measures stand below long-term averages for all housing categories. Sales of existing homes ramped up considerably in the fall, reaching near historical peaks by December. Housing demand is being boosted by the strongest net international immigration in the province since the mid-1950s and by improved job prospects - Manitoba boasts the lowest unemployment rate in Canada (as of the fourth quarter of 2010) and RBC expects this to continue in 2011.
· Ontario: Concerns last year that the housing market would falter have now largely dissipated as home resale activity picked up smartly in the fall and property values resumed their appreciation trend in the closing months of 2010. The slowdown in market activity in the spring and summer last year largely reflected various transitory factors - including the introduction of the HST and changes in mortgage lending rules - that brought demand forward to the start of the year. The silver lining of this slowdown, however, has been an improvement in affordability. The RBC Measures edged lower for the second consecutive time for most housing categories in the fourth quarter, down by 0.2 to 0.3 percentage points. The only exception was two-storey homes, which became marginally less affordable amid notable price gains. RBC expects affordability will play a neutral role for demand in Ontario with RBC Measures close to their long-run average.
· Quebec: Higher home prices in the fourth quarter of 2010 caused some deterioration in affordability following meaningful improvement in the previous period. Home resales strengthened in the latter part of 2010, contributing to tightened market conditions that gave sellers a stronger hand in negotiating prices, particularly for two-storey homes. Price gains and rising household income dominated the positive effects of lower mortgage rates on affordability in the fourth quarter for all housing types except detached bungalows (where a small improvement was registered). RBC Measures rose marginally by 0.1 to 0.2 percentage points for two-storey homes and condominium apartments, and fell by 0.6 percentage points for detached bungalows; however, the levels of all Measures still modestly exceeded long-term averages in the province. RBC expects that modestly strained affordability in Quebec will further deteriorate in the period ahead when interest rates rise.
· Atlantic Canada: Home resale activity sputtered late in 2010 and reversed some of the gains achieved at the end of the summer and early fall. This has not disrupted property values in the fourth quarter as home prices generally appreciated; yet, housing affordability improved for most housing categories because declines in interest rates provided a dominant offset. Only condominium apartments saw a slim deterioration in affordability as the RBC Measures rose by 0.1 percentage point compared with declines of 0.5 percentage points for detached bungalows and two-storey homes. Affordability levels continue to be mostly attractive in Atlantic Canada from both historical and cross-country perspectives. RBC projects that is likely to remain so in the near-term despite our expectation of higher interest rates. Market conditions have recently swung in favour of buyers which will exert downward pressure on prices in coming months.
Thursday, February 24, 2011
Wednesday, February 23, 2011
Home buyers race to beat tighter mortgage rules
By Tony Wong
Tighter mortgage rules have caused home sales in Canada to spike temporarily, but analysts say there is still a reckoning to come.
Canadian existing home sales were higher than expected in January because of buyers jumping in the market early before new mortgage regulations take effect, says the Canadian Real Estate Association.
Seasonally adjusted activity rose by 4.5 per cent in January, compared with a month earlier, reaching the highest level since last April.
Much of that activity was led by the Toronto and Vancouver markets, according to CREA in figures released Tuesday.
The Toronto market beat the national average, with sales up by a seasonally adjusted 5.2 per cent.
“We anticipated the announcement of tighter mortgage regulations which will come into effect this March, would pull forward sales activity in the first quarter of 2011, “ said Gregory Klump, CREA’s chief economist. “The sharp rise in sales activity in Toronto following the announcement confirms this.”
In January, Ottawa reduced the maximum amortization period to 30 years from 35 years for new government backed insured mortgages with loan-to-value ratios of more than 80 per cent.
It also lowered the maximum Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes.
“It was widely expected that sales activity would pick up through January and February of this year as buyers bring purchases forward to beat out tighter mortgage insurance rules,” said Diana Petramala, an economist with TD Bank.
However, economists are forecasting the strong first quarter will be followed by a weaker second quarter as a result.
“As was the case the last time the federal government made mortgage insurance rules more restrictive, the strength in sales will likely be followed by a short period of weak housing data,” said the bank.
Some of the strength in the housing market is also because of continued low interest rates, says the bank. But that is not expected to last for long. Interest rates are expected to remain low for the first half of 2011, but the bank expects the first in a series of rate hikes in July.
“The rise in interest rates is expected to dampen housing activity in the coming months,” said Petramala. “On the whole, the housing market remains in a well balanced position with little price pressures on the horizon.”
The bank expects prices to move “sideways” over the next few months, but not dip significantly.
Royal LePage CEO and president Phil Soper also said Tuesday he expects housing prices to remain essentially flat, or in line with inflation by the end of 2011.
Other forecasts have pegged the market to be as much as 25 per cent overvalued.
“Despite the doom and gloom forecasts I think it will still be a solid year,” said Soper. “An improving economy and jobs market will help to offset any restructuring in home prices, which is key. If there is any overshooting in the market, it is also happening at a time when there is underlying economic improvement overall.”
The national average price for homes was $343,675 in January. That figure has been flat for the last three months. However, it is up 4.5 per cent compared with January of last year.
CREA says some of that gain was a distortion resulting from million dollar home sales in Vancouver, which remains the country’s priciest market.
If Vancouver were taken out of the equation, prices would only be up by less than 2 per cent, or about inflation, according to BMO Capital Markets Economist Doug Porter.
“The market appears to be well balanced apart from Vancouver,” said Porter. “However, that city marches to its own drummer and its particular rhythm may not have implications for the rest of the country.”
On an unadjusted basis, Canadian existing home sales were down 6.6 per cent in January compared with the same month a year ago when sales were hitting record levels.
Listings are also increasing, up by 3.9 per cent, meaning more choice for buyers. However, sales activity remained strong. The number of months it took to sell a home was 5.5 months, the lowest level since March of last year.
Busy January
4.5 per cent – how much sales activity rose in Canada
5.2 per cent - how much sales rose in Toronto
$343,675 - the national average price for homes last month
5.5 months – the average time to sell a home
Tighter mortgage rules have caused home sales in Canada to spike temporarily, but analysts say there is still a reckoning to come.
Canadian existing home sales were higher than expected in January because of buyers jumping in the market early before new mortgage regulations take effect, says the Canadian Real Estate Association.
Seasonally adjusted activity rose by 4.5 per cent in January, compared with a month earlier, reaching the highest level since last April.
Much of that activity was led by the Toronto and Vancouver markets, according to CREA in figures released Tuesday.
