Mortgage loophole helps first-timers

There is a small loophole in the new federal mortgage rules that could make it easier for the banks to lend out money to first-time buyers.

The federal government announced last month new requirements for anyone borrowing money for a house and needing mortgage insurance. If you have less than a 20% down payment and are borrowing from a financial institution covered by the Bank Act, you have to take out mortgage default insurance, which ensures the banks are covered for any losses resulting from payment defaults.

For principal residences, the new rules force consumers to qualify for a loan based on being able to make payments on a five-year fixed-rate mortgage, which has a much higher interest rate than variable mortgages, now as low 1.85%.

Clearly, Ottawa’s view was toward rising rates. And this week, two of the major banks raised their posted rate on five-year fixed mortgages to 5.85%.

But one lingering question is how the five-year rate would be calculated in terms of qualifying a customer. In other words, it would obviously be a lot tougher to qualify for a mortgage under the new rules when using the posted rate of 5.85%. But if using the actual rate consumers get -- these days as low as 3.75% -- that’s a lot less income you’ll need to buy your first home.

Officials in Ottawa have been mum on what numbers should be used.

But an internal document distributed by Canada Mortgage and Housing Corp. to mortgage brokers, obtained by the Financial Post, shows consumers will be able to use their actual rate to qualify for a mortgage if they go for a term five years or longer.

If buyers want a variable-rate mortgage, they will have to qualify based on “the benchmark rate,” which is essentially the posted rate.

So, if you want to go short, you had better be able to make payments based on an interest rate as high as 5.85%, which is where the benchmark rate will likely sit by next week.

“Probably 10% of the overall mortgage population is going to be affected by this rule in the sense they are no longer going to be able to qualify for a variable-rate mortgage or a one- to four-year term,” says Robert McLister, editor of Canadian Mortgage Trends. “The qualifying rate is going to affect the debt ratios of those people.”

The end result may see more people forced to lock in their rate, which is hardly fair given variable-rate mortgages have been a better deal than fixed-rate rate mortgages about 88% of the time over the past 50 years, before the recent credit crisis.

“This will help people become accustomed to making payments based on where mortgage payments are likely to be going,” said Peter Vukanovich, chief executive of Genworth Financial Canada, the mortgage insurer.

He doesn’t think the changes are a major deal, given that most of the major banks have been qualifying consumers based on their four- and five-year rates. His company was already only insuring products based on rates as high as 4%.

“It’s a good rule change when you are situation right now where we are increasing interest rates,” says Jim Smith, vice-president of Scotia Mortgage Authority. “Most lenders, ourselves included, have qualified based on at least the three-year posted rate.”

The discrepancy is, the three-year posted rate at most banks is actually higher than the five-year discounted rate.

And that means it is actually going to get easier to get a mortgage -- as long as you do what the government tells you to do and lock in your rate.

(By Garry Marr, Financial Post)

Interest rate hike this summer?

Don't count on it. For the Bank of Canada to raise rates before the middle part of 2011 would be totally inconsistent with its current forecast.

Canadian market watchers will get some good news this week. The predictions for a "blowout" reading on fourth-quarter GDP are already out there and it is likely to be an abnormally strong number. But for anyone who thinks a big number is likely to help lock in a rate hike this summer, I would suggest that is not going to happen. In fact, my view is that the Bank of Canada will not be raising rates until mid-2011 - at the earliest.

This is critical to the outlook for Canadian money market and bond yields since futures have priced in nearly 100 per cent odds of a 25 basis point rate hike this June, and another 25 basis points by September. (A basis point is 1/100th of a percentage point.) The central bank has already told us that its base case is for 2.9 per cent real GDP growth this year and 3.5 per cent next year, with the starting point on the "output gap" being 3.7 per cent ("output gap" is the gap between the actual level of real GDP and where real GDP would be if the economy were at full capacity). Remember that an output gap that big in any given quarter classifies as a 1-in-20 event. Moreover, baselining these expected growth rates against the latest estimates of potential growth puts the output gap at a smaller level of 1.55 per cent this year, narrowing further to 0.25 per cent in 2011.

The history of the Bank of Canada is such that - outside of when it had to defend the Canadian dollar - it typically does not embark on its tightening phase until the output gap is close to closing. Even during the aggressive John Crow era, the bank's modus operandi was to time the first rate hike just as spare capacity was being eliminated, and not much before. On average, the first central bank rate hike following a recession takes place one quarter before the output gap closes (there is still a gap, but it is small at 20 basis points). If such a strategy is replicated this time around - and the cause for being on pause longer in the context of a historic deleveraging cycle is certainly quite strong - then the very earliest the bank will move is the second quarter of 2011.

