Vancouver Real Estate Blog

Bank Of Canada Announcement of December 6th 2011 Regarding The Overnight Rate

As you know, your variable rate mortgage, lines of credit and/or student loans are all based on the Prime Rate and as promised, here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.

At 9:00 am EST, December 6^th, 2011, the Bank of Canada again did what we expected them to do… they maintained their overnight rate.  What this means to you is that the prime rate on your mortgage or line of credit will not change and remains at 3.00%.  This is great news as you still have a great low rate and so continue to make the most of the low payments you will still have and maybe chat with a financial advisor about a Tax Free Savings Account or some RRSP contributions to trigger a potential income tax refund next year!  If you don’t have a financial advisor, let me know and I’d be happy to recommend one to you.

Here is an excerpt of the announcement from the Bank of Canada and what they had to say about their decision:

“Uncertainty around the global economic outlook has increased.  The recession in Europe is now expected to be more pronounced than the Bank had anticipated in October.  Recent economic data suggest that growth in the US has been slightly more robust than anticipated… Nonetheless, household deleveraging, fiscal consolidation and negative spillover effects from the European crisis are all expected to weigh on U.S. growth.  On balance, recent economic indicators in Canada suggest that growth in the second half of this year is slightly stronger than the Bank projected in October. The economy also continues to face competitiveness challenges, including the persistent strength of the Canadian dollar”.

The outlook hasn’t really changed that much since the last announcement... they expect that growth will slowly continue but will be impacted by global economic conditions.   Based on this repeated message, it is anticipated that prime rate might not actually increase until well into 2012 maybe even 2013.  When it does start to increase, it is expected to be gradual and controlled in line with economic recovery, both in Canada and globally.  Remember any change to the prime rate since 1992 has only been by 0.25% at any ONE time.

We have only seen some minor fluctuations to the fixed term rates since the last announcement and are still very low at around 3.49% to 3.79% for a five year fixed term. 

Based on this recent announcement, and the anticipation that the prime rate will still remain low for the coming months, unless you feel otherwise, I’d recommend that you remain with your current variable rate product as the interest is very much lower than a fixed term rate right now. 

Homes of The Future - What Will They Look Like

Some of you may be too young to remember, but if i were to ask those that were growing up in the 1960's and 1970's to project into the future what a house would look like. Most people would have images of the Jetsons with all their space age equipment and robots.

Well those are all intriguing idea's and thoughts. But not reality. The biggest change will be seen in the single family home. Mostly regarding it's size. Since 2007 homes have been getting smaller. In 2007 a home measured on average over 2500sqft(National Associate of Builders) It is now at about 2400 sqft and by 2020 or sooner it will be about 2150.

Why you say. Well it has all to do with the Baby Boomers.

Expect to see: 1) Stand alone Living room will be designed to encompass the kitchen and dining room. We are already seeing this, and it is called the Great Room.

                        2) Eat in Kitchens.

                        3) Larger walk in laundry rooms.

                        4) Walk-in showers.

                        5) Extension of a Great Room outside.

Expect to see less of:1) Formal dining rooms.

                                    2) 4 bedroom + homes - Empty nesters and new families are smaller.

                                    3) Mudrooms will disappear.

Canada Renews The Energy Retrofit Home Program

The federal government extended its poplar ecoENERGY Retrofit – Homes program. One in 20 homeowners took advantage of the original program, which ran from April 2007 to March 2010. Now renewed until March 21, 2012, the program provides grants of up to $5,000 to help homeowners make their homes more energy efficient.

The grants apply to upgrades for a variety of projects, including heating and/or cooling systems, ventilation systems, domestic hot water equipment, insulation, air sealing, windows/doors/skylights and water conservation.

To become part of the program, residents must register with the program. Those who have received grants in the past are still eligible to get more money if they didn't receive the maximum $5,000 grant.

Next homeowners must contact a local service organization that's licensed by Natural Resources Canada to arrange a pre-retrofit energy evaluation. The homeowner receives a full report and an EnerGuide label, which rates the energy efficiency of the home. Based on the report and the government's grant table homeowners then choose the best upgrades to improve their rating.

The Bank of Montreal Economics predicts that across Canada, about $45 billion will be spent on home renovations like kitchens, bathrooms, landscaping and exterior renovations for example.

CMHC says that the average renovation job cost $12,972. Vancouver had the priciest average cost at $15,709 and Winnipeg had the lowest a $10,339.

 

Gary Mauris President of Dominion Lending Centres is Critical of Mortgage Changes that Finance Minister Jim Flaherty Adopted.

Gary Mauris, president of Dominion Lending Centres, had his say about concerns within the Canadian mortgage brokering industry to Finance Minister Jim Flaherty during the Regina Pre-Budget Consultation recently. Here is just a bit of what he had to say.

“Although we support and encourage household fiscal responsibility, we think a sweeping policy change like the one we saw wasn’t necessary,” Mauris said. “Mortgage default in Canada is the lowest in the world. Rather than pairing back the maximum amortization from 35 years to 30, they should have made the borrower qualify based on the payments for a 30-year amortization and kept the maximum amortization at 35. Qualification and purchasing power just dropped significantly, especially affecting first-time homebuyers, making it more difficult for our most valuable assets – young adults and young families – to experience homeownership and participate in our real estate sector.”

