Bank of Canada maintains overnight rate target at 1 per cent

OTTAWA –The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
As anticipated in the January Monetary Policy Report (MPR), the global economic recovery is becoming more firmly entrenched and is expected to continue at a steady pace.  In the United States, growth is solidifying, although consolidation of household and ultimately government balance sheets will limit the pace of the expansion.  European growth has strengthened, despite ongoing sovereign debt and banking challenges in the periphery.  The disasters that struck Japan in March will severely affect its economic activity in the first half of this year and create short-term disruptions to supply chains in advanced economies.  Robust demand from emerging-market economies is driving the underlying strength in commodity prices, which is being further reinforced by supply shocks arising from recent geopolitical events. These price increases, combined with persistent excess demand conditions in major emerging-market economies, are contributing to the emergence of broader global inflationary pressures.  Despite the significant challenges that weigh on the global outlook, global financial conditions remain very stimulative and investors have become noticeably less risk averse.

Although recent economic activity in Canada has been stronger than the Bank had anticipated, the profile is largely consistent with the underlying dynamics outlined in the January MPR.  Aggregate demand is rebalancing toward business investment and net exports, and away from government and household expenditures. As in January, the Bank expects business investment to continue to rise rapidly and the growth of consumer spending to evolve broadly in line with that of personal disposable income, although higher terms of trade and wealth are likely to support a slightly stronger profile for household expenditures than previously projected.  In contrast, the improvement in net exports is expected to be further restrained by ongoing competitiveness challenges, which have been reinforced by the recent strength of the Canadian dollar.

Overall, the Bank projects that the economy will expand by 2.9 per cent in 2011 and 2.6 per cent in 2012. Growth in 2013 is expected to equal that of potential output, at 2.1 per cent. The Bank expects that the economy will return to capacity in the middle of 2012, two quarters earlier than had been projected in the January MPR.

While underlying inflation is subdued, a number of temporary factors will boost total CPI inflation to around 3 per cent in the second quarter of 2011 before total CPI inflation converges to the 2 per cent target by the middle of 2012. This short-term volatility reflects the impact of recent sharp increases in energy prices and the ongoing boost from changes in provincial indirect taxes. Core inflation has fallen further in recent months, in part due to temporary factors. It is expected to rise gradually to 2 per cent by the middle of 2012 as excess supply in the economy is slowly absorbed, labour compensation growth stays modest, productivity recovers and inflation expectations remain well-anchored.

The persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation through weaker-than-expected net exports and larger declines in import prices.

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 material excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.

Information note:
A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 13 April 2011. The next scheduled date for announcing the overnight rate target is 31 May 2011.

How to get a better Interest Rate on your mortgage

Have you ever wondered why banks have posted mortgage rates, yet they’re willing to offer mortgages below these interest rates to some borrowers?

The Bank of Canada (BoC) wanted to find out how consumers can get the very best mortgage rate, which led to the undertaking of an extensive study on mortgage discounting.

According to their research, Canadians who get the best mortgage rates are those who:

1. Bargain

• Research proves that bank profits “are significantly higher in haggle environments.” As a result, banks prefer not to put all of their cards on the table.
• This leads to “price discrimination”, whereby banks give better deals to skilled negotiators and well-informed borrowers.

2. Have larger mortgages

• “Since few negotiate the renewal of their mortgage… (this) provides lenders with an incentive to attract consumers with larger loans who have large outstanding balances at the time of renewal.”

3. Use a mortgage broker

• The report states that brokers lower the “search costs” of getting multiple quotes. Multiple quotes (lower search costs) are strongly correlated with lower rates. 
• “Over the full sample, the average impact of a mortgage broker is to reduce rates by 17.5 basis points.”  That’s ~$1,670 of interest savings on a typical $200,000 mortgage over five years.
• Bank “mortgage specialists offer convenience to consumers, although they do not reduce search costs. This is because they work for one lender only.” 

Click here to read the working paper on the BoC study.

It’s important to understand that mortgage brokers can offer lower rates because of the large volume of mortgages we successfully fund with lenders each year. This enables mortgage brokers to offer our clients wholesale versus retail pricing.

And while mortgage brokers have access to hundreds of products available through dozens of lenders, when you approach a lender directly for a mortgage, that lender can only offer one line of mortgage products – their own.

