Canadian facts and figures
• 6 big banks, approximately 73 banking institutions in total
• The big banks are all universal – offering retail, commercial and investment banking services. Some boutique investment and commercial banks exist but they are relatively small
• Banks have minimal off-balance-sheet holdings
• Banks’ return on equity generally 13% to 20%
• Home ownership rate: 68.4% of the population
• Subprime less than 5% of the mortgage market
• Relatively low penetration of derivatives and securitisation
(27% of mortgages repackaged and sold as bonds)
• Mortgage default rate less than 1%
Source: McKinsey
Dates: 2008 & 2009, except Canadian home ownership figures, which come from the 2006 census.
Tuesday, February 2, 2010
Monday, February 1, 2010
Your RRSP can help you buy a home!
First-time homebuyers who are Canadian residents can withdraw up to $25,000 from their RRSP TAX FREE. Through Canada’s Home Buyers Plan (HBP) you and your spouse can each withdraw up to $25,000 (as of the 2009 federal budget) to build or buy a qualifying home.
Getting access to your RRSPs through the HBP is fairly easy. Fill out form T1036 at your financial institution for each withdrawal. Then make sure to file an income tax return for the year of the withdrawal and each year thereafter, until the RRSP is fully repaid.
Keep in mind there are a few rules:
• To qualify, you must be a first time home buyer and a resident of Canada at the time of withdrawal.
• You MUST purchase/build the home before October 1st after the year of withdrawal.
• You only need to repay 1/15 of the borrowed amount starting in the second year after the year of withdrawal, or you’ll have to add the amount as income.
• RRSP contributions of up to 90 days before the withdrawal date can be used towards the HBP.
This is one of the only ways to withdraw from your RRSP tax free and a great way to get yourself into the real estate market. For more information about the HBP program go to the CRA website .
(http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html
Getting access to your RRSPs through the HBP is fairly easy. Fill out form T1036 at your financial institution for each withdrawal. Then make sure to file an income tax return for the year of the withdrawal and each year thereafter, until the RRSP is fully repaid.
Keep in mind there are a few rules:
• To qualify, you must be a first time home buyer and a resident of Canada at the time of withdrawal.
• You MUST purchase/build the home before October 1st after the year of withdrawal.
• You only need to repay 1/15 of the borrowed amount starting in the second year after the year of withdrawal, or you’ll have to add the amount as income.
• RRSP contributions of up to 90 days before the withdrawal date can be used towards the HBP.
This is one of the only ways to withdraw from your RRSP tax free and a great way to get yourself into the real estate market. For more information about the HBP program go to the CRA website .
(http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html
Sunday, January 31, 2010
Why is one neighbourhood better than another for you family?
Once you've become pre-approved for a mortgage, you should be ready to put your house-hunting efforts into full gear. But don't skip the important step of scouting out many neighborhoods before you start your search for the perfect house.
The neighborhood in which you live will heavily dictate your whole way of life - things like walking to a nearby park with your kids, knowing your kids are attending good schools, feeling safe when your children play outdoors, being close to restaurants and shopping, enjoying a short commute, and knowing your home will appreciate at a healthy rate.
Of course one way to get started in your neighborhood search is to get in your car and explore, especially if you're unfamiliar with the area. Get an idea about the neighborhoods by driving around and seeing which areas appeal to you. Walk around, explore, and talk to some of the residents. Take note of the general appearance of the homes. Are they well maintained? Are they nicely landscaped?
If you have children, you might be looking for a neighborhood with plenty of children around, as opposed to neighborhoods that attract more seniors or young singles. Other factors you'll want to consider are the schools, crime, your family's specific needs, and appreciation - as in how much the value of the home is likely to increase.
A good Realtor will be very familiar with all the neighborhoods in the area and should be able to tell you about the strengths and weaknesses of the specific neighborhoods you're eyeing.
The School District
Even if you don't have school-aged children, buying a home in a district with good schools will be in your best interest.
When and if you sell the home at some point in the future, future buyers may have children and will likely consider good schools their top priority. And neighborhoods with good schools typically attract more buyers. Some points to consider:
• Ask your Realtor about information on schools in the area.
• Talk to people in the neighborhood, especially people with children.
• If you have children, visit the schools and take a tour. It's important that your decision isn't based purely through facts gathered online. Get a true feeling for what the school is like.
Crime Statistics
No one wants to live in a neighborhood where break-ins and burglary are the norm. In researching a neighborhood, you must first determine your needs. Some suburbs may have lower crime statistics, but may be farther from your work. Some areas of downtown may have more crime, but may have other qualities that you consider more attractive, such as convenience and cultural activities.
