RBC poll
TORONTO, May 17 /CNW/ - The popularity of combination mortgages - which offer both fixed and floating rate segments - is on the rise, according to RBC's 17th Annual Homeowners Survey. In fact, 40 per cent of Canadians who are likely to purchase a home within the next two years plan to take out a combination mortgage, compared to 32 per cent in 2009.
The surging popularity of combination mortgages indicates that Canadians are trying to maximize low interest rates while at the same time retaining the security of a fixed mortgage. The poll also revealed a marked gender split with more women (46 per cent) than men (35 per cent) preferring a combination mortgage.
"Although interest rates are expected to rise, our study shows that not all Canadians intend to automatically opt for a fixed mortgage with a longer term," said Marcia Moffat, head, Home Equity Financing, RBC Royal Bank. "As consumers begin to learn about the benefits of mortgage diversification, we're seeing more homebuyers gain a better comfort level with adding floating rate mortgage options."
While combination mortgages are gaining in popularity, fixed-rate mortgages continue to be the most common choice for potential buyers and are preferred by 44 per cent of Canadians likely to buy a home within the next two years. Atlantic Canadians are most likely (54 per cent) to opt for a fixed rate, with Ontarians (41 per cent) least likely to do so.
"Many Canadians believe that a fixed-rate mortgage is the only way to have a locked-in and predictable payment, but a variable rate does not always mean variable payments," noted Moffat. "With our floating-rate mortgage, the portion of your payment that's applied to the principal changes, as interest rates change, not the actual payment itself. This means that when interest rates go up, your payment will pay off more interest; when interest rates go down, your payment will pay off more principal."
When current homeowners were asked about the impact of potential interest rate increases, 66 per cent said they were concerned, with women (70 per cent) more concerned than men (60 per cent).
"We expect the Bank of Canada to increase the overnight rate starting in June, with the pace of increases being fairly steady through the remainder of 2010 and 2011, which will continue to put upward pressure on borrowing costs," added Paul Ferley, assistant chief economist, RBC Economics.
Mortgage findings at-a-glance:
Fixed rate mortgages are preferred by:
- 44 per cent of Canadians likely to buy a home within the next two
years - down from 47 per cent in 2009
- 54 per cent of Atlantic Canadians (the highest in Canada)
Variable rate mortgages are preferred by:
- 16 per cent of Canadians likely to buy a home within the next two
years - down from 20 per cent in 2009
- 19 per cent of men compared with 12 per cent of women
Mortgage term most likely to be chosen by those opting for a fixed or
combination mortgage:
- Five-year term: 43 per cent
- More than five-year term: 29 per cent
- Three-year term: eight per cent
63 per cent: the proportion of Canadian homeowners who have mortgages
(compared to 56 per cent in 2005)
$124,131: the average amount remaining on Canadian homeowners' mortgages
(compared to $109,504 in 2005)
RBC recently introduced a RateCapper mortgage, in response to increased demand for mortgages options that provide both rate and payment protection. The interest rate on the RateCapper mortgage over the five-year term is based on the lower of Royal Bank of Canada's prime rate, which is currently at 2.25 per cent, and a set maximum rate, currently capped at 5.50 per cent. Canadians can visit the mortgage centre www.rbc.com/mortgageadvice for access to advice about all aspects of their homeownership goals.
These are some of the findings of the RBC's 17th Annual Homeownership poll conducted by Ipsos Reid between January 8 to 13, 2010. The annual online survey tracks Canadians attitudes and behaviours around home buying and home ownership. It is based on a randomly selected representative sample of 2,047 adult Canadians that was statistically weighted by region, age and sex composition according to the 2006 Census data. The results are considered accurate to within +/-2.2 percentage points, 19 times out of 20, of what they would have been had the entire adult Canadian population been polled. The margin of error will be larger within regions and for other sub-groupings of the survey population.
Monday, May 17, 2010
Wednesday, May 12, 2010
Even recession didn't slow down Canadian's spending, report finds
By Julian Beltrame, The Canadian Press
OTTAWA - Neither recession, global uncertainty nor growing joblessness appears to have stayed Canadians' appetite for spending money they don't have.
A new report by the Certified General Accountants Association of Canada shows that household debt in the country kept rising through the recession and peaked in December at $1.41 trillion.
That's $41,740 on average per Canadian, or debt to income ratio of 144 per cent that is the worst among 20 advanced countries in the OECD.
"This report is another indication of Canadians' readiness to consume today and pay later," says association president Anthony Ariganello.
"The concern is do they understand the full cost of paying later?"
The Bank of Canada has also voiced similar concerns, with governor Mark Carney having repeatedly advised Canadians to ensure they will be able to meet their mortgage commitments once rates increase. Ottawa has put that cautionary principle into effect by stiffening the means test chartered banks must apply when issuing open-ended mortgages.
Most Canadians don't yet share that concern. The accountants' survey found that almost 60 per cent of Canadians whose debt had increased still felt they could manage it or take on more obligations.
But the accountants say many households could find themselves in difficulty when interest rates, as expected, begin to rise.
The report estimates that even a small two per cent increase in rates would mean that mid-income and higher income households would have to cut their outlays on non-essentials by between nine and 11 per cent.
The finding is similar to one reached by the Canadian Association of Accredited Mortgage Professionals in a survey results release Monday.
