Friday, December 31, 2010
Canadian Mortgage Broker News - Harper hints at tighter mortgage rules in 2011
Prime Minister Stephen Harper hinted the government may adjust mortgage rules in 2011 to help Canadians avoid going deeper into debt.
“We’ve tightened mortgage rules before,” Harper told CTV during a year-end interview that aired on Christmas Day. “If we have to do that again, we will.”
Harper also committed to eliminating the federal deficit but will not use “slash and burn” cuts, particularly in the critical areas of health and education.
Monday, December 20, 2010
Personal debt not as bad as it looks
By MICHAEL BABAD
Globe and Mail Blog 14/12/2010
Globe and Mail Blog 14/12/2010
BMO study finds consumers getting into better shape
Monday was D-Day. Statistics Canada reported on it. Bay Street's economists pontificated on it. And Mark Carney, in his own way, declared war on it."D" stands for debt, and Canada yesterday reached a high-water mark: For the first time, household debt hit 148 per cent of disposable income and, for the first time since the late 1990s, topped the U.S. equivalent.
Mr. Carney, the Bank of Canada governor, warned of the rising debt burden among Canadian families, and the risks they face when interest rates rates inevitably rise.
"Experience suggests that prolonged periods of unusually low rates can cloud assessments of financial risks," he said in a speech in Toronto. "Low rates today do not necessarily mean low rates tomorrow. Risk reversals when they happen can be fierce: The greater the complacency, the more brutal the reckoning."
Economists quickly noted the central bank's growing anxiety over the vulnerability of Canadians who may not be able to juggle their debt payments when that day of reckoning comes. "An erosion in home affordability is expected to slow the pace of mortgage debt accumulation over the next couple of years," said senior economist Pascal Gauthier of Toronto-Dominion Bank. "If it does not, an increasing and potentially worrisome proportion of Canadian households would become vulnerable to higher interest rates."
Not to play down those significant risks, BMO Nesbitt Burns questions whether the state of family finances are as bad as they would appear.
"While debt has risen to record heights, so too have financial assets, due to a rebound in equities and an underlying rise in savings," said deputy chief economist Douglas Porter. "Taking these factors into account, as well as the recovery in Canadian full-time employment, leads to the conclusion that household finances are not nearly as weakened as the dire headlines would suggest."
In his study, Mr. Porter noted that the savings rate in Canada has averaged 4 per cent in the last year, or about double the record low of 2005. And that, he said, does not paint the full picture of Canadian savings because it "narrowly" examines money saved from current income, while ignoring unrealized capital gains and returns from tax-sheltered vehicles.
A better measure, according to Mr. Porter, is the change in net financial assets as a share of disposible income, which has been extremely volatile. Smoothed over a five-year period, though, it has averaged about double the reported savings rate.
"In other words, take all cash, deposits, bonds, stocks, life insurance and pension assets and subtract household debt to derive net financial assets. These net assets have recovered from last year's lows to $2.7-trillion by the end of [the third quarter] ... For reference, that works out to $80,000 per Canadian, or 167 per cent of GDP."
Stock market gains since the depths of the meltdown have pumped up net worth, Mr. Porter said, as he cited the debt-to-asset ratio that Mr. Carney put at its highest in more than two decades. Much of the deterioration there, according to Mr. Porter, came as equities plunged and home prices dipped.
But on the flip side, the "absolute" level of net worth has been rising, stitting now at 6.1 times disposable income. His point is that though household debt has climbed faster than assets in percentage terms, some of that is accounted for in the "skewering" of assets late in 2008. In absolute terms, assets are now rising faster than debt again.
"Amid the cacophony of warnings, balance sheet repair is in fact quietly under way among Canadian households thanks to a slight rise in savings and firmer equity markets, while debt growth is poised to slow more meaningfully amid the clear cooling in the housing market," Mr. Porter added.
"... The singular focus on debt portrays an overly negative picture of Canadian household finances, which have proven incredibly resilient this cycle and likely still have enough cushion to provide a soft landing for spending in the year ahead."
Tuesday, December 7, 2010
Bank of Canada maintains overnight rate target at 1 per cent
The global economic recovery is proceeding largely as expected, although risks have increased. As anticipated, private domestic demand in the United States is picking up slowly, while growth in emerging-market economies has begun to ease to a more sustainable, but still robust, pace. In Europe, recent data have been consistent with a modest recovery. At the same time, there is an increased risk that sovereign debt concerns in several countries could trigger renewed strains in global financial markets.
The recovery in Canada is proceeding at a moderate pace, although economic activity in the second half of 2010 appears slightly weaker than the Bank projected in its October Monetary Policy Report. In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust. However, net exports were weaker than projected and continued to exert a significant drag on growth. This underlines a previously-identified risk that a combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports.
Inflation dynamics in Canada have been broadly in line with the Bank's expectations and the underlying pressures affecting prices remain largely unchanged.
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.
Information note:
The next scheduled date for announcing the overnight rate target is 18 January 2011. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on 19 January 2011.
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