The Toronto market beat the national average, with sales up by a seasonally adjusted 5.2 per cent.
“We anticipated the announcement of tighter mortgage regulations which will come into effect this March, would pull forward sales activity in the first quarter of 2011, “ said Gregory Klump, CREA’s chief economist. “The sharp rise in sales activity in Toronto following the announcement confirms this.”
In January, Ottawa reduced the maximum amortization period to 30 years from 35 years for new government backed insured mortgages with loan-to-value ratios of more than 80 per cent.
It also lowered the maximum Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes.
“It was widely expected that sales activity would pick up through January and February of this year as buyers bring purchases forward to beat out tighter mortgage insurance rules,” said Diana Petramala, an economist with TD Bank.
However, economists are forecasting the strong first quarter will be followed by a weaker second quarter as a result.
“As was the case the last time the federal government made mortgage insurance rules more restrictive, the strength in sales will likely be followed by a short period of weak housing data,” said the bank.
Some of the strength in the housing market is also because of continued low interest rates, says the bank. But that is not expected to last for long. Interest rates are expected to remain low for the first half of 2011, but the bank expects the first in a series of rate hikes in July.
“The rise in interest rates is expected to dampen housing activity in the coming months,” said Petramala. “On the whole, the housing market remains in a well balanced position with little price pressures on the horizon.”
The bank expects prices to move “sideways” over the next few months, but not dip significantly.
Royal LePage CEO and president Phil Soper also said Tuesday he expects housing prices to remain essentially flat, or in line with inflation by the end of 2011.
Other forecasts have pegged the market to be as much as 25 per cent overvalued.
“Despite the doom and gloom forecasts I think it will still be a solid year,” said Soper. “An improving economy and jobs market will help to offset any restructuring in home prices, which is key. If there is any overshooting in the market, it is also happening at a time when there is underlying economic improvement overall.”
The national average price for homes was $343,675 in January. That figure has been flat for the last three months. However, it is up 4.5 per cent compared with January of last year.
CREA says some of that gain was a distortion resulting from million dollar home sales in Vancouver, which remains the country’s priciest market.
If Vancouver were taken out of the equation, prices would only be up by less than 2 per cent, or about inflation, according to BMO Capital Markets Economist Doug Porter.
“The market appears to be well balanced apart from Vancouver,” said Porter. “However, that city marches to its own drummer and its particular rhythm may not have implications for the rest of the country.”
On an unadjusted basis, Canadian existing home sales were down 6.6 per cent in January compared with the same month a year ago when sales were hitting record levels.
Listings are also increasing, up by 3.9 per cent, meaning more choice for buyers. However, sales activity remained strong. The number of months it took to sell a home was 5.5 months, the lowest level since March of last year.
Busy January
4.5 per cent – how much sales activity rose in Canada
5.2 per cent - how much sales rose in Toronto
$343,675 - the national average price for homes last month
5.5 months – the average time to sell a home
Tuesday, February 22, 2011
3 ways to deal with rising mortgage rates
By Moshe Milevsky
Here we go, again. The economy is generating more jobs, a handful of banks raise mortgage rates and all of a sudden you’re being advised to lock-in your mortgage before the bank doors slam shut. In fact, some say you’d better hurry-up and buy a house now before mortgage rates go so high you’re locked-out of the housing market for ever.
This is not the first time that mortgage rates are on the brink of blooming only to fade a few months later. This has happened more than a handful of times in the last decade. The headlines are often the same. A month or two of increasing mortgage rates, the public is urged to act now, and then a few months later something unforeseen appears on the horizon.
The last occasion was just over a year ago. The posted 5-year mortgage rate in March, 2010 went from 4.7 per cent to 5.15 per cent in April, and then to 5.3 per cent by May. The recommendations were clear: lock-in. But then, by October they were back to 4.5 per cent. The economy sputtered, Greece and Spain hit the headlines and the rest was history.
Don’t get me wrong. Short-term interest rates are abnormally low today and the Bank of Canada has pledged to raise them eventually. But that is a far cry from advocating that you lock-in your mortgage - which is actually driven by long-term bond market rates - or heaven forbid using this as an excuse to buy a house you can’t really afford.
My main concern is about relevance and context of this advice. I call it the fallacy of “carve-out thinking.” It stems from the misguided notion that modern-day personal financial problems should be viewed and solved in isolation.
Remember that mortgage payments are just one component of your personal balance sheet. You may also have an RRSP, TFSAs and other investment accounts. You may also have a pension, cottage or rental property and a very large portfolio of debt. Every one of these holdings is sensitive to interest rates.
If long-term interest rates move up quickly and substantially then any bonds or fixed income investment you hold will fall in value – possibly by a lot. A big and sudden rise in interest rates won’t be kind to the real estate market either. There will be many spillover side effects.
Reacting to this fear by locking-in your mortgage is akin to preparing for an ice and snow storm by only salting your driveway, but forgetting to close your windows. Sure, that helps, but if you really believe a bad storm is on its way, there are many other – possibly more important—things you should be doing to prepare.
So what should you do with your mortgage? Here’s the best guidance I can offer.
1.Don’t rush into home ownership because you are convinced that mortgage rates are headed-up and you will never see 5 per cent again.
2.If you’ve just bought a home and you have a large mortgage, relative to the home’s value, I urge you to lock-in for as long as possible. You probably should not have “floated” to begin with and are now facing the probable risk that real estate prices decline and interest rates increase. Add to this the possibility of job loss, disability or other macro factors, and you are the ideal candidate for a fixed rate mortgage. The last thing you want to be doing is trying to renew your mortgage in a year or two from now, if rates increase and possibly the appraised value of your house has declined by 10 per cent or more.
3.If your mortgage payments are only a small fraction of your monthly expenses and you have built-up substantial equity in your home, and – this is key – you have a diversified portfolio of financial assets, like stocks and bond inside your RRSP and other accounts, then my advice to you is very different.
If you are concerned that interest rates are on their way up, then perhaps you should change your asset allocation and reduce the fixed income investments in your portfolio. Remember, if mortgage rates increase, this is because long-term interest rates have gone-up and the longer the duration of your bonds, the greater are your losses. I say, lighten-up on bonds. If the prognostications prove correct and rates go up, then yes you will pay more on the mortgage but you were spared the pain in your RRSP. On the other hand, if rates stay around their current levels, then you win. . Remember, locking-in today will likely involve paying more than what you are paying right now, often by 1 per cent to 2 per cent more. Think of it as insurance.