The survey showed that while Canadians appeared well positioned to absorb higher rates, there would be a significant number that would come under stress. The mortgage professionals estimated that 475,000 households would be challenged if mortgages rates rose to 5.25 per cent, and that 375,000 were already facing pressure paying their bills.
The most likely outcome for a debt squeeze is that households will stop spending on non-essentials, and that could ripple in a general slowing of economic growth.
Household spending, particularly in the housing sector, was a mainstay of the economy during the recession. But as interest rates grow, a bigger percentage of household income may need to be diverting into paying off debt, meaning less cash for other purchases, like autos, appliances, furniture and clothes.
BMO Capital Markets economist Sal Guatieri says that is the flip-side to the Bank of Canada's decision to slash rates to historic lows during the recession.
"That's why we did not experience a great recession," he noted. "That was the intention all along of the Bank of Canada, to get people borrow and spend. The problem is if that continued, Canada eventually would have a debt problem."
But that is why the central bank is preparing to reverse course and start increasing the cost of borrowing, he added.
Most analysts believe Carney will start moving on rates on June 1 with a small quarter-point hike.
OTTAWA - Neither recession, global uncertainty nor growing joblessness appears to have stayed Canadians' appetite for spending money they don't have.
A new report by the Certified General Accountants Association of Canada shows that household debt in the country kept rising through the recession and peaked in December at $1.41 trillion.
That's $41,740 on average per Canadian, or debt to income ratio of 144 per cent that is the worst among 20 advanced countries in the OECD.
"This report is another indication of Canadians' readiness to consume today and pay later," says association president Anthony Ariganello.
"The concern is do they understand the full cost of paying later?"
The Bank of Canada has also voiced similar concerns, with governor Mark Carney having repeatedly advised Canadians to ensure they will be able to meet their mortgage commitments once rates increase. Ottawa has put that cautionary principle into effect by stiffening the means test chartered banks must apply when issuing open-ended mortgages.
Most Canadians don't yet share that concern. The accountants' survey found that almost 60 per cent of Canadians whose debt had increased still felt they could manage it or take on more obligations.
But the accountants say many households could find themselves in difficulty when interest rates, as expected, begin to rise.
The report estimates that even a small two per cent increase in rates would mean that mid-income and higher income households would have to cut their outlays on non-essentials by between nine and 11 per cent.
The finding is similar to one reached by the Canadian Association of Accredited Mortgage Professionals in a survey results release Monday.
The survey showed that while Canadians appeared well positioned to absorb higher rates, there would be a significant number that would come under stress. The mortgage professionals estimated that 475,000 households would be challenged if mortgages rates rose to 5.25 per cent, and that 375,000 were already facing pressure paying their bills.
The most likely outcome for a debt squeeze is that households will stop spending on non-essentials, and that could ripple in a general slowing of economic growth.
Household spending, particularly in the housing sector, was a mainstay of the economy during the recession. But as interest rates grow, a bigger percentage of household income may need to be diverting into paying off debt, meaning less cash for other purchases, like autos, appliances, furniture and clothes.
BMO Capital Markets economist Sal Guatieri says that is the flip-side to the Bank of Canada's decision to slash rates to historic lows during the recession.
"That's why we did not experience a great recession," he noted. "That was the intention all along of the Bank of Canada, to get people borrow and spend. The problem is if that continued, Canada eventually would have a debt problem."
But that is why the central bank is preparing to reverse course and start increasing the cost of borrowing, he added.
Most analysts believe Carney will start moving on rates on June 1 with a small quarter-point hike.
Tuesday, May 11, 2010
Time to lock in that mortgage rate?
Andrew Allentuck, Financial Post Published: Thursday, May 06, 2010
Taking on a mortgage is a big commitment. Every buyer who uses a mortgage has the choice of floating or going with a fixed rate that often costs a couple of percentage points higher per year. Today, for example, one can get variable rates at an average rate of 2.34% while five year closed rates average 5.27%, according to Fiscal Agents Financial Services Group in Oakville, Ontario. Negotiated rates can be lower.
If rates never changed very much, there would be no contest – the floating rate deal would win. But rates do rise and fall and therein lies the borrower's dilemma.
Borrowers with kids and an aging car fear that their ability to pay interest rates twice or thrice the current floating rates are limited. "The test is liquidity and risk tolerance," says Derek Moran, a registered financial planner who heads Smarter Financial Planning Ltd. in Kelowna, B.C. "People with ample liquidity can afford to take a chance on rising mortgage rates. It follows that those who lack liquidity feel some pressure to avoid drastic interest rate increases."
The point is not merely academic, for Canada, in spite of recent mortgage rate increases, is still at a relatively low point of rates over the last four decades. "There is more room for rates to go up than down," Moran points out.
The cost of making a decision to float or go fixed varies with the rate differences.
In 2008, Moshe Milevsky, Associate Professor of Finance at the Schulich School of Business at York University, and Brandon Walker, a research associate at the Individual Finance and Insurance Decisions Centre in Toronto, published a study that measured the direct and opportunity costs of going with either choice. "Over the long run, homeowners really do pay extra for fixed rate mortgages," they concluded.
The reason is intuitive. Lenders do not want to take the chance that when they have to refinance a loan that they will be stuck paying more than they are getting.