Use the following tips to help you learn about crime statistics in a neighborhood:
• Talk to neighbours.
• Talk to the local police division.
• Keep in mind that if you're looking in-town, you may not be able to get away from everything you consider unappealing (such as noise and traffic).
Keep Your Family in Mind
A home isn't just an investment when you have a family to think of. You'll need to consider more than just the number of bedrooms or whether it has an attached garage. You'll need to consider the community first and foremost. Do you want schools that are in walking distance? Do you want to be close to your place of employment or is a car commute OK? Do you want to be close to shopping, restaurants, and other services? You'll also want to research property values before you find a home in the neighborhood that you like; property values reflect a community's overall health.
And when you do your research, if neighbourhood appreciation is important, find out what houses sell for now versus five years ago and how much property taxes have gone up.
The neighborhood in which you live will heavily dictate your whole way of life - things like walking to a nearby park with your kids, knowing your kids are attending good schools, feeling safe when your children play outdoors, being close to restaurants and shopping, enjoying a short commute, and knowing your home will appreciate at a healthy rate.
Of course one way to get started in your neighborhood search is to get in your car and explore, especially if you're unfamiliar with the area. Get an idea about the neighborhoods by driving around and seeing which areas appeal to you. Walk around, explore, and talk to some of the residents. Take note of the general appearance of the homes. Are they well maintained? Are they nicely landscaped?
If you have children, you might be looking for a neighborhood with plenty of children around, as opposed to neighborhoods that attract more seniors or young singles. Other factors you'll want to consider are the schools, crime, your family's specific needs, and appreciation - as in how much the value of the home is likely to increase.
A good Realtor will be very familiar with all the neighborhoods in the area and should be able to tell you about the strengths and weaknesses of the specific neighborhoods you're eyeing.
The School District
Even if you don't have school-aged children, buying a home in a district with good schools will be in your best interest.
When and if you sell the home at some point in the future, future buyers may have children and will likely consider good schools their top priority. And neighborhoods with good schools typically attract more buyers. Some points to consider:
• Ask your Realtor about information on schools in the area.
• Talk to people in the neighborhood, especially people with children.
• If you have children, visit the schools and take a tour. It's important that your decision isn't based purely through facts gathered online. Get a true feeling for what the school is like.
Crime Statistics
No one wants to live in a neighborhood where break-ins and burglary are the norm. In researching a neighborhood, you must first determine your needs. Some suburbs may have lower crime statistics, but may be farther from your work. Some areas of downtown may have more crime, but may have other qualities that you consider more attractive, such as convenience and cultural activities.
Use the following tips to help you learn about crime statistics in a neighborhood:
• Talk to neighbours.
• Talk to the local police division.
• Keep in mind that if you're looking in-town, you may not be able to get away from everything you consider unappealing (such as noise and traffic).
Keep Your Family in Mind
A home isn't just an investment when you have a family to think of. You'll need to consider more than just the number of bedrooms or whether it has an attached garage. You'll need to consider the community first and foremost. Do you want schools that are in walking distance? Do you want to be close to your place of employment or is a car commute OK? Do you want to be close to shopping, restaurants, and other services? You'll also want to research property values before you find a home in the neighborhood that you like; property values reflect a community's overall health.
And when you do your research, if neighbourhood appreciation is important, find out what houses sell for now versus five years ago and how much property taxes have gone up.
Friday, January 29, 2010
How your mortgage can set you free of other debt
by Michelle Warren, Bankrate.com
Wednesday, January 6, 2010provided by
Credit crunch, debt crisis — call it what you will, but the current economic climate is spurring people to get their own finances in order. For Jack and Sarah Stewart, of Toronto, this means tackling the $40,000 in debt they've allowed to balloon during the past eight years. With their mortgage coming up for renewal, they're thinking of clearing the slate and rolling the burden into their mortgage.
"We want to consolidate our debt, but we're not sure if increasing our mortgage is the best way to do it," says Jack, who asked that his and his wife's names be changed to protect their privacy.
He's not alone. Laurie Campbell, executive director of Credit Canada, says it's a question people grapple with all the time. "Homes in the past have been your sacred cow," she says, referring to the drive to pay down one's mortgage as quickly as possible.
These days, however, with people juggling debts and paying varying rates of interest, increasing one's mortgage can be a smart move, even if it takes longer to pay off.