The point is to think more holistically about all the financial assets – and risk exposures—on your personal balance sheet. As for me, I have a floating rate mortgage because I can tolerate the risk and want to pay as little as possible for unnecessary insurance.
Here we go, again. The economy is generating more jobs, a handful of banks raise mortgage rates and all of a sudden you’re being advised to lock-in your mortgage before the bank doors slam shut. In fact, some say you’d better hurry-up and buy a house now before mortgage rates go so high you’re locked-out of the housing market for ever.
This is not the first time that mortgage rates are on the brink of blooming only to fade a few months later. This has happened more than a handful of times in the last decade. The headlines are often the same. A month or two of increasing mortgage rates, the public is urged to act now, and then a few months later something unforeseen appears on the horizon.
The last occasion was just over a year ago. The posted 5-year mortgage rate in March, 2010 went from 4.7 per cent to 5.15 per cent in April, and then to 5.3 per cent by May. The recommendations were clear: lock-in. But then, by October they were back to 4.5 per cent. The economy sputtered, Greece and Spain hit the headlines and the rest was history.
Don’t get me wrong. Short-term interest rates are abnormally low today and the Bank of Canada has pledged to raise them eventually. But that is a far cry from advocating that you lock-in your mortgage - which is actually driven by long-term bond market rates - or heaven forbid using this as an excuse to buy a house you can’t really afford.
My main concern is about relevance and context of this advice. I call it the fallacy of “carve-out thinking.” It stems from the misguided notion that modern-day personal financial problems should be viewed and solved in isolation.
Remember that mortgage payments are just one component of your personal balance sheet. You may also have an RRSP, TFSAs and other investment accounts. You may also have a pension, cottage or rental property and a very large portfolio of debt. Every one of these holdings is sensitive to interest rates.
If long-term interest rates move up quickly and substantially then any bonds or fixed income investment you hold will fall in value – possibly by a lot. A big and sudden rise in interest rates won’t be kind to the real estate market either. There will be many spillover side effects.
Reacting to this fear by locking-in your mortgage is akin to preparing for an ice and snow storm by only salting your driveway, but forgetting to close your windows. Sure, that helps, but if you really believe a bad storm is on its way, there are many other – possibly more important—things you should be doing to prepare.
So what should you do with your mortgage? Here’s the best guidance I can offer.
1.Don’t rush into home ownership because you are convinced that mortgage rates are headed-up and you will never see 5 per cent again.
2.If you’ve just bought a home and you have a large mortgage, relative to the home’s value, I urge you to lock-in for as long as possible. You probably should not have “floated” to begin with and are now facing the probable risk that real estate prices decline and interest rates increase. Add to this the possibility of job loss, disability or other macro factors, and you are the ideal candidate for a fixed rate mortgage. The last thing you want to be doing is trying to renew your mortgage in a year or two from now, if rates increase and possibly the appraised value of your house has declined by 10 per cent or more.
3.If your mortgage payments are only a small fraction of your monthly expenses and you have built-up substantial equity in your home, and – this is key – you have a diversified portfolio of financial assets, like stocks and bond inside your RRSP and other accounts, then my advice to you is very different.
If you are concerned that interest rates are on their way up, then perhaps you should change your asset allocation and reduce the fixed income investments in your portfolio. Remember, if mortgage rates increase, this is because long-term interest rates have gone-up and the longer the duration of your bonds, the greater are your losses. I say, lighten-up on bonds. If the prognostications prove correct and rates go up, then yes you will pay more on the mortgage but you were spared the pain in your RRSP. On the other hand, if rates stay around their current levels, then you win. . Remember, locking-in today will likely involve paying more than what you are paying right now, often by 1 per cent to 2 per cent more. Think of it as insurance.
The point is to think more holistically about all the financial assets – and risk exposures—on your personal balance sheet. As for me, I have a floating rate mortgage because I can tolerate the risk and want to pay as little as possible for unnecessary insurance.
Friday, February 18, 2011
Average household debt tops $100,000
At 38 years old, Jill Skorochod seemed to have a pretty comfortable life.
She had a well-paying government job and ran a small business training dogs, owned a small but comfortable house in North Toronto, and drove a new car. She also had three dogs of her own, all bull mastiffs.
That house, however, had two mortgages on it, the car had an expensive lease, and she lay awake at night worrying about the $40,000 of debt she’d racked up on credit cards.
“I was using my house like a big credit card. I refinanced my mortgages a few times,” said Skorochod. “I got so sick of worrying about the ‘what ifs,’ like ‘what if I need to fix the roof, or what if something happens to one of the dogs.’ ”
She was making roughly $4,000 a month after taxes, but almost $3,900 of that was going to pay off debt.
That kind of debt load is an all-too-common problem, according to a study released Thursday by the Vanier Institute of the Family, an Ottawa-based research group. The study found Canadian families have an average of $100,000 in debt. The average debt-to-income ratio now stands at a record 150 per cent, meaning for every $1,000 of after-tax income, households owe $1,500. In 1990, average household debt was $56,800, while the debt to income ratio was 93 per cent.
That amount of debt puts people at risk of bankruptcy and being forced out of their homes, especially if interest rates rise, as most economists and analysts are predicting, said Vanier Institute director of programs Katherine Scott.
“It is very worrying,” said Scott, who says financial institutions such as banks bear much of the responsibility for Canadians getting into such deep debt. Most people simply don’t understand the risks of taking on large mortgages and home equity lines of credit when rates are poised to rise, according to Scott.
“I don’t think any one bank has done this as a strategy, but banks as a group have profited from people’s lack of financial literacy. A lot of the time, there seems to be a kind of finger-pointing at individuals like ‘how could they take that vacation’ or ‘why did they need that car,’ but that’s really not fair,” said Scott.
In a statement posted on its website, the Canadian Bankers Association says its member institutions aren’t doing anything wrong.
“Banks are closely monitoring household debt levels and the economic recovery in Canada to ensure that Canadian households can manage their debts well. Banks in Canada remain prudent lenders that manage risk carefully, only lending to clients who demonstrate the ability to repay their loans,” the statement read. The CBA also pointed out that its members also advise clients on how to manage their debt responsibly, and avoid getting into financial trouble.
As for Skorochod, she admits she got into trouble in the first place by not budgeting, and making some faulty assumptions.
“I think when you’re younger, when you get a new job, it’s always for a little bit more money than the last one, and you assume that’s going to always be the case. And the house I was living in was just too much money for a single income,” she admitted.