Mismatching what they lend with the cost of what they borrow can cut their profits and even lead to insolvency. So lenders attach what amounts to an interest rate insurance fee and bundle that into the price of money they lend on fixed terms.
Milevsky and Walker confirmed this explanation. "The study showed that a positive Maturity Value of Savings [the value of investing the difference between floating and fixed mortgages in 91-day T-bills] was positive the majority of the time, so the homeowner saved by using a variable-rate mortgage."
The amount of money that the homeowner can save by taking a chance on floating rates varied in the Milevsky and Walker study, depending on the time periods in question. But the average amount was impressive: $20,630 as of 2008. Put another way, floating allowed borrowers to cut the time it would take to pay off the mortgages by a year or more, in some cases as much as five years on 15-year amortizations.
Rational calculation and personal feeling are, of course, different things. A person with a fixed income and a great deal of debt may be reluctant to put a rate casino between himself and the lender and will therefore go with certainty, even at a high price.
It is also a matter of experience. "First time buyers tend to pay close attention to the cost of the mortgage," says Laura Parsons, Areas Manager of Specialized Sales – which includes mortgages, for the BMO Financial Group in Calgary. For them, the appeal of locking in is relatively high. Their mortgages are new, the amounts they owe are higher than they would be 10 or 15 years in future when the mortgage is substantially reduced, and their incomes, often early in their adult lives, are lower than they will be in future.
"First time home buyers are net debtors and they don't want to endanger their finances," suggests Adrian Mastracci, a portfolio manager and financial planner who heads KCM Wealth Management Inc. in Vancouver.
There are other strategies that the buyer can use to provide some rate insurance without taking on what Milevsky and Walker have demonstrated as the high cost of peace of mind.
"The buyer can take a variable rate mortgage but set payments higher than the minimum required" says Parsons. "That could be at the 5 year closed rate, which would mean a faster paydown and growing asset security while still keeping the low cost of the variable rate mortgage. Faster paydown is itself cost insurance if interest rates do rise."
Banks are nothing if not inventive in helping clients cope with the fixed versus floating dilemma. For example, TD Bank offers to give 5% of the amount borrowed on a five or six year fixed rate residential mortgage to the borrower. The program, aptly dubbed the "5% CashBack Mortgage," implicitly acknowledges that fixed rate loans can be more costly than variable rate ones.
For its part, RBC has a RateCapper Mortgage that builds on the initial low cost of a variable rate mortgage but limits the cost if rates shoot up. On a five year mortgage, the borrower will never pay more than the capped rate and if the variable rate, based on the prime rate, drops below the RateCapper mortgage maximum, the interest rate charged to the borrower also drops. The plan is a compromise and spreads interest rate risk. Many other lenders allow borrowers to mix fixed and variable rates, thus accomplishing a similar goal.
Plan selection, it turns out, is gender-related. According to a BMO survey, men, 44% of the time, are more likely than women to choose a fixed rate mortgage than women, who make that choice only 28% of the time. Women, it turns out, tend to make the better choice, for as BMO's analysis shows, "fixed rates were advantageous during only two periods – through the late 1970s and in the late 1980s, in both cases ahead of a period rising interest rates, as is the case now."
So where are interest rates headed? The yield curve, a line that links interest rates for periods of time from 1 day to 30 years, implies that rates will rise, but not very much.
There is no sense that we are returning to a period of double digit rates. Moreover, there are deflationary forces at work, notes Patricia Croft, chief economist of RBC Global Asset Management in Toronto. "The present crisis in European finance and the potential fizzling out of the present recovery in North American capital markets could presage falling inflation and even disinflation – the subsidence of rising prices and interest rates," she explains..
BMO forecasts that the rising Canadian dollar will put downward pressure on consumer prices, reflecting the fact that much of what Canadians eat and use is imported. Inflation could flare up, BMO's economists say, but there is a balanced risk of declining prices. For now, the Bank of Canada is being very cautious in its interest rate management commitments. For those who are strapped for cash, personal circumstance may dictate the choice of a fixed rate. But for everyone else, the folly of trying to make interest rate predictions over a business cycle and to predict both the short term rates and the long term rates along the yield curve should be apparent. No promises, of course, but the odds of saving money are with borrowers who choose variable rate plans or those that emulate them.
Taking on a mortgage is a big commitment. Every buyer who uses a mortgage has the choice of floating or going with a fixed rate that often costs a couple of percentage points higher per year. Today, for example, one can get variable rates at an average rate of 2.34% while five year closed rates average 5.27%, according to Fiscal Agents Financial Services Group in Oakville, Ontario. Negotiated rates can be lower.
If rates never changed very much, there would be no contest – the floating rate deal would win. But rates do rise and fall and therein lies the borrower's dilemma.
Borrowers with kids and an aging car fear that their ability to pay interest rates twice or thrice the current floating rates are limited. "The test is liquidity and risk tolerance," says Derek Moran, a registered financial planner who heads Smarter Financial Planning Ltd. in Kelowna, B.C. "People with ample liquidity can afford to take a chance on rising mortgage rates. It follows that those who lack liquidity feel some pressure to avoid drastic interest rate increases."
The point is not merely academic, for Canada, in spite of recent mortgage rate increases, is still at a relatively low point of rates over the last four decades. "There is more room for rates to go up than down," Moran points out.
The cost of making a decision to float or go fixed varies with the rate differences.