Under this scenario, based on some back-of-the envelope calculations I just did, the unemployment rate at no time declines below 7.5 per cent through to the end of 2011. The peak in the jobless rate was 8.7 per cent in August, 2009. Going back to prior recessions, the central bank does not begin to tighten rates until the jobless rate is down an average of 150 basis points with a range of 130 basis points to 170 basis points.

Unless the bank wants to be pre-emptive - highly unlikely when it acknowledges in its economic outlook last week that "the recovery continues to depend on exceptional monetary and fiscal stimulus" and that "the overall risks to its inflation projection are tilted slightly to the downside" - then to raise rates before the middle part of 2011 would be totally inconsistent with its current forecast. More to the point, while bored Bay Street economists analyze every word to see if the bank is more or less "hawkish" than in its previous outlook, what is important for investors is to assess the bank forecast and decide what it means for the degree of excess capacity in the economy and what that implies for the future inflation rate.

The bottom line is that even with the fragile recovery, the bank sees more downside than upside risk to its inflation projection, and, to reiterate, for it to start tightening policy until the jobless rate falls below 7.5 per cent would be a break from past post-recession actions.

And whatever future "policy tightening" is needed could also come via the overextended loonie, limiting any need for an interest rate adjustment in the time horizon that the markets have discounted. This is a source of debate on Bay Street, but the bank is still sensitive to the growth-dampening impact of an exchange rate too firm for its own good. To wit: "The persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity in Canada," the bank says.

In a nutshell, the Canadian market is already braced for 50 basis points of tightening from the Bank of Canada by September. With that in mind, it is difficult to believe that there is any significant rate risk here; if anything, the surprise will be that the bank is on hold for longer. If that proves to be true, then there is actually more downside than upside potential to Canadian bond yields, particularly at the front end of the coupon curve.

The reason the markets think the bank may pull the trigger is because of this one sentence that shows up in every press statement: "Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target."

So the central bank has really only given a pledge to keep rates where they are until mid-year. But June is only five months away and so one would have to think that at one of the next three meetings, the Bank is going to have to update this particular sentence or cut it entirely and leave the market without a de facto time commitment. Either way, the moment the bank changes this sentence is the moment the market will put on hold its expectations of a new rate-hiking cycle coming our way.

Until then, homeowners opting for variable rate mortgage financing will likely not have to face the interest rate music.

(By David Rosenberg, chief strategist for Gluskin Sheff & Associates Inc. and a guest columnist for Report on Business).

November sales, prices dwarf year-ago levels

Calgary housing market surging

One year ago, the downturn in the Calgary residential real estate market was beginning to take hold on the heels of a global financial market meltdown.

But just two weeks into November, preliminary housing sale numbers indicate how dramatically the market has turned since then.

Sales in November of this year will eclipse those for November 2008. And at this pace, average sale prices will also be up from a year ago.

"It has a lot to do with the low mortgage rates," said Nikki Harrison, a realtor with Re-Max Realty Professionals, adding that has stimulated buyers to purchase homes. Last year at this time, the bad and uncertain economic news contributed to people sitting back and not moving, but now the overall outlook for consumers is more positive.

"We're definitely optimistic that things are starting to change," she said Friday at a home listed by realtor Ted Greenhough she is helping market for $1.2 million in the northwest Tuxedo neighbourhood.The numbers seem to back up Harrison's outlook for the Calgary real estate market.

According to the website of Mike Fotiou, of First Place Realty, so far this month until Nov. 18 there have been 662 single-family home sales for an average sale price of $470,774. For the entire month of November last year, there were 670 sales at an average price of $435,471.

Condo sales have already surpassed last-year levels. This month there have been 292 transactions at an average sale price of $300,118. November 2008 recorded 284 sales for an average of $285,820.

"It's very difficult to predict what's going to happen in this market because it's rather volatile as far as interest rates(and where they're) going. We're not really sure and we're just very optimistic that it will continue to get better," said Harrison.

The more positive trend in the local real estate market has been seen since May, beginning six consecutive months of year-over-year sales increases for both the single-family and condo markets.

"Obviously, sales activity continues to remain fairly steady," said Richard Cho, senior market analyst in Calgary for Canada Mortgage and Housing Corp. "The presence of lower mortgage rates continues to benefit the home buyers toward sales growth.