Lowering interest rates
Peter Majthenyi, a mortgage planner with Mortgage Architects, in Toronto, says it's a common theme as homeowners strive to bring down the overall interest they pay, as well as reduce their monthly obligations. He prefers to think of it as repositioning one's debt, and in his experience, "in almost all cases, it's justified."
"If you have debt that is sitting at 18 percent interest, then it certainly makes sense," says Campbell, adding that it's something to consider only if you have enough equity in your home and if your mortgage is coming up for renewal (read the fine print to find out if the penalties for breaking a mortgage outweigh the possible benefits).
Majthenyi notes that if you're working with the same lender, there's often no penalty involved with increasing your mortgage before the term expires.
The Stewarts seem like prime candidates. They have a $200,000 mortgage on a house worth about $425,000. They have plenty of equity, they're up for renewal at the end of the year and they say they're serious about getting their finances in order. Ideally, they'd roll the debt into their mortgage, continue an accelerated payment program whereby they pay every two weeks and they would not increase their amortization period, but instead increase their payments.
Dealing with debt
It's a good plan, says Campbell, who thinks all mortgage holders should accelerate their payments. She also likes the idea that they plan to stick to a 17-year amortization instead of renegotiating another 25-year mortgage. However, she stresses that none of this amounts to much if the Stewarts are going to continue the same spending habits and find themselves in a similar position five years from now. "They have to understand what got them into this $40,000 debt in the first place. They have to make sure they don't fall victim to that again."
She recommends cutting up credit cards, especially store cards, which have higher rates of interest, and not using one's line of credit like a bank account.
The Stewarts say the bulk of their debt was incurred for renovation costs, including a new kitchen and installing hardwood flooring, but admit their spending habits need a makeover. "We're always dipping in to our line of credit because we're strapped for cash," says Sarah Stewart. "I think if we consolidate the debt, it'll increase our cash flow and we'll be able to live within our means."
Jeanette Brox, a Certified Financial Planner with Investors Group in North York, Ont., always encourages her clients to look at the big picture when it comes to financial health: "My job is to make them think outside the box." She says helping people manage debt, while securing their future, is essential. "People need to think beyond what our parents did, which was paying down the mortgage," she says. "I used to think that way too, but I don't anymore."
In her view, the Stewarts and others like them need to take an aggressive approach if they ever want to get ahead. Not only do they need to improve cash flow, but they also need an emergency fund for unforeseen expenses, not to mention a retirement plan.
Planning for the future
Brox admits a lot of people would balk at the idea, but she thinks the Stewarts, both in their early 30s, should not only roll their debt into the mortgage, but increase their mortgage an additional $35,000 for a total of $275,000. To make payments more manageable, she'd also recommend increasing the amortization period to 25 years. She would invest $25,000 in mutual funds and further $10,000 in a money market account (earning about two percent interest).
"This is what I call a lifestyle fund," says Brox, adding that part of the interest cost on the mortgage would be tax deductible. "It's a win-win situation, but you've got to be really disciplined."
That means using their increased tax return to pay down the principal on the mortgage, thereby helping compensate for the interest cost of carrying the additional $35,000. The other bonus is that within five years (or so), the $25,000 registered retirement savings plan, or RRSP, will have grown to about $40,000. She stresses this is a long-term plan and people have to realize that the market is going to rise and fall.
"It's all based on comfort level," says Brox, adding that the biggest mistake she sees with people who reposition debt is that they don't have a long-term plan and, as Campbell, pointed out, go back to old spending habits. "People need to have their whole financial picture analyzed. It's something to consider, but you need to work with a planner or bank manager."
Lines of credit
There's a whole school of thinkers that shudder at the thought of increasing one's mortgage. At the core of this is that you're trading unsecured debt for secured debt and paying interest on that debt for the entire life of your mortgage, which can dramatically increase the cost of borrowing. In addition, refinancing also involves added legal costs (in most cases a minimum of $500). An alternative is consolidating debt onto a line of credit or home equity loan, which have higher interest rates than a mortgage, but can be paid off more quickly.
This works in theory, say our experts, but rarely in real life. "A lot of people just make the minimum payment and never get it cleaned up," says Brox.
"I'm wary of open lines of credit because they can easily stay at $50,000 forever," says Campbell, adding that an increased mortgage payment forces people to be more disciplined in paying down debt.
As for paying the debt for the entire length of your mortgage, all the experts stress that the way to combat this is by channelling extra funds back into the mortgage and paying off the mortgage early. This could mean accelerated payments, using tax returns or bumping up the payments. "We're putting all the money back into the principal of the mortgage," says Majthenyi, who points out that an extra $10,000 on a mortgage costs about $50 a month, while a $10,000 loan requires minimum payments of $300.