In 2008, Moshe Milevsky, Associate Professor of Finance at the Schulich School of Business at York University, and Brandon Walker, a research associate at the Individual Finance and Insurance Decisions Centre in Toronto, published a study that measured the direct and opportunity costs of going with either choice. "Over the long run, homeowners really do pay extra for fixed rate mortgages," they concluded.
The reason is intuitive. Lenders do not want to take the chance that when they have to refinance a loan that they will be stuck paying more than they are getting.
Mismatching what they lend with the cost of what they borrow can cut their profits and even lead to insolvency. So lenders attach what amounts to an interest rate insurance fee and bundle that into the price of money they lend on fixed terms.
Milevsky and Walker confirmed this explanation. "The study showed that a positive Maturity Value of Savings [the value of investing the difference between floating and fixed mortgages in 91-day T-bills] was positive the majority of the time, so the homeowner saved by using a variable-rate mortgage."
The amount of money that the homeowner can save by taking a chance on floating rates varied in the Milevsky and Walker study, depending on the time periods in question. But the average amount was impressive: $20,630 as of 2008. Put another way, floating allowed borrowers to cut the time it would take to pay off the mortgages by a year or more, in some cases as much as five years on 15-year amortizations.
Rational calculation and personal feeling are, of course, different things. A person with a fixed income and a great deal of debt may be reluctant to put a rate casino between himself and the lender and will therefore go with certainty, even at a high price.
It is also a matter of experience. "First time buyers tend to pay close attention to the cost of the mortgage," says Laura Parsons, Areas Manager of Specialized Sales – which includes mortgages, for the BMO Financial Group in Calgary. For them, the appeal of locking in is relatively high. Their mortgages are new, the amounts they owe are higher than they would be 10 or 15 years in future when the mortgage is substantially reduced, and their incomes, often early in their adult lives, are lower than they will be in future.
"First time home buyers are net debtors and they don't want to endanger their finances," suggests Adrian Mastracci, a portfolio manager and financial planner who heads KCM Wealth Management Inc. in Vancouver.
There are other strategies that the buyer can use to provide some rate insurance without taking on what Milevsky and Walker have demonstrated as the high cost of peace of mind.
"The buyer can take a variable rate mortgage but set payments higher than the minimum required" says Parsons. "That could be at the 5 year closed rate, which would mean a faster paydown and growing asset security while still keeping the low cost of the variable rate mortgage. Faster paydown is itself cost insurance if interest rates do rise."
Banks are nothing if not inventive in helping clients cope with the fixed versus floating dilemma. For example, TD Bank offers to give 5% of the amount borrowed on a five or six year fixed rate residential mortgage to the borrower. The program, aptly dubbed the "5% CashBack Mortgage," implicitly acknowledges that fixed rate loans can be more costly than variable rate ones.
For its part, RBC has a RateCapper Mortgage that builds on the initial low cost of a variable rate mortgage but limits the cost if rates shoot up. On a five year mortgage, the borrower will never pay more than the capped rate and if the variable rate, based on the prime rate, drops below the RateCapper mortgage maximum, the interest rate charged to the borrower also drops. The plan is a compromise and spreads interest rate risk. Many other lenders allow borrowers to mix fixed and variable rates, thus accomplishing a similar goal.
Plan selection, it turns out, is gender-related. According to a BMO survey, men, 44% of the time, are more likely than women to choose a fixed rate mortgage than women, who make that choice only 28% of the time. Women, it turns out, tend to make the better choice, for as BMO's analysis shows, "fixed rates were advantageous during only two periods – through the late 1970s and in the late 1980s, in both cases ahead of a period rising interest rates, as is the case now."
So where are interest rates headed? The yield curve, a line that links interest rates for periods of time from 1 day to 30 years, implies that rates will rise, but not very much.
There is no sense that we are returning to a period of double digit rates. Moreover, there are deflationary forces at work, notes Patricia Croft, chief economist of RBC Global Asset Management in Toronto. "The present crisis in European finance and the potential fizzling out of the present recovery in North American capital markets could presage falling inflation and even disinflation – the subsidence of rising prices and interest rates," she explains..
BMO forecasts that the rising Canadian dollar will put downward pressure on consumer prices, reflecting the fact that much of what Canadians eat and use is imported. Inflation could flare up, BMO's economists say, but there is a balanced risk of declining prices. For now, the Bank of Canada is being very cautious in its interest rate management commitments. For those who are strapped for cash, personal circumstance may dictate the choice of a fixed rate. But for everyone else, the folly of trying to make interest rate predictions over a business cycle and to predict both the short term rates and the long term rates along the yield curve should be apparent. No promises, of course, but the odds of saving money are with borrowers who choose variable rate plans or those that emulate them.
Monday, May 10, 2010
Housing starts expected to build on recovery data
'Housing starts have risen 80% from their cyclical lows'
Derek Abma, Financial Post
If record job gains from April weren't enough to convince you the Canadian economy is on solid ground, a few more measures are coming down the pipe over the next week that could support the case.
"In Canada, we're in the home stretch of reports on what was evidently a very strong first quarter, and the early news on Q2," CIBC World Markets chief economist Avery Shenfeld said in a research note on Friday, which followed Statistics Canada's report that 108,700 additional people found work last month-- about four times what was expected.