"The economy in general is also showing more signs of improvement. Employment levels on a seasonally adjusted basis have started to trend upwards and employment growth is also one of the primary drivers of housing demand."

The year-over-year gain in sales may appear a bit pronounced in November as sales activity began to slow at the end of 2008, added Cho.

Todd Hirsch, senior economist with ATB Financial in Calgary, concurred that low mortgage rates continue to have a dramatic impact on the residential real estate market. "There is a sense, a correct sense, that these mortgage rates aren't going to stay this low forever, so people are getting in, I guess, while the getting's good. They know that if they wait too much longer, like another year, those rates are going to start to go up," said Hirsch.

Another factor for the housing market, he said, is that the city and the province continue to have positive in-migration numbers. "That's helping when they move here," said Hirsch. "They're not stampeding in like they were in 2006, but they're still moving to Alberta and to Calgary and putting some upward pressure, especially at that entry-level home buyers--the condo market or the smaller single-detached home. That's adding some lift to the market there, too."

(By Mario Toneguzzi, Calgary Herald)

Homes sales hit record high; outlook upgraded

November, 17, 2009.

OTTAWA -- Home sales hit a new record high in October, leading the Canadian Real Estate Association to boost its outlook for 2009 and 2010.

Resale home activity was up 41.5% in the month, reaching a total of 42,288 units. On a seasonally adjusted basis, homes sold on the Multiple Listing Service totalled 45,818 units in October.

"Low interest rates and upbeat consumer confidence continue to release the pent-up demand that built late last year and earlier this year," said CREA president Dale Ripplinger. "The release of that pent-up demand has boosted national sales activity to new heights and is drawing down inventories."

Further, said Millan Mulraine, economics strategist at TDSecurities, "we expect the recent strong gains in the housing market to remain largely intact, though we suspect that the back-to-back double-digit advance in sales seen earlier this year may not be repeated."

As a result of the sector's strong performance, CREA increased its forecast for sales in 2009 by 6.6% to 460,200 units. For 2010, the national industry group said sales would rise 7% to 492,300 units.

The average home price also reached new highs in October, climbing to $341,079, up 20.7% from a year ago.

A separate measure, which limits its focus to Canada's major markets, showed the average price rising 22.1% to $373,095.

At the same time, the sharp rise in housing demand has eaten into inventories. With 194,994 homes listed for sale in Canada at the end of October, the number of listings is 20.8% below the peak reached in October of last year.

It is the sixth month in a row in which inventories have fallen from year-ago levels, bringing supply to 4.1 months on a seasonally adjusted basis, the lowest level in more than two years.

CREA chief economist Gregory Klump said new listings are expected to rise in coming months in response to headline average price increases.

New monthly sales records were set in about one fifth of local markets in October, including Toronto, Montreal and Ottawa. On a provincial basis, new records were set in British Columbia, Ontario and Quebec, largely as a result of increased activity in those provinces' major markets.

(John Morrissy, Financial Post)

卡城各区房价走向？

本贴描述了卡城各区2008-2009两年来

独居民房（single family house）平均价格的变化。

图的横坐标是月份，每年从1月到12月。

图的纵坐标是每个月的平均房价， 以万元计。

基本趋势是2008年房价持续下减， 2009年房价缓步增加。

虽然每个区的房价不同， 但房价变化的大方向是一致的。

From Home Price

（如需要，可放心点击图片， 获取放大效果。）

The Home Renovation Tax Credit

Home renovations are smart investments in the long term value of a home and also create
economic activity by increasing the demand for labour, building materials and other goods. Renovations can also reduce energy consumption and the long ­term cost of owning a home.

To provide some $3 billion of much­ needed fiscal stimulus and encourage investments in Canada’s housing stock, Budget 2009 proposes to implement a temporary Home Renovation Tax Credit (HRTC).

Temporary, Timely and Targeted Stimulus

The HRTC will apply to eligible home renovation expenditures for work performed, or goods acquired, after January 27, 2009 and before February 1, 2010, pursuant to agreements entered into after January 27, 2009. The temporary nature of the credit will provide an immediate incentive for Canadians to undertake new renovations or accelerate planned projects.
The HRTC can be claimed for renovations and enduring alterations to a dwelling, or the land on which it sits.

How the HRTC Will Work

The 15­ per­cent credit may be claimed on the portion of eligible expenditures exceeding $1,000, but not more than $10,000, meaning that the maximum tax credit that can be received is $1,350.