In the Stewart's case, it's costing them about $1,000 a month to cover $40,000 debt. If it's part of their mortgage, it translates into about $200. Ideally they'd direct the bulk of that money back into their mortgage through an annual lump payment or by increasing individual payments by a few hundred dollars.
Repositioning debt into one's mortgage is a sound option for people who are committed to changing bad habits and/or taking a long-term approach to getting their finances in order.
When it comes to money, Brox says that people need a big-picture plan, not a band-aid solution: "A lot of times it's not what you make but how you manage it."
Michelle Warren is a freelance writer in Toronto.
Wednesday, January 6, 2010provided by
Credit crunch, debt crisis — call it what you will, but the current economic climate is spurring people to get their own finances in order. For Jack and Sarah Stewart, of Toronto, this means tackling the $40,000 in debt they've allowed to balloon during the past eight years. With their mortgage coming up for renewal, they're thinking of clearing the slate and rolling the burden into their mortgage.
"We want to consolidate our debt, but we're not sure if increasing our mortgage is the best way to do it," says Jack, who asked that his and his wife's names be changed to protect their privacy.
He's not alone. Laurie Campbell, executive director of Credit Canada, says it's a question people grapple with all the time. "Homes in the past have been your sacred cow," she says, referring to the drive to pay down one's mortgage as quickly as possible.
These days, however, with people juggling debts and paying varying rates of interest, increasing one's mortgage can be a smart move, even if it takes longer to pay off.
Lowering interest rates
Peter Majthenyi, a mortgage planner with Mortgage Architects, in Toronto, says it's a common theme as homeowners strive to bring down the overall interest they pay, as well as reduce their monthly obligations. He prefers to think of it as repositioning one's debt, and in his experience, "in almost all cases, it's justified."
"If you have debt that is sitting at 18 percent interest, then it certainly makes sense," says Campbell, adding that it's something to consider only if you have enough equity in your home and if your mortgage is coming up for renewal (read the fine print to find out if the penalties for breaking a mortgage outweigh the possible benefits).
Majthenyi notes that if you're working with the same lender, there's often no penalty involved with increasing your mortgage before the term expires.
The Stewarts seem like prime candidates. They have a $200,000 mortgage on a house worth about $425,000. They have plenty of equity, they're up for renewal at the end of the year and they say they're serious about getting their finances in order. Ideally, they'd roll the debt into their mortgage, continue an accelerated payment program whereby they pay every two weeks and they would not increase their amortization period, but instead increase their payments.
Dealing with debt
It's a good plan, says Campbell, who thinks all mortgage holders should accelerate their payments. She also likes the idea that they plan to stick to a 17-year amortization instead of renegotiating another 25-year mortgage. However, she stresses that none of this amounts to much if the Stewarts are going to continue the same spending habits and find themselves in a similar position five years from now. "They have to understand what got them into this $40,000 debt in the first place. They have to make sure they don't fall victim to that again."
She recommends cutting up credit cards, especially store cards, which have higher rates of interest, and not using one's line of credit like a bank account.
The Stewarts say the bulk of their debt was incurred for renovation costs, including a new kitchen and installing hardwood flooring, but admit their spending habits need a makeover. "We're always dipping in to our line of credit because we're strapped for cash," says Sarah Stewart. "I think if we consolidate the debt, it'll increase our cash flow and we'll be able to live within our means."
Jeanette Brox, a Certified Financial Planner with Investors Group in North York, Ont., always encourages her clients to look at the big picture when it comes to financial health: "My job is to make them think outside the box." She says helping people manage debt, while securing their future, is essential. "People need to think beyond what our parents did, which was paying down the mortgage," she says. "I used to think that way too, but I don't anymore."
In her view, the Stewarts and others like them need to take an aggressive approach if they ever want to get ahead. Not only do they need to improve cash flow, but they also need an emergency fund for unforeseen expenses, not to mention a retirement plan.
Planning for the future
Brox admits a lot of people would balk at the idea, but she thinks the Stewarts, both in their early 30s, should not only roll their debt into the mortgage, but increase their mortgage an additional $35,000 for a total of $275,000. To make payments more manageable, she'd also recommend increasing the amortization period to 25 years. She would invest $25,000 in mutual funds and further $10,000 in a money market account (earning about two percent interest).
"This is what I call a lifestyle fund," says Brox, adding that part of the interest cost on the mortgage would be tax deductible. "It's a win-win situation, but you've got to be really disciplined."