Today, Canada Mortgage and Housing Corp. reports its April housing-start figures. Economists anticipate an annualized rate of 205,000, up from a revised figure of 200,900 in March. The last figure marked a small decline from the previous month, on a seasonally adjusted basis, but things have come a long way since the market bottomed out at 112,000 in April 2009.
"To date, housing starts have risen a massive 80% from their cyclical lows, retracing over half of the peak-to-trough drop," Millan Mulraine, senior strategist with TD Securities, said in a report released on Friday.
Mr. Mulraine, who's forecasting a start level of 210,000 for April, attributes some of the current strength to homebuyers looking to avoid the new harmonized sales taxes taking effect in Ontario and British Columbia in July. He also noted that April was warmer than usual, helping along construction efforts.
Another big report comes Wednesday in the form of merchandise trade data for March. Economists anticipate a Canadian surplus -- the amount exported minus what's imported -- of $1.6-billion, up from $1.4-billion in February. If right, it would mark the fourth straight surplus.
CIBC World Markets economist Krishen Rangasamy credited improved economic conditions globally as probably helping Canada maintain it trading-surplus streak in March, including greater demand for vehicles in the United States.
"The merchandise trade report for March will likely add to earlier data that presages (Canadian economic) growth of around 5.7% (annualized) for the first quarter," Mr. Rangasamy said. "But the party won't last forever for exporters, given the lagged effects of a strong Canadian dollar and the expected slowdown in the U.S. economy later in the year."
Speaking of the auto industry, Statistics Canada on Friday will release data on domestic new-vehicle sales for March. A 4% monthly decline is expected following an 8.1% jump in February.
The federal agency will also release March figures for manufacturing sales that day. A one% rise in the value of factory transactions is expected by economists after the slim 0.1% gain in February.
"Canadian manufacturing-sector activity has been on a breathtaking run lately, with sales rising for six consecutive months on the back of strong domestic and foreign demand," Mr. Mulraine said.
Mr. Mulraine is in line the consensus of economists in his March manufacturing forecast, citing transportation equipment as well as products made of petroleum and coal as helping to fuel the gains.
Besides these reports, a number of Canadian companies, such as George Weston and Jazz Air, will release quarterly earnings. As well, the United States will see data on March wholesale trade toomorrow, its own March trade data on Wednesday and April retail sales on Friday.
Derek Abma, Financial Post
If record job gains from April weren't enough to convince you the Canadian economy is on solid ground, a few more measures are coming down the pipe over the next week that could support the case.
"In Canada, we're in the home stretch of reports on what was evidently a very strong first quarter, and the early news on Q2," CIBC World Markets chief economist Avery Shenfeld said in a research note on Friday, which followed Statistics Canada's report that 108,700 additional people found work last month-- about four times what was expected.
Today, Canada Mortgage and Housing Corp. reports its April housing-start figures. Economists anticipate an annualized rate of 205,000, up from a revised figure of 200,900 in March. The last figure marked a small decline from the previous month, on a seasonally adjusted basis, but things have come a long way since the market bottomed out at 112,000 in April 2009.
"To date, housing starts have risen a massive 80% from their cyclical lows, retracing over half of the peak-to-trough drop," Millan Mulraine, senior strategist with TD Securities, said in a report released on Friday.
Mr. Mulraine, who's forecasting a start level of 210,000 for April, attributes some of the current strength to homebuyers looking to avoid the new harmonized sales taxes taking effect in Ontario and British Columbia in July. He also noted that April was warmer than usual, helping along construction efforts.
Another big report comes Wednesday in the form of merchandise trade data for March. Economists anticipate a Canadian surplus -- the amount exported minus what's imported -- of $1.6-billion, up from $1.4-billion in February. If right, it would mark the fourth straight surplus.
CIBC World Markets economist Krishen Rangasamy credited improved economic conditions globally as probably helping Canada maintain it trading-surplus streak in March, including greater demand for vehicles in the United States.
"The merchandise trade report for March will likely add to earlier data that presages (Canadian economic) growth of around 5.7% (annualized) for the first quarter," Mr. Rangasamy said. "But the party won't last forever for exporters, given the lagged effects of a strong Canadian dollar and the expected slowdown in the U.S. economy later in the year."
Speaking of the auto industry, Statistics Canada on Friday will release data on domestic new-vehicle sales for March. A 4% monthly decline is expected following an 8.1% jump in February.
The federal agency will also release March figures for manufacturing sales that day. A one% rise in the value of factory transactions is expected by economists after the slim 0.1% gain in February.
"Canadian manufacturing-sector activity has been on a breathtaking run lately, with sales rising for six consecutive months on the back of strong domestic and foreign demand," Mr. Mulraine said.
Mr. Mulraine is in line the consensus of economists in his March manufacturing forecast, citing transportation equipment as well as products made of petroleum and coal as helping to fuel the gains.
Besides these reports, a number of Canadian companies, such as George Weston and Jazz Air, will release quarterly earnings. As well, the United States will see data on March wholesale trade toomorrow, its own March trade data on Wednesday and April retail sales on Friday.
Friday, May 7, 2010
Was typo behind Wall Street plunge?
The Canadian Press, Reuters and thestar.com
What was that? For a brief, heart-stopping period, stock markets plunged, currencies went crazy, bonds ran wild and investors ran for cover.