The credit can be claimed on eligible expenditures incurred on one or more of an individual’s eligible dwellings.

Properties eligible for the HRTC include houses, cottages and condominium units that are owned for personal use.

Renovation costs for projects such as finishing a basement or re­-modelling a kitchen will be eligible for the credit, along with associated expenses such as building permits, professional services, equipment rentals and incidental expenses.

Routine repairs and maintenance will not qualify for the credit. Nor will the cost of purchasing furniture, appliances, audio­ visual electronics or construction equipment.

Who Can Claim the HRTC?

About 4.6 million families in Canada are expected to benefit from the credit. Taxpayers can claim the HRTC when filing their 2009 tax return. Eligibility for the HRTC will be family ­based. For the purpose of the credit, a family is generally considered to consist of an individual, and where applicable, the individual’s spouse or common­ law partner. Family members will be able to share the credit.

Examples of HRTC Eligible and Ineligible Expenditures

Eligible

• Renovating a kitchen, bathroom, or basement

• New carpet or hardwood floors

• Building an addition, deck, fence or retaining wall

• A new furnace or water heater

• Painting the interior or exterior of a house

• Resurfacing a driveway

• Laying new sod


Ineligible

• Furniture and appliances (refrigerator, stove, couch)

• Purchase of tools

• Carpet cleaning

• Maintenance contracts (furnace cleaning, snow removal, lawn care, pool cleaning, etc.)

Examples of the Benefits of the Home Renovation Tax Credit

The following examples illustrate how homeowners can benefit from the HRTC

• Sally and Ed are a couple who have recently purchased a house. In response to the temporary HRTC, they decide to replace their old windows and improve the insulation in their home in 2009, instead of waiting, incurring $10,000 in expenditures. After taking into account the $1,000 minimum threshold, a 15­ per­cent credit will be available on $9,000 in eligible expenditures, providing tax relief of $1,350.

• William and Marie are a couple who are planning to purchase a more energy­ efficient furnace for their home, and build a deck at their cottage sometime later. To take full advantage of the temporary HRTC, they decide to do both projects in 2009 rather than waiting. They pay $5,000 for the furnace and $3,500 for the deck. They also decide to have the area around the deck landscaped for $2,500, bringing their total costs to $11,000 ($5,000 + $3,500 + $2,500).
Marie claims a credit of $1,350 on the maximum allowable amount of $9,000.

• Karen and Heather are sisters who share ownership of a condominium unit. They each incur $7,500 in expenditures renovating the kitchen in the condo. Karen and Heather each claim a $975 credit on eligible expenditures of $6,500 ($7,500 ­- $1,000).

How Can I Get More Information?

Additional information on the Home Renovation Tax Credit is be available on Canada Revenue Agency’s website at (www.cra.gc.ca).

Information is also available at www.fin.gc.ca

Canada home resales set July record, up 6th month

Sales of existing homes in Canada posted their biggest year-over-year gain in two years and rose for a sixth straight month in July, as low interest rates and an improving economy tempted buyers back.

In a first look at third-quarter sales, the Canadian Real Estate Association said on Friday that 50,270 homes changed hands in July, up 18.2 percent from the same month last year.

It was the first time that sales topped 50,000 units in July, and the number was 3.9 percent above the previous record for the month, set in 2007, the industry group said.

On a seasonally-adjusted basis, home sales rose at a slower pace in July, up 2.5 percent. Sales rose nearly 9 percent in June.

"National resale housing market activity continued on its upward trend in July, but its pace slowed from fullout sprint in months prior down to that of a 5K run," said Pascal Gauthier of TD Economics.

The report is the latest evidence that consumers are venturing back into the home market after a slump triggered by the recession. Low mortgage rates and signs that the worst of the slump is over are stimulating the market.

The association said demand is rebounding sharply in some of Canada's most expensive markets and that distorted the national average price upward. The average July resale price rose 7.6 percent from a year earlier to C$326,832 ($299,846).

"The difference in the resale housing market now, compared to the beginning of the year, is night and day, and nowhere is this more evident than in the West," said CREA president Dale Ripplinger.

Resale activity in Vancouver, British Columbia, surged 90 percent in July from a year ago, while Alberta cities Edmonton and Calgary posted a jump in sales of 28 percent and 22 percent, respectively.

New listings nationwide continued to fall, down 13 percent to 73,444 units from a year ago. Eight provinces reported higher prices, as did 18 of the 25 largest cities.

(TORONTO, Reuters, by Ka Yan Ng; editing by Janet Guttsman)