That means using their increased tax return to pay down the principal on the mortgage, thereby helping compensate for the interest cost of carrying the additional $35,000. The other bonus is that within five years (or so), the $25,000 registered retirement savings plan, or RRSP, will have grown to about $40,000. She stresses this is a long-term plan and people have to realize that the market is going to rise and fall.
"It's all based on comfort level," says Brox, adding that the biggest mistake she sees with people who reposition debt is that they don't have a long-term plan and, as Campbell, pointed out, go back to old spending habits. "People need to have their whole financial picture analyzed. It's something to consider, but you need to work with a planner or bank manager."
Lines of credit
There's a whole school of thinkers that shudder at the thought of increasing one's mortgage. At the core of this is that you're trading unsecured debt for secured debt and paying interest on that debt for the entire life of your mortgage, which can dramatically increase the cost of borrowing. In addition, refinancing also involves added legal costs (in most cases a minimum of $500). An alternative is consolidating debt onto a line of credit or home equity loan, which have higher interest rates than a mortgage, but can be paid off more quickly.
This works in theory, say our experts, but rarely in real life. "A lot of people just make the minimum payment and never get it cleaned up," says Brox.
"I'm wary of open lines of credit because they can easily stay at $50,000 forever," says Campbell, adding that an increased mortgage payment forces people to be more disciplined in paying down debt.
As for paying the debt for the entire length of your mortgage, all the experts stress that the way to combat this is by channelling extra funds back into the mortgage and paying off the mortgage early. This could mean accelerated payments, using tax returns or bumping up the payments. "We're putting all the money back into the principal of the mortgage," says Majthenyi, who points out that an extra $10,000 on a mortgage costs about $50 a month, while a $10,000 loan requires minimum payments of $300.
In the Stewart's case, it's costing them about $1,000 a month to cover $40,000 debt. If it's part of their mortgage, it translates into about $200. Ideally they'd direct the bulk of that money back into their mortgage through an annual lump payment or by increasing individual payments by a few hundred dollars.
Repositioning debt into one's mortgage is a sound option for people who are committed to changing bad habits and/or taking a long-term approach to getting their finances in order.
When it comes to money, Brox says that people need a big-picture plan, not a band-aid solution: "A lot of times it's not what you make but how you manage it."
Michelle Warren is a freelance writer in Toronto.
Record home sales capping 2009 due to supply and demand, not bubble
BY SUNNY FREEMAN, THE CANADIAN PRESS JAN.19/10
TORONTO — Record home sales last month are based on low supply and high demand and are more likely to drop off this year than inflate a housing bubble that could threaten a fragile recovery, economists say.
A Canadian Real Estate Association report released Friday said December and the 2009 fourth quarter were the best periods on record for home resales, while prices also rose sharply from their year-earlier levels.
Meanwhile, strong demand continued to deplete the number of homes for sale and the estimated 5.6 months it would take to sell a house through the Multiple Listing Service in December was less than half the 12.3 months it would have taken a year earlier.
The number of total listings fell 22 per cent in December from the same 2008 period and 12.6 per cent for the year.
The imbalance in supply and demand drove the national average price of homes to
$337,410 in December, 19 per cent higher than in December 2008, but slightly lower than the 2009 average of $348,840.
Douglas Porter, deputy chief economist at BMO Capital Markets said while high prices caused by strong demand and weak supply could pose a risk to the fragile recovery, he is not willing to jump on the “bubble bandwagon” yet.
A bubble occurs when prices increase without any sound underlying fundamentals, he explained, and that’s not the case in Canada’s housing market, which is closely tied to changing interest rates and economic fundamentals.
“We still do have a relatively tight supply situation and exceptionally low interest rates and a mild recovery in the economy, so there are a lot of good reasons why home prices are rising.”
“What we’re seeing is almost textbook recovery,” he said. “The speed of the recovery is mind-boggling, the fact that housing is leading the recovery is really not a surprise... it’s exactly what you’d expect to happen.”
Finance Minister Jim Flaherty said Friday he does not see a housing bubble yet, but
he noted the government has many tools at its disposal — from raising down payment requirements on insured mortgages, to lowering amortization periods and urging the banks to be more cautious in their lending — to prevent such a thing from happening.
“We don’t want to have a group of house purchasers who purchased houses now at insured mortgages at relatively low rates who would not be able to manage them if rates were to increase later on,” Flaherty said in an interview with Business News Network, a cable TV business channel in Toronto.