But by the end of the day U.S. stocks had recovered much of their losses, the Toronto Stock Exchange was basically flat losing 32.7 points to close at 11,842.43, and the Canadian dollar, though pummeled, was still intact.
Experts were flustered, but puzzled by the wild action, though they generally pointed to the ongoing Greek debt crisis.
Rumors also circulated that the panicky sell-off had been triggered by a U.S. stock trader mistakenly put in a sell order for 15 billion shares of Procter & Gamble on the New York Stock Exchange, instead of 15 million.
Whether that’s true or not, the stock dived to $40 from $60 within moments just before 2.30 p.m..
The Dow Jones Industrial Index also began a free-fall of about 1,000 points, or 10 per cent, in less than half an hour.
It didn’t stop with stock markets. The U.S. dollar soared, which meant the Euro plunged along with the Canadian dollar.After rising as high as 97 cents U.S, at one point the Canadian dollar was down almost 4 cents. It finished the day at 95.03 cents U.S.
Pascal Gauthier of TD Economics pointed to the Greek debt crisis as a possible trigger for the turmoil.
Jean-Paul Trichet, who heads the European Central bank, said in Lisbon Thursday that the bank’s governing council had not discussed the possibility of buying government bonds. Many analysts have speculated it might do so, as a means of providing debt-crushed governments with financial support.
“There might have been expectations that the bank might take some measures, though we were of the view that they would not,” Gauthier speculated.
He warned that other days like this could loom ahead.
“On the fiscal side, those economies that were fragile to begin with before the recession like Greece, Italy, Spain are going to be vulnerable, and markets are going to be nervous,” he said.
“This is going to stay with us. This isn’t just a one-day thing.
Camilla Sutton, currency strategist at Scotiabank, said no one was attacking the Canadian dollar. Instead, investors ran for the safety of U.S. investments.
“This story is about the U.S. dollar,” she said. “What we’re seeing is a very strong, strong U.S. dollar, because very quickly people are closing out foreign positions and moving into the deepest capital markets in the world: The U.S. and the U.S. treasury market.”
The Canadian dollar was simply trampled by the rush into the U.S., she said.
* NEW YORK—The biggest intraday point drop ever in the Dow Jones Industrial Average may have been caused by an erroneous trade entered by a person at a big Wall Street bank, multiple market sources said Thursday.
The so-called "fat finger" trade apparently involved an exchange-traded fund that holds shares of some of the biggest and most widely traded stocks, sources said. The trade apparently was put in on the Nasdaq Stock Market, sources said.
Several sources said the speculation is that the trade was entered by someone at Citigroup. A Citigroup spokesman said it was investigating the rumor but that the bank currently had no evidence that an erroneous trade had been made.
CNBC reported this afternoon that a trader entered a "b" for billion instead of an "m" for million in a trading order, setting off a series of events that led to the Dow’s biggest one-day drop since 1987.
What was that? For a brief, heart-stopping period, stock markets plunged, currencies went crazy, bonds ran wild and investors ran for cover.
But by the end of the day U.S. stocks had recovered much of their losses, the Toronto Stock Exchange was basically flat losing 32.7 points to close at 11,842.43, and the Canadian dollar, though pummeled, was still intact.
Experts were flustered, but puzzled by the wild action, though they generally pointed to the ongoing Greek debt crisis.
Rumors also circulated that the panicky sell-off had been triggered by a U.S. stock trader mistakenly put in a sell order for 15 billion shares of Procter & Gamble on the New York Stock Exchange, instead of 15 million.
Whether that’s true or not, the stock dived to $40 from $60 within moments just before 2.30 p.m..
The Dow Jones Industrial Index also began a free-fall of about 1,000 points, or 10 per cent, in less than half an hour.
It didn’t stop with stock markets. The U.S. dollar soared, which meant the Euro plunged along with the Canadian dollar.After rising as high as 97 cents U.S, at one point the Canadian dollar was down almost 4 cents. It finished the day at 95.03 cents U.S.
Pascal Gauthier of TD Economics pointed to the Greek debt crisis as a possible trigger for the turmoil.
Jean-Paul Trichet, who heads the European Central bank, said in Lisbon Thursday that the bank’s governing council had not discussed the possibility of buying government bonds. Many analysts have speculated it might do so, as a means of providing debt-crushed governments with financial support.
“There might have been expectations that the bank might take some measures, though we were of the view that they would not,” Gauthier speculated.
He warned that other days like this could loom ahead.
“On the fiscal side, those economies that were fragile to begin with before the recession like Greece, Italy, Spain are going to be vulnerable, and markets are going to be nervous,” he said.
“This is going to stay with us. This isn’t just a one-day thing.
Camilla Sutton, currency strategist at Scotiabank, said no one was attacking the Canadian dollar. Instead, investors ran for the safety of U.S. investments.
“This story is about the U.S. dollar,” she said. “What we’re seeing is a very strong, strong U.S. dollar, because very quickly people are closing out foreign positions and moving into the deepest capital markets in the world: The U.S. and the U.S. treasury market.”
The Canadian dollar was simply trampled by the rush into the U.S., she said.
* NEW YORK—The biggest intraday point drop ever in the Dow Jones Industrial Average may have been caused by an erroneous trade entered by a person at a big Wall Street bank, multiple market sources said Thursday.