Where did the money go? A new piano here and a bit of work on the house there. Enough food to feed three 100-pound-plus dogs, and eating a lot of takeout food because of her busy schedule put Skorochod deep in the hole.
“When I figured out how much money I was spending on my stomach, it was scary,” said Skorochod, who turns 40 next week.
Last year, however, after much soul-searching and some counseling from Credit Canada, she sold her house. The North Toronto bungalow she bought in 2003 for $279,000 went for $420,000. She paid off her credit card debts, and bought a house near Victoria Park and Danforth for $247,000.
“I’m debt free, I’ve got a new place, and I’ve just gotten engaged. Things are a lot better now,” said Skorochod.
Oh owe
$100,000 - the average debt load of Canadian families.
150% - the average debt-to-income ratio for Canadians which means for every $1,000 of after-tax income, households owe $1,500.
93% - the average debt-to-income ratio for Canadians in 1990.
$58,000 – the average debt load of Canadian families in 1990
She had a well-paying government job and ran a small business training dogs, owned a small but comfortable house in North Toronto, and drove a new car. She also had three dogs of her own, all bull mastiffs.
That house, however, had two mortgages on it, the car had an expensive lease, and she lay awake at night worrying about the $40,000 of debt she’d racked up on credit cards.
“I was using my house like a big credit card. I refinanced my mortgages a few times,” said Skorochod. “I got so sick of worrying about the ‘what ifs,’ like ‘what if I need to fix the roof, or what if something happens to one of the dogs.’ ”
She was making roughly $4,000 a month after taxes, but almost $3,900 of that was going to pay off debt.
That kind of debt load is an all-too-common problem, according to a study released Thursday by the Vanier Institute of the Family, an Ottawa-based research group. The study found Canadian families have an average of $100,000 in debt. The average debt-to-income ratio now stands at a record 150 per cent, meaning for every $1,000 of after-tax income, households owe $1,500. In 1990, average household debt was $56,800, while the debt to income ratio was 93 per cent.
That amount of debt puts people at risk of bankruptcy and being forced out of their homes, especially if interest rates rise, as most economists and analysts are predicting, said Vanier Institute director of programs Katherine Scott.
“It is very worrying,” said Scott, who says financial institutions such as banks bear much of the responsibility for Canadians getting into such deep debt. Most people simply don’t understand the risks of taking on large mortgages and home equity lines of credit when rates are poised to rise, according to Scott.
“I don’t think any one bank has done this as a strategy, but banks as a group have profited from people’s lack of financial literacy. A lot of the time, there seems to be a kind of finger-pointing at individuals like ‘how could they take that vacation’ or ‘why did they need that car,’ but that’s really not fair,” said Scott.
In a statement posted on its website, the Canadian Bankers Association says its member institutions aren’t doing anything wrong.
“Banks are closely monitoring household debt levels and the economic recovery in Canada to ensure that Canadian households can manage their debts well. Banks in Canada remain prudent lenders that manage risk carefully, only lending to clients who demonstrate the ability to repay their loans,” the statement read. The CBA also pointed out that its members also advise clients on how to manage their debt responsibly, and avoid getting into financial trouble.
As for Skorochod, she admits she got into trouble in the first place by not budgeting, and making some faulty assumptions.
“I think when you’re younger, when you get a new job, it’s always for a little bit more money than the last one, and you assume that’s going to always be the case. And the house I was living in was just too much money for a single income,” she admitted.
Where did the money go? A new piano here and a bit of work on the house there. Enough food to feed three 100-pound-plus dogs, and eating a lot of takeout food because of her busy schedule put Skorochod deep in the hole.
“When I figured out how much money I was spending on my stomach, it was scary,” said Skorochod, who turns 40 next week.
Last year, however, after much soul-searching and some counseling from Credit Canada, she sold her house. The North Toronto bungalow she bought in 2003 for $279,000 went for $420,000. She paid off her credit card debts, and bought a house near Victoria Park and Danforth for $247,000.
“I’m debt free, I’ve got a new place, and I’ve just gotten engaged. Things are a lot better now,” said Skorochod.
Oh owe
$100,000 - the average debt load of Canadian families.
150% - the average debt-to-income ratio for Canadians which means for every $1,000 of after-tax income, households owe $1,500.
93% - the average debt-to-income ratio for Canadians in 1990.
$58,000 – the average debt load of Canadian families in 1990
Monday, February 14, 2011
Think Outside the Bun
Rob McLister, CMT
That is Taco Bell’s slogan. It’s meant to remind us that fast food doesn’t end with hamburgers. Tacos are pretty tasty in their own right.
In the lending world, the closest equivalent to “the bun” is the 5-year fixed mortgage. Like hamburgers are to fast food, the 5-year fixed is to mortgages. It’s been the most popular term in Canada for years.
Yet, despite its prevalence, qualified borrowers owe it to themselves to think outside the 5-year fixed. A little extra risk can sometimes yield a lot more reward.
Fixed 5-year mortgages are especially popular in uncertain/rising rate markets (like today’s). People who can’t afford rate risk, and those who cannot qualify for shorter terms, often choose a 5-year fixed by default.
Even individuals with rock-solid financial resources frequently gravitate to 5-year terms. Much of the time that’s because they don’t want to overthink the safety of a longer-term mortgage. In other cases, it’s because no one has ever shown them how much 5-year fixed terms really cost over the long run.
No matter how popular 5-year terms are, however, mortgages are not a one-size-fits-all proposition. For those who can stomach the chance of higher rates at renewal, various compelling alternatives exist. One happens to be the 3-year fixed.
Lenders like Merix Financial, HSBC, and others still have three-year rates in the 3.35% range or better. That’s 59+ basis points below current 5-year pricing.
At those rates, (from a purely mathematical and hypothetical perspective) the 3-year fixed performs better in our internal simulations than any other term, be it a variable or a 1, 2, 4, 5, 7 or 10-year fixed.1
With major banks forecasting a 2% rate hike in 24 months, 3-year fixed mortgages model even better than variable-rate mortgages (primarily because of the 3-year’s low rate and its 36 months of rate-hike protection).
This doesn’t mean a 3-year will definitely save you more money than any other term. It just means they offer very good value with decent odds of interest savings.
On a $300,000 mortgage with a 25-year amortization, a 3.35% three-year will save you about $5,130 over a 3.94% five-year fixed. That’s over 36 months.