“I’ve looked at the numbers with CMHC,” he added. “We’re monitoring it. I do not see evidence of a bubble right now, but we’re going to keep watching it. There are some steps we can take that we will take if it’s necessary.”
The association said 27,744 units were sold across Canada in December, up 72 per cent from the same month in 2008. The year-earlier period saw the lowest sales in a decade in the wake of a global credit crunch and the start of the recession in Canada.
The Kitchener-Waterloo Real Estate Board set a record in December with 356 sales. The Real Estate Board of Cambridge recorded 150 sales, up 60 per cent from the same month a year earlier.
December also marked the end of the strongest quarterly sales volume ever measured by CREA, with 137,957 homes sold over three months on a seasonally adjusted basis — up 2.6 per cent from the previous record set in the first quarter of 2007.
“CREA’s latest statistics will no doubt spark further bubble talk amongst the usual suspects,” said the association’s chief economist Gregory Klump. “(But) cooler heads recognize that many of the recent gains reflect temporary factors that could fade by summer.”
The 59 per cent year-over-year fourth quarter gain drove last year’s annual sales volume above 2008 levels, but the number of transactions last year was 10.7 per cent below the peak reached in 2007.
“The extraordinary decline in activity one year ago and subsequent rebound, particularly for higher-priced real estate, is stretching current year-over-year comparisons,” said Klump.
Klump believes the market will balance out in 2010 because consumer demand will be met with a supply side rise as the number of new homes increases and cautious homeowners become confident about selling, which will add more homes on the market and help drive prices down.
Porter said Friday’s report signals that Canadians have regained their confidence in the economy and the surge in demand is beginning to be met with a serious supply response, citing a notable uptick in December housing starts.
“Builders had been very cautious and they’re only now starting to crank up their output again, but even so, the comeback in new housing starts has been much more modest than the rebound we’ve seen in sales,” he said. “And people who own homes have also been a little reluctant to put their house up for sale because of the broader uncertainty that we’ve seen.”
He said that the demand in housing was most pronounced in B.C. and Ontario, where home buyers might be hoping to beat the introduction of the HST, the harmonized sales tax which is set to replace provincial taxes in those provinces later this year.
The Bank of Canada indicated last week that it was premature to be talking about a housing bubble in Canada and said recent house price increases are in line with supply and demand fundamentals.
The bank considers the current hot market to be a phenomenon based on temporary factors, such as pent-up demand from the recession, and low mortgage rates.
A CIBC forecast released Thursday indicated that the hot housing market will continue to drive economic growth during the first half of 2010, but will come to a screeching halt in the second half of the year, when interest rates are expected to rise.
The Canadian Press
TORONTO — Record home sales last month are based on low supply and high demand and are more likely to drop off this year than inflate a housing bubble that could threaten a fragile recovery, economists say.
A Canadian Real Estate Association report released Friday said December and the 2009 fourth quarter were the best periods on record for home resales, while prices also rose sharply from their year-earlier levels.
Meanwhile, strong demand continued to deplete the number of homes for sale and the estimated 5.6 months it would take to sell a house through the Multiple Listing Service in December was less than half the 12.3 months it would have taken a year earlier.
The number of total listings fell 22 per cent in December from the same 2008 period and 12.6 per cent for the year.
The imbalance in supply and demand drove the national average price of homes to
$337,410 in December, 19 per cent higher than in December 2008, but slightly lower than the 2009 average of $348,840.
Douglas Porter, deputy chief economist at BMO Capital Markets said while high prices caused by strong demand and weak supply could pose a risk to the fragile recovery, he is not willing to jump on the “bubble bandwagon” yet.
A bubble occurs when prices increase without any sound underlying fundamentals, he explained, and that’s not the case in Canada’s housing market, which is closely tied to changing interest rates and economic fundamentals.
“We still do have a relatively tight supply situation and exceptionally low interest rates and a mild recovery in the economy, so there are a lot of good reasons why home prices are rising.”
“What we’re seeing is almost textbook recovery,” he said. “The speed of the recovery is mind-boggling, the fact that housing is leading the recovery is really not a surprise... it’s exactly what you’d expect to happen.”
Finance Minister Jim Flaherty said Friday he does not see a housing bubble yet, but
he noted the government has many tools at its disposal — from raising down payment requirements on insured mortgages, to lowering amortization periods and urging the banks to be more cautious in their lending — to prevent such a thing from happening.
“We don’t want to have a group of house purchasers who purchased houses now at insured mortgages at relatively low rates who would not be able to manage them if rates were to increase later on,” Flaherty said in an interview with Business News Network, a cable TV business channel in Toronto.