The so-called "fat finger" trade apparently involved an exchange-traded fund that holds shares of some of the biggest and most widely traded stocks, sources said. The trade apparently was put in on the Nasdaq Stock Market, sources said.
Several sources said the speculation is that the trade was entered by someone at Citigroup. A Citigroup spokesman said it was investigating the rumor but that the bank currently had no evidence that an erroneous trade had been made.
CNBC reported this afternoon that a trader entered a "b" for billion instead of an "m" for million in a trading order, setting off a series of events that led to the Dow’s biggest one-day drop since 1987.
Thursday, May 6, 2010
House prices to cool in 2011, says TD
Financial Post
OTTAWA -- The latest housing forecast from TD Economics leaves 2010 totals for sales and prices in Canada largely the same as its previous expectations in December, though that masks a wider discrepancy it now expects between a hot first half of the year and cooler second half.
The forecasting unit of Toronto-Dominion Bank released a report on Wednesday that maintained its call for housing resales this year to rise 2.1% to 475,000, and the average price to gain 9% to $349,000.
"While sales in Q1 were slightly higher than our late-2009 forecast, we view the strength as borrowing from future sales in a move by buyers and sellers to pre-empt regulatory and interest-rate changes," TD said in its report.
The bank said that people in Ontario and British Columbia are pushing ahead with home purchases to avoid higher costs associated with harmonized sales taxes that take effect in those provinces in July.
As well, it said homebuyers across the country have felt rushed to avoid higher interest rates. Major banks have already started raising their borrowing costs, and the Bank of Canada is expected to start hiking its overnight target rate from a record-low 0.25% in June or July.
The more accelerated cooling effect during the second half of this year will lead to lower prices than previously thought in 2011, TD said. It now expects the average home price to fall 2.7% to $339,700 next year; it previously called for a 1.6% price gain.
TD said housing prices in Canada are currently overvalued by about 15%, based on longer-term economic factors such as income growth. That gap should narrow to 10% by the end of next year, it said.
The gap will close further in the following two to three years, the report said, as housing prices grow at about the rate of inflation - after having averaged 8% annual gains over the last eight years - and household incomes catch up.
OTTAWA -- The latest housing forecast from TD Economics leaves 2010 totals for sales and prices in Canada largely the same as its previous expectations in December, though that masks a wider discrepancy it now expects between a hot first half of the year and cooler second half.
The forecasting unit of Toronto-Dominion Bank released a report on Wednesday that maintained its call for housing resales this year to rise 2.1% to 475,000, and the average price to gain 9% to $349,000.
"While sales in Q1 were slightly higher than our late-2009 forecast, we view the strength as borrowing from future sales in a move by buyers and sellers to pre-empt regulatory and interest-rate changes," TD said in its report.
The bank said that people in Ontario and British Columbia are pushing ahead with home purchases to avoid higher costs associated with harmonized sales taxes that take effect in those provinces in July.
As well, it said homebuyers across the country have felt rushed to avoid higher interest rates. Major banks have already started raising their borrowing costs, and the Bank of Canada is expected to start hiking its overnight target rate from a record-low 0.25% in June or July.
The more accelerated cooling effect during the second half of this year will lead to lower prices than previously thought in 2011, TD said. It now expects the average home price to fall 2.7% to $339,700 next year; it previously called for a 1.6% price gain.
TD said housing prices in Canada are currently overvalued by about 15%, based on longer-term economic factors such as income growth. That gap should narrow to 10% by the end of next year, it said.
The gap will close further in the following two to three years, the report said, as housing prices grow at about the rate of inflation - after having averaged 8% annual gains over the last eight years - and household incomes catch up.
Bank of Montreal alleges huge mortgage fraud
By Charles Rusnell,
This house in the Bearspaw district of Calgary was bought for nearly$900,000 and in three years, its value was inflated to $2.3 million, aprofit of $1.4 million for the alleged fraudsters. (CBC) The Bank of Montreal is suing hundreds of people in Alberta, includinglawyers, mortgage brokers and four of its own employees, in what is oneof the largest alleged cases of mortgage fraud in Canadian history.Legal documents obtained exclusively by CBC News allege the bank was thetarget of a sophisticated fraud operated by 14 inter-connected groups.The documents allege the scheme generated at least $140 million, about$70 million of which was for phoney mortgages.The bank has estimated it may lose as much as $30 million.Toronto forensic accountant Al Rosen said he has never seen anythinglike it."This is massive in the sense that it is so broad and so deep," Rosensaid Tuesday. "This is [allegedly] a huge fraud. I can't think of anysituation that has so many people involved and over a period of timelike this one."Problems detected in 2006The bank said it first detected the alleged scam in 2006 when itssecurity department noticed "irregularities" in a number of mortgages inWestern Canada. Officials immediately hired a forensic accounting firm,which spent nearly a year unravelling what the bank calls asophisticated scheme. Legal documents allege millions of dollars have been transferred tosuch countries as Lebanon, India, Saudi Arabia, the United Arab Emiratesand Pakistan. (CBC) The bank's investigators say the scam's ringleaders would identify theworst house in a good neighbourhood. They would buy at an affordable,fair-market value price, but convince the bank it was worth much morebecause of the neighbourhood it was in.The bank, which relies on a software program to determine house pricesby