After 36 months, you can move into any other term you want (e.g., a 1-year fixed, variable, or another 3-year fixed). As long as your rate at renewal is about 5% or less, you’ll come out ahead of today’s 5-year fixed.
A few other points about 3-year terms:
· You can make your 3-year fixed payment equal to a 5-year fixed payment, thus shrinking your amortization even faster.
· People tend to refinance 5-year terms roughly every 3.5 years on average. Three-year terms let people out without a penalty just before many of them are getting ready to renegotiate their mortgage.
The “optimal term” (if there is such a thing) changes as rates fluctuate and as borrowers’ finances change.
All things considered, however, the three-year fixed is the sweet spot of the mortgage market at this particular point in time.
That is Taco Bell’s slogan. It’s meant to remind us that fast food doesn’t end with hamburgers. Tacos are pretty tasty in their own right.
In the lending world, the closest equivalent to “the bun” is the 5-year fixed mortgage. Like hamburgers are to fast food, the 5-year fixed is to mortgages. It’s been the most popular term in Canada for years.
Yet, despite its prevalence, qualified borrowers owe it to themselves to think outside the 5-year fixed. A little extra risk can sometimes yield a lot more reward.
Fixed 5-year mortgages are especially popular in uncertain/rising rate markets (like today’s). People who can’t afford rate risk, and those who cannot qualify for shorter terms, often choose a 5-year fixed by default.
Even individuals with rock-solid financial resources frequently gravitate to 5-year terms. Much of the time that’s because they don’t want to overthink the safety of a longer-term mortgage. In other cases, it’s because no one has ever shown them how much 5-year fixed terms really cost over the long run.
No matter how popular 5-year terms are, however, mortgages are not a one-size-fits-all proposition. For those who can stomach the chance of higher rates at renewal, various compelling alternatives exist. One happens to be the 3-year fixed.
Lenders like Merix Financial, HSBC, and others still have three-year rates in the 3.35% range or better. That’s 59+ basis points below current 5-year pricing.
At those rates, (from a purely mathematical and hypothetical perspective) the 3-year fixed performs better in our internal simulations than any other term, be it a variable or a 1, 2, 4, 5, 7 or 10-year fixed.1
With major banks forecasting a 2% rate hike in 24 months, 3-year fixed mortgages model even better than variable-rate mortgages (primarily because of the 3-year’s low rate and its 36 months of rate-hike protection).
This doesn’t mean a 3-year will definitely save you more money than any other term. It just means they offer very good value with decent odds of interest savings.
On a $300,000 mortgage with a 25-year amortization, a 3.35% three-year will save you about $5,130 over a 3.94% five-year fixed. That’s over 36 months.
After 36 months, you can move into any other term you want (e.g., a 1-year fixed, variable, or another 3-year fixed). As long as your rate at renewal is about 5% or less, you’ll come out ahead of today’s 5-year fixed.
A few other points about 3-year terms:
· You can make your 3-year fixed payment equal to a 5-year fixed payment, thus shrinking your amortization even faster.
· People tend to refinance 5-year terms roughly every 3.5 years on average. Three-year terms let people out without a penalty just before many of them are getting ready to renegotiate their mortgage.
The “optimal term” (if there is such a thing) changes as rates fluctuate and as borrowers’ finances change.
All things considered, however, the three-year fixed is the sweet spot of the mortgage market at this particular point in time.
Tuesday, February 8, 2011
Canadians gloomy about personal finances
A Royal Bank of Canada survey suggests Canadians kicked off the year in a gloomier mood about their own finances and the national economy than last year.
The RBC Canadian Consumer Outlook Index found that less than half, or 43 per cent of Canadians believe the economy will improve over the next year.
That's a notable decline from the 56 per cent who expressed optimism about the economy last year.
Only 38 per cent of Canadian say they feel their personal finances will improve in the next year, down from 45 per cent a year ago.
The findings come as economic growth moderates and as Canadians digest staunch warnings from government officials about their borrowing habits.
Despite the cautious outlook of consumers, many experts predict the economy will continue to grow this year and next.
A great way to consolidate debt is to use the equity in your home. Visit us today for your free, no obligation finance review http://www.tmdc.ca/
The RBC Canadian Consumer Outlook Index found that less than half, or 43 per cent of Canadians believe the economy will improve over the next year.
That's a notable decline from the 56 per cent who expressed optimism about the economy last year.
Only 38 per cent of Canadian say they feel their personal finances will improve in the next year, down from 45 per cent a year ago.
The findings come as economic growth moderates and as Canadians digest staunch warnings from government officials about their borrowing habits.
Despite the cautious outlook of consumers, many experts predict the economy will continue to grow this year and next.
A great way to consolidate debt is to use the equity in your home. Visit us today for your free, no obligation finance review http://www.tmdc.ca/
Monday, February 7, 2011
Scheme saw large mortgages obtained with stolen identification
HAMILTON — A 45-year-old Hamilton woman has pleaded guilty to six charges in connection with the use of false documents to defraud local financial institutions of more than $200,000 in mortgage funds.
Lauren Paolini is believed to be one of six accused involved in the scheme that saw large mortgages obtained with stolen identification for modestly priced homes before the properties were flipped for substantial profits.
The mortgages would immediately go into default leaving the lending institution with significant losses.
Paolini will be sentenced for her role in the scams after a pre-sentence report is presented to Ontario Court Justice Richard Jennis on April 13.
Crown counsel Kevin McKenna read an agreed statement of facts Thursday indicating in June, 2007, a woman using the name of Orla O’Brien secured a property mortgage for the purchase of a $107,000 Oak Avenue home from Scotiabank in the amount of $152,000.
The mortgage immediately went into default and the bank sold the property for $82,000.
Orla O’Brien was in fact Patricia Bobb. Bobb obtained a mortgage with various pieces of indentification and pay stubs in the name of O’Brien from Hunt Material Handling. Paulini, who worked for Hunt, provided the documentation knowing it would be used fraudulently.
The loss to Scotiabank was $67,000.
Later that year, Paolini personated Jacqueline Soehner of Kitchener to obtain a $279,278 mortgage from the Canadian imperial Bank of Commerce for the purchase of a Queen St. S. home valued at $140,000.
“Ms Soehner had not purchased this property and was the victim of identity theft,” McKenna told court.
Paolini’s secured mortgage obtained fraudulently in Soehner’s name immediately went into default. The loss to the bank was more than $121,000.
On Nov. 14, 2009, Paolini used the stolen identification of Christine McSavaney of Kitchener to obtain a $120,000 mortgage from My Next Funding Corporation to buy a Cannon Street East home valued at $80,000.