“I’ve looked at the numbers with CMHC,” he added. “We’re monitoring it. I do not see evidence of a bubble right now, but we’re going to keep watching it. There are some steps we can take that we will take if it’s necessary.”
The association said 27,744 units were sold across Canada in December, up 72 per cent from the same month in 2008. The year-earlier period saw the lowest sales in a decade in the wake of a global credit crunch and the start of the recession in Canada.
The Kitchener-Waterloo Real Estate Board set a record in December with 356 sales. The Real Estate Board of Cambridge recorded 150 sales, up 60 per cent from the same month a year earlier.
December also marked the end of the strongest quarterly sales volume ever measured by CREA, with 137,957 homes sold over three months on a seasonally adjusted basis — up 2.6 per cent from the previous record set in the first quarter of 2007.
“CREA’s latest statistics will no doubt spark further bubble talk amongst the usual suspects,” said the association’s chief economist Gregory Klump. “(But) cooler heads recognize that many of the recent gains reflect temporary factors that could fade by summer.”
The 59 per cent year-over-year fourth quarter gain drove last year’s annual sales volume above 2008 levels, but the number of transactions last year was 10.7 per cent below the peak reached in 2007.
“The extraordinary decline in activity one year ago and subsequent rebound, particularly for higher-priced real estate, is stretching current year-over-year comparisons,” said Klump.
Klump believes the market will balance out in 2010 because consumer demand will be met with a supply side rise as the number of new homes increases and cautious homeowners become confident about selling, which will add more homes on the market and help drive prices down.
Porter said Friday’s report signals that Canadians have regained their confidence in the economy and the surge in demand is beginning to be met with a serious supply response, citing a notable uptick in December housing starts.
“Builders had been very cautious and they’re only now starting to crank up their output again, but even so, the comeback in new housing starts has been much more modest than the rebound we’ve seen in sales,” he said. “And people who own homes have also been a little reluctant to put their house up for sale because of the broader uncertainty that we’ve seen.”
He said that the demand in housing was most pronounced in B.C. and Ontario, where home buyers might be hoping to beat the introduction of the HST, the harmonized sales tax which is set to replace provincial taxes in those provinces later this year.
The Bank of Canada indicated last week that it was premature to be talking about a housing bubble in Canada and said recent house price increases are in line with supply and demand fundamentals.
The bank considers the current hot market to be a phenomenon based on temporary factors, such as pent-up demand from the recession, and low mortgage rates.
A CIBC forecast released Thursday indicated that the hot housing market will continue to drive economic growth during the first half of 2010, but will come to a screeching halt in the second half of the year, when interest rates are expected to rise.
The Canadian Press
December job losses reality check
8.5% unemployed
Paul Vieira, Financial Post Jan 11/10
OTTAWA - Financial markets were dealt a reality check yesterday with disappointing December jobs data from Canada and, more notably, the United States signalling an uneven and choppy recovery, and prompting U.S. analysts to scale back expectations on rate hikes.
Analysts noted, however, that an improving trend is definitely emerging in both countries. Furthermore, some reckon unemployment levels in Canada may have peaked.
Statistics Canada said the economy lost 2,600 jobs last month, but the unemployment rate remained unchanged at 8.5%. Markets expected 20,000 new jobs in December, after an off-the-chart 79,000 gain in November.
"It's looking more believable by the day that the 8.7% jobless rate in August will mark the peak for the cycle, far below past recession highs -- 13% in 1982 and 12.1% in 1992 -- and no worse than the average unemployment rate in Canada over the past 30 years," said Douglas Porter, deputy chief economist at BMO Capital Markets.
Stewart Hall, economist at HSBC Securities Canada, said there was "palatable" disappointment given the big gain in November. But the fact the economy held onto most of those jobs "is in and of itself fairly significant," he said.
With the December figures in hand, they suggest the Canadian economy shed 240,000 jobs in 2009 -- the bulk of which occurred in the first half of the year. In the last five months of the year, the economy generated an average of 20,000 new jobs per month.
Mr. Hall said average monthly gains of 20,000 are likely in the offing, as this recovery is likely to mirror the one following the recession of the early 1990s. "One characterized by some jobs growth followed by consolidation. Not terrific, but infinitely preferable to the experience of the previous year."
The Canadian recession ended in the third quarter with meagre annualized growth of 0.4%, as domestic strength was offset by a weak export sector that was hampered by a strong Canadian dollar and weak U.S. demand. Economists estimate growth in the final three months of 2009 to register between 3% and 4%.