He said the reduction of the refinancing maximum to 85 per cent from 90 per cent loan-to-value (LTV) was not necessary. “One of the most effective ways that mortgage professionals can eliminate high-interest, unsecured consumer debt and over-extension is to refinance at today’s low interest rates – often saving the consumer hundreds of dollars per month in excessive interest. This policy is going to force many homeowners who are experiencing job loss, illness, separation, divorce or urgent unforeseen family crisis into having to sell their homes to gain access to their very own equity.”

He also said that government needs to take a hard look at unsecured debt and, specifically, credit card issuers. “Canadians’ biggest financial struggles, over-extension and record debt levels are not due to their mortgages (again, we have the lowest mortgage default rate in the world). They are due to easy access to high-interest credit cards and other unsecured debt. We have very strict qualifications for mortgages, including TDS and GDS ratios to ensure that consumers have the financial wherewithal to make the payments and similar qualifications based on the credit card limits should apply.”

Mortgage Penalties in Canada

"Well it's about time" says Mitchell Mingie. The Quebec Federation of Real Estate Boards (QFREB) is taking the Canadian Federal Government to task, requesting legislation be established surrounding mortgage penalties imposed on households that prepay the full balance of their mortgage.

The problem that exists is when borrows try to pre-pay their remaining balance the banks in Canada say sure but your penalty for doing so is either three months of interest or an amount based on the differential between rate A, the rate in effect at the signing of the mortgage, and rate B, the rate in effect at the prepayment date. So the banks have two option to cover their hefty profits yet the little home owner has no way out. What usually happens is the home owner decides not to pay the penalty thus stopping a whole cycle of selling their Real Estate. This action has repercussions throughout the market place.  The individual home owner  has to stop in their tracks to wait for the expiry of their mortgage, which slows down the economy. In other words this home owner could be missing out in an opportunist time in the market to sell, miss out on the home of their dreams etc. 

The second scenario above allows the lender to cover the financial loss incurred by their mortgage investment in the event that interest rates decrease. So no matter what happens to interest rates, the bank's have their backs covered. Mitchell Mingie says "this is not fair as some banks will impose the mortgage rate differential which costs the home owner more money than the  three month penalty and this only deepens the profits of the banks at the cost of the homeowner". When is enough enough? So he is very pleased to see the Quebec Real Estate Board tackle this huge indifference.

The QFREB is asking the government to enact legislation that will eliminate and prevent abuse from Canadian mortgage lenders, as it pledged to do when its budget was tabled in March 2010. The QFREB proposes four possible solutions:

1) Eliminate mortgage penalties in Canada;

2) Set limits (e.g., a minimum of three months of interest and a maximum of six months of interest);

3) Use the negotiated rate (rate A) and the rate that the financial institution is willing to offer for the remaining period (rate B);

4) Use a curve of negotiated rates established periodically by an independent organization (such as the Bank of Canada) that reflects the prevailing market conditions.

Bank of Canada surprised everyone with it's January 18th announcement

In a surprise move on January 18, 2011, the Bank of Canada chose not to raise interest rates. Instead, it will maintain its target for the overnight rate at one per cent. The Bank Rate is correspondingly 1.25 per cent and the deposit rate is 0.75 per cent.

The Bank of Canada site the following reasons for their decision:

1) A global economic recovery that is proceeding at a faster pace than the Bank had anticipated and a need to keep rates down to reinforce this stronger growth.

2) A need to ensure there are no added restraints on the pace of growth and residential investment, particularly at a time when four years of federal government spending on infrastructure is about to wind down and Canadians have limited household disposable income available.

The Bank expects business investment will likely continue to rebound strongly and projects the economy will expand by 2.4 per cent in 2011 and 2.8 per cent in 2012, and return to full capacity by 2012 – a much more optimistic outlook than its forecast in October 2010.

The Bank of Canada’s next scheduled date for announcing the overnight rate target is March 1, 2011.

For more information, visit: www.bankofcanada.ca.

Canada's Federal Government brings in New Mortgage Financing Rules

Our Federal Government has just announced that they want to help Canadians save more money. So they have introduced some money saving rules too spend less.

1) The government will reduce the maximum mortgage amortization period from 35 to 30 years

2) The maximum amount of the value of a home that can be re-financed will drop from 90 per cent to 85 per cent

3) The government insurance will no longer be available to financial institutions wishing to insure home equity lines of credit

“These are prudent measures that promote responsible lending practices and further strengthen our internationally recognized mortgage finance system,” Jake Moldowan, Board president said.

The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.

Tougher rules are in response to recent warnings from the Bank of Canada Governor, Mark Carney, about rising household debt levels.

For information, visit the Federal Department of Finance at www.fin.gc.ca.

 

The Canadian Real Estate Association (CREA)

 THe Canadian Real Estate Association (CREA) is one of Canada's largest single-industry trade associations, representing more than 100,000 Realtors and working through more than 100 Real Estate Boards and Associations.

Bank of Canada finds itself walking a tightrope

With the growth outlook having slowed so much, Bank of Canada governor Mark Carney stopped his upward march of interest rates this week, leaving the bank's key rate stuck at a very low one per cent.

Read more: http://www.montrealgazette.com/news/todays-paper/With+economy+growth+slowing+Bank+Canada+faces+precarious+balancing/3703116/story.html#ixzz12ySbjF00

Manufacturing Sales in Canada

Manufacturing Sales in Canada are up 10.3% from August 2009 and was recorded ad 45.1 Billion.

British Columbia manufacturing sales gained 8.4% from the low from August 2009. All of these  indicators are good signs for a diverse economy which strengthens public confidence which translates into a stronger housing market.