The mortgage immediately went into default costing the lender almost $36,000. Paolini obtained a line of credit with the CIBC in the name of McSavaney in the amount of $16,350. The money has been used and no payments made toward the debt.
On Jan. 4, 2010, Paolini presented herself as Ruth Ann Piggott at 1130 Barton St. E. Paolini used an Ontario driver’s licence in the name of Ruth Ann Piggott to obtain a $6,000 loan. The money is gone and there have been no payments toward the debt.
Paolini also used the same driver’s licence to seek a $9,000 loan from Wells Fargo Financial Corporation in Etobicoke in December 2009.
The lender provided her with $4,442 of the amount. That money has disappeared.
McKenna said Paolini was a relatively minor player in the frauds. Still the Crown counsel said he will be seeking jail time at the sentencing hearing.
Lauren Paolini is believed to be one of six accused involved in the scheme that saw large mortgages obtained with stolen identification for modestly priced homes before the properties were flipped for substantial profits.
The mortgages would immediately go into default leaving the lending institution with significant losses.
Paolini will be sentenced for her role in the scams after a pre-sentence report is presented to Ontario Court Justice Richard Jennis on April 13.
Crown counsel Kevin McKenna read an agreed statement of facts Thursday indicating in June, 2007, a woman using the name of Orla O’Brien secured a property mortgage for the purchase of a $107,000 Oak Avenue home from Scotiabank in the amount of $152,000.
The mortgage immediately went into default and the bank sold the property for $82,000.
Orla O’Brien was in fact Patricia Bobb. Bobb obtained a mortgage with various pieces of indentification and pay stubs in the name of O’Brien from Hunt Material Handling. Paulini, who worked for Hunt, provided the documentation knowing it would be used fraudulently.
The loss to Scotiabank was $67,000.
Later that year, Paolini personated Jacqueline Soehner of Kitchener to obtain a $279,278 mortgage from the Canadian imperial Bank of Commerce for the purchase of a Queen St. S. home valued at $140,000.
“Ms Soehner had not purchased this property and was the victim of identity theft,” McKenna told court.
Paolini’s secured mortgage obtained fraudulently in Soehner’s name immediately went into default. The loss to the bank was more than $121,000.
On Nov. 14, 2009, Paolini used the stolen identification of Christine McSavaney of Kitchener to obtain a $120,000 mortgage from My Next Funding Corporation to buy a Cannon Street East home valued at $80,000.
The mortgage immediately went into default costing the lender almost $36,000. Paolini obtained a line of credit with the CIBC in the name of McSavaney in the amount of $16,350. The money has been used and no payments made toward the debt.
On Jan. 4, 2010, Paolini presented herself as Ruth Ann Piggott at 1130 Barton St. E. Paolini used an Ontario driver’s licence in the name of Ruth Ann Piggott to obtain a $6,000 loan. The money is gone and there have been no payments toward the debt.
Paolini also used the same driver’s licence to seek a $9,000 loan from Wells Fargo Financial Corporation in Etobicoke in December 2009.
The lender provided her with $4,442 of the amount. That money has disappeared.
McKenna said Paolini was a relatively minor player in the frauds. Still the Crown counsel said he will be seeking jail time at the sentencing hearing.
Thursday, February 3, 2011
Reduce CMHC role in mortgage insurance: CD Howe
John Greenwood, Financial Post
TORONTO — The federal government should limit taxpayer exposure to potential problems in the housing market by reducing the role of the Canada Mortgage and Housing Corp. in the provision of mortgage insurance, CD Howe Institute said in a report Monday.
The CMHC has a pervasive presence in the domestic mortgage market, potentially resulting in “unmanageably large risks in financial markets” that are ultimately borne by the Canadian public, according to the report.
Under current rules, people who borrow more than 80% of the value of the home they want to buy must also take out insurance, and the CMHC is by far the most dominant player in that market.
According to the report by Finn Poschmann, vice-president of research at the CD Howe Institute, the CMHC now backstops mortgages equivalent to more than 30% of Canada’s gross domestic product.
That’s left Canadians exposed to “large, ill-defined risks,” said the document, which argues that Ottawa should crank back the CMHC’s presence in mortgage insurance and allow more room for private sector insurers.
Originally conceived as a vehicle for executing public policy, CHMC insurance levels have expanded dramatically, especially in the wake of the financial crisis as the government encouraged banks to hike lending by allowing them to securitize more home loans.
Critics worry that the unintended consequence of government policy was that mortgages became too easy to get, pushing up real estate prices across much of the country to unsustainable levels.
“Beyond the presumed benefits of promoting home ownership, [activities of the CMHC] have had some clearly harmful and well-understood consequences, as well as other less well-understood but also harmful consequences in world financial markets,” Mr. Poschmann said.
The CD Howe recommendation comes on the heels repeated warnings from the Bank of Canada that Canadians have become over leveraged and need to start paying down debt.
One of the main concerns about the CMHC is the lack of disclosure about the quality of its mortgages and details of the types of loans it insures. For instance, when the government announced earlier this month that home equity lines of credit, or HELOCs, would no longer qualify for CMHC insurance, many analysts expressed surprised that such loans were ever allowed to be part of the CMHC program in the first place.
Canada is hardly alone in its policy of boosting home ownership as the United States and many other countries have adopted similar initiatives. But Canada is one of the few western nations that have not so far been hit with a steep decline in real estate prices in the wake of the financial crisis.
The report also makes the case for beefed up oversight of CMHC as right now its relationship with the Office of the Superintendent of Financial Institutions is primarily a courtesy arrangement under which the crown corporation is not compelled to follow OSFI directives.
According to Mr. Poschmann, Ottawa should adopt new legislation to remove the ambiguity from the relationship by legally requiring the CMHC to comply with guidelines laid down by the federal regulator.
TORONTO — The federal government should limit taxpayer exposure to potential problems in the housing market by reducing the role of the Canada Mortgage and Housing Corp. in the provision of mortgage insurance, CD Howe Institute said in a report Monday.
The CMHC has a pervasive presence in the domestic mortgage market, potentially resulting in “unmanageably large risks in financial markets” that are ultimately borne by the Canadian public, according to the report.
Under current rules, people who borrow more than 80% of the value of the home they want to buy must also take out insurance, and the CMHC is by far the most dominant player in that market.
According to the report by Finn Poschmann, vice-president of research at the CD Howe Institute, the CMHC now backstops mortgages equivalent to more than 30% of Canada’s gross domestic product.