The Bank of Canada is expected to begin raising its benchmark lending rate in the third quarter. There is less confidence about near-term tightening from the U.S. Federal Reserve Board.
The U.S. Bureau of Labor Statistics said non-farm employment in December fell 85,000, compared to expectations for no change. The unemployment rate was unchanged at 10%, although analysts note it was due to a plunge in the labour force, as people stopped looking for work.
"Firms are still bent on boosting productivity and remain cautious about hiring,"
analysts from London-based Capital Economics said of the U.S. data.
The yield on the two-year U.S. Treasury note -- a market gauge of interest rate expectations -- dropped yesterday below 1%, indicating analysts believe the likelihood of a Fed rate hike has been "pushed out for a few more months," Ajay Rajadhyaksha, head of U.S. fixed-income strategy at Barclays PLC in New York, told Bloomberg News.
The U.S. bureau noted, however, that during 2009 monthly job losses moderated, from an average 691,000 in the first quarter to 69,000 in the fourth quarter. Also, the bureau revised data for November indicating the U.S. economy created 4,000 jobs -- the first monthly gain in more than two years.
Still, Avery Shenfeld, chief economist at CIBC World Markets, said the 10% U.S. jobless rate masks the "true extent" of labour slack, "as it ignores those working part-time involuntarily [and] those who gave up looking for work."
As a result, the Fed is unlikely to raise rates for some time.
Paul Vieira, Financial Post Jan 11/10
OTTAWA - Financial markets were dealt a reality check yesterday with disappointing December jobs data from Canada and, more notably, the United States signalling an uneven and choppy recovery, and prompting U.S. analysts to scale back expectations on rate hikes.
Analysts noted, however, that an improving trend is definitely emerging in both countries. Furthermore, some reckon unemployment levels in Canada may have peaked.
Statistics Canada said the economy lost 2,600 jobs last month, but the unemployment rate remained unchanged at 8.5%. Markets expected 20,000 new jobs in December, after an off-the-chart 79,000 gain in November.
"It's looking more believable by the day that the 8.7% jobless rate in August will mark the peak for the cycle, far below past recession highs -- 13% in 1982 and 12.1% in 1992 -- and no worse than the average unemployment rate in Canada over the past 30 years," said Douglas Porter, deputy chief economist at BMO Capital Markets.
Stewart Hall, economist at HSBC Securities Canada, said there was "palatable" disappointment given the big gain in November. But the fact the economy held onto most of those jobs "is in and of itself fairly significant," he said.
With the December figures in hand, they suggest the Canadian economy shed 240,000 jobs in 2009 -- the bulk of which occurred in the first half of the year. In the last five months of the year, the economy generated an average of 20,000 new jobs per month.
Mr. Hall said average monthly gains of 20,000 are likely in the offing, as this recovery is likely to mirror the one following the recession of the early 1990s. "One characterized by some jobs growth followed by consolidation. Not terrific, but infinitely preferable to the experience of the previous year."
The Canadian recession ended in the third quarter with meagre annualized growth of 0.4%, as domestic strength was offset by a weak export sector that was hampered by a strong Canadian dollar and weak U.S. demand. Economists estimate growth in the final three months of 2009 to register between 3% and 4%.
The Bank of Canada is expected to begin raising its benchmark lending rate in the third quarter. There is less confidence about near-term tightening from the U.S. Federal Reserve Board.
The U.S. Bureau of Labor Statistics said non-farm employment in December fell 85,000, compared to expectations for no change. The unemployment rate was unchanged at 10%, although analysts note it was due to a plunge in the labour force, as people stopped looking for work.
"Firms are still bent on boosting productivity and remain cautious about hiring,"
analysts from London-based Capital Economics said of the U.S. data.
The yield on the two-year U.S. Treasury note -- a market gauge of interest rate expectations -- dropped yesterday below 1%, indicating analysts believe the likelihood of a Fed rate hike has been "pushed out for a few more months," Ajay Rajadhyaksha, head of U.S. fixed-income strategy at Barclays PLC in New York, told Bloomberg News.
The U.S. bureau noted, however, that during 2009 monthly job losses moderated, from an average 691,000 in the first quarter to 69,000 in the fourth quarter. Also, the bureau revised data for November indicating the U.S. economy created 4,000 jobs -- the first monthly gain in more than two years.
Still, Avery Shenfeld, chief economist at CIBC World Markets, said the 10% U.S. jobless rate masks the "true extent" of labour slack, "as it ignores those working part-time involuntarily [and] those who gave up looking for work."
As a result, the Fed is unlikely to raise rates for some time.
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