neighbourhood, claims it would end up providing a grossly inflatedmortgage, and the ringleaders would pocket the difference.To carry out the alleged scheme, the bank claims masterminds wouldrecruit what's known in fraud parlance as a "straw buyer." For a paymentof $2,000 to $8,000, these straw buyers, mostly new immigrants, wouldallow their name to be used to obtain the mortgage on the house.According to the court documents, the ringleaders allegedly createdfake, inflated wage and net income documents for the straw buyers tomake them appear richer than they were.Lawyers, who are alleged to have been in on the scheme, would thenproduce the necessary legal documents for the house sale. Seventeenlawyers have been named in the bank's lawsuit.House nets $180,000In one case, a house in the Bearspaw district of Calgary was bought fornearly $900,000 and in three years, its value was inflated to $2.3million, a profit of $1.4 million for the alleged fraudsters. AnEdmonton house is alleged to have netted the scheme nearly $180,000.During its investigation, bank investigators seized records that showedmillions of dollars from the alleged scheme have been transferred tosuch countries as Lebanon, India, Saudi Arabia, the United Arab Emiratesand Pakistan.The Bank of Montreal said it conducted the investigation and filed thelawsuit for two reasons."One was to recover as much as possible of what was taken from the bankfrom the fraud," Ralph Marranca, the bank's spokesman told the CBC onTuesday."And secondly was to send a very strong message to fraudsters and anyonewho might contemplate something like this that the bank will pursue thisvery aggressively and will not tolerate fraud."Other banks don't appear to be as aggressive in their approach, eventhough documents indicate they may have been targeted too. Bank ofMontreal investigators found documents that showed one Calgarymanagement company had 150 suspect mortgages from 16 different financialinstitutions.Rosen said this alleged fraud illustrates how weak and ineffective thecontrols are in our banking system."To me the most exasperating part of our business is we are not doingwhat we are supposed to be doing," he said. "We are kidding ourselvesthat we have good systems, because we don't."
This house in the Bearspaw district of Calgary was bought for nearly$900,000 and in three years, its value was inflated to $2.3 million, aprofit of $1.4 million for the alleged fraudsters. (CBC) The Bank of Montreal is suing hundreds of people in Alberta, includinglawyers, mortgage brokers and four of its own employees, in what is oneof the largest alleged cases of mortgage fraud in Canadian history.Legal documents obtained exclusively by CBC News allege the bank was thetarget of a sophisticated fraud operated by 14 inter-connected groups.The documents allege the scheme generated at least $140 million, about$70 million of which was for phoney mortgages.The bank has estimated it may lose as much as $30 million.Toronto forensic accountant Al Rosen said he has never seen anythinglike it."This is massive in the sense that it is so broad and so deep," Rosensaid Tuesday. "This is [allegedly] a huge fraud. I can't think of anysituation that has so many people involved and over a period of timelike this one."Problems detected in 2006The bank said it first detected the alleged scam in 2006 when itssecurity department noticed "irregularities" in a number of mortgages inWestern Canada. Officials immediately hired a forensic accounting firm,which spent nearly a year unravelling what the bank calls asophisticated scheme. Legal documents allege millions of dollars have been transferred tosuch countries as Lebanon, India, Saudi Arabia, the United Arab Emiratesand Pakistan. (CBC) The bank's investigators say the scam's ringleaders would identify theworst house in a good neighbourhood. They would buy at an affordable,fair-market value price, but convince the bank it was worth much morebecause of the neighbourhood it was in.The bank, which relies on a software program to determine house pricesby neighbourhood, claims it would end up providing a grossly inflatedmortgage, and the ringleaders would pocket the difference.To carry out the alleged scheme, the bank claims masterminds wouldrecruit what's known in fraud parlance as a "straw buyer." For a paymentof $2,000 to $8,000, these straw buyers, mostly new immigrants, wouldallow their name to be used to obtain the mortgage on the house.According to the court documents, the ringleaders allegedly createdfake, inflated wage and net income documents for the straw buyers tomake them appear richer than they were.Lawyers, who are alleged to have been in on the scheme, would thenproduce the necessary legal documents for the house sale. Seventeenlawyers have been named in the bank's lawsuit.House nets $180,000In one case, a house in the Bearspaw district of Calgary was bought fornearly $900,000 and in three years, its value was inflated to $2.3million, a profit of $1.4 million for the alleged fraudsters. AnEdmonton house is alleged to have netted the scheme nearly $180,000.During its investigation, bank investigators seized records that showedmillions of dollars from the alleged scheme have been transferred tosuch countries as Lebanon, India, Saudi Arabia, the United Arab Emiratesand Pakistan.The Bank of Montreal said it conducted the investigation and filed thelawsuit for two reasons."One was to recover as much as possible of what was taken from the bankfrom the fraud," Ralph Marranca, the bank's spokesman told the CBC onTuesday."And secondly was to send a very strong message to fraudsters and anyonewho might contemplate something like this that the bank will pursue thisvery aggressively and will not tolerate fraud."Other banks don't appear to be as aggressive in their approach, eventhough documents indicate they may have been targeted too. Bank ofMontreal investigators found documents that showed one Calgarymanagement company had 150 suspect mortgages from 16 different financialinstitutions.Rosen said this alleged fraud illustrates how weak and ineffective thecontrols are in our banking system."To me the most exasperating part of our business is we are not doingwhat we are supposed to be doing," he said. "We are kidding ourselvesthat we have good systems, because we don't."
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