That’s left Canadians exposed to “large, ill-defined risks,” said the document, which argues that Ottawa should crank back the CMHC’s presence in mortgage insurance and allow more room for private sector insurers.
Originally conceived as a vehicle for executing public policy, CHMC insurance levels have expanded dramatically, especially in the wake of the financial crisis as the government encouraged banks to hike lending by allowing them to securitize more home loans.
Critics worry that the unintended consequence of government policy was that mortgages became too easy to get, pushing up real estate prices across much of the country to unsustainable levels.
“Beyond the presumed benefits of promoting home ownership, [activities of the CMHC] have had some clearly harmful and well-understood consequences, as well as other less well-understood but also harmful consequences in world financial markets,” Mr. Poschmann said.
The CD Howe recommendation comes on the heels repeated warnings from the Bank of Canada that Canadians have become over leveraged and need to start paying down debt.
One of the main concerns about the CMHC is the lack of disclosure about the quality of its mortgages and details of the types of loans it insures. For instance, when the government announced earlier this month that home equity lines of credit, or HELOCs, would no longer qualify for CMHC insurance, many analysts expressed surprised that such loans were ever allowed to be part of the CMHC program in the first place.
Canada is hardly alone in its policy of boosting home ownership as the United States and many other countries have adopted similar initiatives. But Canada is one of the few western nations that have not so far been hit with a steep decline in real estate prices in the wake of the financial crisis.
The report also makes the case for beefed up oversight of CMHC as right now its relationship with the Office of the Superintendent of Financial Institutions is primarily a courtesy arrangement under which the crown corporation is not compelled to follow OSFI directives.
According to Mr. Poschmann, Ottawa should adopt new legislation to remove the ambiguity from the relationship by legally requiring the CMHC to comply with guidelines laid down by the federal regulator.
Tuesday, February 1, 2011
Canadians Better Off, Even If They Don't Feel It
John Ivison, National Post · January 23 marks the fifth anniversary of Stephen Harper's 2006 election victory and in early February, he will pass Lester B. Pearson's time in office to become Canada's 11th longest-serving prime minister. As Mr. Harper told Postmedia News this week, it has been a roller-coaster ride: "Some days it feels like five months, and other days it seems like 50 years."
The five-year milestone has presented the Liberal leader, Michael Ignatieff, with his latest electoral gambit -- to ask middle-class Canadian families whether they are better off after half a decade of the Harper government?
In fact, by almost every pocketbook metric, Canadian families are better off than they were five years ago --even if they don't feel it.
The new strategy emerged from research carried out by the Liberals' pollster, Michael Marzolini, as part of his firm Pollara's annual nationwide poll of Canadians' personal financial expectations. He found a new sense of caution and retrenchment, after optimistic expectations for 2010 were not met.
According to the Pollara poll, middle-class Canadians feel themselves under siege, with four in 10 claiming their incomes are failing to keep pace with the cost of living. They are anxious about their retirement, family debt and the value of their investments. Many Canadians believe every step forward they make is being hampered by assaults on their incomes such as new taxes and user fees. Ominously for the government, they appear less than impressed about claims Canada is doing better than its international competitors -- the economy may be improving but they feel their own situation is not.
Mr. Ignatieff has leapt on the survey's findings on his current 20-event, 11-ridings winter tour, making the claim that Canadians are worse off and the economy is weaker.
He is gambling that voters look at their own situation and calculate whether they have done well over the past five years. If the answer is yes, they will vote for the party they voted for before but, if not, he hopes they can be persuaded to switch.
Mr. Ignatieff's central contention is that Canadians' standard of living -- as measured by GDP per person--has fallen 1.3% since the Harper government came to power.
The only problem with this for the Liberal leader is that it isn't true -- real GDP per capita did fall between 2005 and 2009, the trough of the recession, but has since recovered. If you annualize the first three quarters of 2010, the numbers show real GDP per capita is up
0.2% over the 2005 figure.
Other indicators are similarly positive.
Average hourly wages have outpaced inflation, especially for men, who now earn $4 an hour more than they did at the end of 2005.
The fiscal and monetary response to the recession has created one very real problem identified by Mr. Ignatieff -- an extremely high level of indebtedness. Encouraged by cheap interest rates, Canadians now owe $1.50 for every dollar of disposable income, up from $1.08 in 2006.
Yet, national net worth per capita, which measures the health of assets like homes and investments, stood at a record high of $179,000 in the third quarter of 2010, up from $155,000 five years ago. Even at the bottom end of the socioeconomic ladder, the number of children living in low-income families fell by 250,000 between 2003 and 2008.
Retirement income is another leading concern raised by the Liberals but many more Canadians are now members of registered retirement plans than in 2005.
And the feeling that the tax burden is growing is also illusory, at least according to the Fraser Institute's Tax Freedom Day, the day on which the average Canadian family has earned enough money to pay all taxes imposed on them by three layers of government. It advanced to June 5 in 2010, from June 23 in 2005.
These bald statistics don't tell the whole story, of course. In the intervening years, there was a painful recession that saw unemployment spike at 8.7% in August 2009 (it is now sitting at 7.6%, still higher than the 6.8% in 2005).
Canadians remain anxious. According to Mr. Marzolini's research, two-thirds of the population thinks we're still in recession.
Yet, crucially, voters do not seem to blame the federal government, perhaps accepting that, if things are not noticeably better than they were five years ago, they could have been immeasurably worse.
Non-Conservatives can claim with some justification that the Harper government's record of achievement is pretty penny ante when compared with other five-year-old administrations.
But the picture improves when you consider what didn't happen. Mr. Harper is an incrementalist who agrees with Canada's longest-serving prime minister, William Lyon Mackenzie King, that "it's what we prevent, rather than what we do, that counts in government."
The pressures of power have forced Mr. Harper, by his own admission, to make compromises he never thought he would have to make. "We spent the first three years of our government in a situation where people were saying, 'Why don't you take more risks? Why don't you make more grandiose commitments? Why don't you have a bigger more ambitious agenda on anything?' And then all of a sudden, we're spending the next two years dealing with a crash in the global economy and trying to operate a situation where we're trying to protect what everybody has. So things just change constantly and you do have to be adaptable," he told Postmedia's Mark Kennedy this week.
There appears to be some appreciation that the Conservatives have provided solid, if stolid, government through the recession.
An Ipsos Reid poll before Christmas suggested six in 10 Canadians believe the political process is operating well and there is no need for an election. They may not vote Conservative, but they are not so disgruntled they are demanding change -- at least not to the extent they have coalesced around Mr. Ignatieff or any of the other opposition leaders. This bodes well for Mr. Harper, sincegovernmentstraditionally find themselves in real trouble when the time-for-change number rises above 60%.
"Every election comes down to that -- continuity or change," said Darrell Bricker, president of Ipsos Public Affairs. "Mr. Ignatieff is trying to increase the desire for change that is a pre-condition [for a Liberal government]. But Canadians are not overwhelmingly concerned about the economy and even if they become more concerned, his opponent is leading him on the issue by 20 points."
The Liberals insist that stress about the future has created enough volatility to give them a fighting chance. "Perceived reality is often a self-fulfilling prophesy," said Mr. Marzolini, the Liberal pollster, as he unveiled his New Year's poll to the Economic Club of Canada.
Mr. Ignatieff had best hope so, otherwise Mr. Harper will pass both R.B. Bennett (five years and 77 days) and John Diefenbaker (five years and 305 days) to become Canada's ninth-longest serving prime minister before the end of this year.
The five-year milestone has presented the Liberal leader, Michael Ignatieff, with his latest electoral gambit -- to ask middle-class Canadian families whether they are better off after half a decade of the Harper government?
In fact, by almost every pocketbook metric, Canadian families are better off than they were five years ago --even if they don't feel it.
The new strategy emerged from research carried out by the Liberals' pollster, Michael Marzolini, as part of his firm Pollara's annual nationwide poll of Canadians' personal financial expectations. He found a new sense of caution and retrenchment, after optimistic expectations for 2010 were not met.
According to the Pollara poll, middle-class Canadians feel themselves under siege, with four in 10 claiming their incomes are failing to keep pace with the cost of living. They are anxious about their retirement, family debt and the value of their investments. Many Canadians believe every step forward they make is being hampered by assaults on their incomes such as new taxes and user fees. Ominously for the government, they appear less than impressed about claims Canada is doing better than its international competitors -- the economy may be improving but they feel their own situation is not.
Mr. Ignatieff has leapt on the survey's findings on his current 20-event, 11-ridings winter tour, making the claim that Canadians are worse off and the economy is weaker.
He is gambling that voters look at their own situation and calculate whether they have done well over the past five years. If the answer is yes, they will vote for the party they voted for before but, if not, he hopes they can be persuaded to switch.
Mr. Ignatieff's central contention is that Canadians' standard of living -- as measured by GDP per person--has fallen 1.3% since the Harper government came to power.
The only problem with this for the Liberal leader is that it isn't true -- real GDP per capita did fall between 2005 and 2009, the trough of the recession, but has since recovered. If you annualize the first three quarters of 2010, the numbers show real GDP per capita is up
0.2% over the 2005 figure.
Other indicators are similarly positive.
Average hourly wages have outpaced inflation, especially for men, who now earn $4 an hour more than they did at the end of 2005.
The fiscal and monetary response to the recession has created one very real problem identified by Mr. Ignatieff -- an extremely high level of indebtedness. Encouraged by cheap interest rates, Canadians now owe $1.50 for every dollar of disposable income, up from $1.08 in 2006.
Yet, national net worth per capita, which measures the health of assets like homes and investments, stood at a record high of $179,000 in the third quarter of 2010, up from $155,000 five years ago. Even at the bottom end of the socioeconomic ladder, the number of children living in low-income families fell by 250,000 between 2003 and 2008.
Retirement income is another leading concern raised by the Liberals but many more Canadians are now members of registered retirement plans than in 2005.
And the feeling that the tax burden is growing is also illusory, at least according to the Fraser Institute's Tax Freedom Day, the day on which the average Canadian family has earned enough money to pay all taxes imposed on them by three layers of government. It advanced to June 5 in 2010, from June 23 in 2005.
These bald statistics don't tell the whole story, of course. In the intervening years, there was a painful recession that saw unemployment spike at 8.7% in August 2009 (it is now sitting at 7.6%, still higher than the 6.8% in 2005).
Canadians remain anxious. According to Mr. Marzolini's research, two-thirds of the population thinks we're still in recession.
Yet, crucially, voters do not seem to blame the federal government, perhaps accepting that, if things are not noticeably better than they were five years ago, they could have been immeasurably worse.
Non-Conservatives can claim with some justification that the Harper government's record of achievement is pretty penny ante when compared with other five-year-old administrations.
But the picture improves when you consider what didn't happen. Mr. Harper is an incrementalist who agrees with Canada's longest-serving prime minister, William Lyon Mackenzie King, that "it's what we prevent, rather than what we do, that counts in government."
The pressures of power have forced Mr. Harper, by his own admission, to make compromises he never thought he would have to make. "We spent the first three years of our government in a situation where people were saying, 'Why don't you take more risks? Why don't you make more grandiose commitments? Why don't you have a bigger more ambitious agenda on anything?' And then all of a sudden, we're spending the next two years dealing with a crash in the global economy and trying to operate a situation where we're trying to protect what everybody has. So things just change constantly and you do have to be adaptable," he told Postmedia's Mark Kennedy this week.
There appears to be some appreciation that the Conservatives have provided solid, if stolid, government through the recession.
An Ipsos Reid poll before Christmas suggested six in 10 Canadians believe the political process is operating well and there is no need for an election. They may not vote Conservative, but they are not so disgruntled they are demanding change -- at least not to the extent they have coalesced around Mr. Ignatieff or any of the other opposition leaders. This bodes well for Mr. Harper, sincegovernmentstraditionally find themselves in real trouble when the time-for-change number rises above 60%.
"Every election comes down to that -- continuity or change," said Darrell Bricker, president of Ipsos Public Affairs. "Mr. Ignatieff is trying to increase the desire for change that is a pre-condition [for a Liberal government]. But Canadians are not overwhelmingly concerned about the economy and even if they become more concerned, his opponent is leading him on the issue by 20 points."
The Liberals insist that stress about the future has created enough volatility to give them a fighting chance. "Perceived reality is often a self-fulfilling prophesy," said Mr. Marzolini, the Liberal pollster, as he unveiled his New Year's poll to the Economic Club of Canada.
Mr. Ignatieff had best hope so, otherwise Mr. Harper will pass both R.B. Bennett (five years and 77 days) and John Diefenbaker (five years and 305 days) to become Canada's ninth-longest serving prime minister before the end of this year.
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