As always, if you have questions about finding the right mortgage product and rate to suit your specific needs, I’m here to help!

Bank of Canada maintains overnight rate target at 1 per cent

FOR IMMEDIATE RELEASE 18 January 2011

CONTACT: Jeremy Harrison 613 782-8782

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Bank of Canada maintains overnight rate target at 1 per cent

OTTAWA –The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic recovery is proceeding at a somewhat faster pace than the Bank had anticipated, although risks remain elevated. Private domestic demand in the United States has picked up and will be reinforced by recently announced monetary and fiscal stimulus. European growth has also been slightly stronger than anticipated. Ongoing challenges associated with sovereign and bank balance sheets will limit the pace of the European recovery and are a significant source of uncertainty to the global outlook. In response to overheating, some emerging markets have begun to implement more restrictive policy measures. Their effectiveness will influence the path of commodity prices, which have increased significantly since the October Monetary Policy Report (MPR), largely reflecting stronger global growth.

The recovery in Canada is proceeding broadly as anticipated, with a period of more modest growth and the beginning of the expected rebalancing of demand. The contribution of government spending is expected to wind down this year, consistent with announced fiscal plans. Stretched household balance sheets are expected to restrain the pace of consumption growth and residential investment. In contrast, business investment will likely continue to rebound strongly, owing to stimulative financial conditions and competitive imperatives. Net exports are projected to contribute more to growth going forward, supported by stronger U.S. activity and global demand for commodities. However, the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance are restraining this recovery in net exports and contributing to a widening of Canada’s current account deficit to a 20-year high.

Overall, the Bank projects the economy will expand by 2.4 per cent in 2011 and 2.8 per cent in 2012 – a slightly firmer profile than had been anticipated in the October MPR. With a little more excess supply in the near term, the Bank continues to expect that the economy will return to full capacity by the end of 2012.
Underlying pressures affecting prices remain subdued, reflecting the considerable slack in the Canadian economy. Core inflation is projected to edge gradually up to 2 per cent by the end of 2012, as excess supply in the economy is slowly absorbed. Inflation expectations remain well-anchored.  Total CPI inflation is being boosted temporarily by the effects of provincial indirect taxes, but is expected to converge to the 2 per cent target by the end of 2012.

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:
A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 19 January 2011. The next scheduled date for announcing the overnight rate target is 1 March 2011.

Canadians’ borrowing costs getting pushed up - Fixed Rates Rise

If worries about the sickly U.S. economy and Ireland’s rocky financial situation seemed remote a few days ago, they shouldn’t anymore.
Those global concerns are pushing up Canadians’ borrowing costs when it comes to buying a home.

TD Canada Trust and the Royal Bank of Canada said separately that they are increasing some of their fixed-term mortgage rates by as much as one-quarter of a percentage point, effective Wednesday.
At both banks, five-year mortgages, one of the most popular among Canadian homeowners, will rise by 0.25 of a percentage point to 5.44 per cent.

Rates on three- and four-year mortgages are also increasing by a quarter of a percentage point, while one-and two-year rates will go up by 0.15 of a percentage point.
Rates for mortgages that have six, seven, and 10 year terms will be unchanged.

Five-year mortgages rates in particular are closely tied to yields (rate of return) in the bond market, which have recently rebounded, following about three months of declines.

That means Canadian banks have been paying a higher rate to borrow in the bond market in order to lend to customers. “In the past month, the five-year bond yield has risen quite substantially, given that rates are so low,” said Francis Fong, economist at TD Economics

While Canada’s economy remains relatively strong and the Bank of Canada has been hiking interest rates, concerns over the U.S. recovery continue to simmer.

The U.S. Federal Reserve hinted in late August that it planned to take additional measures to jolt the moribund U.S. economy back to life. Its preferred approach, quantitative easing, amounts to pumping more money into the economy.

The market began pricing in the Fed’s anticipated intervention, though it would take another two months to get all the details - a further $600 billion (U.S.) purchase of Treasury securities.

Since then, yields have rebounded. “The market was likely waiting a bit for the details to see what the price of bonds should really be,” Fong said, adding that the process is similar to the anticipation of a company’s stock price prior to an earnings announcement.

Anxiety in Europe also continues to play a role in the bond market as nervous investors demand higher yields in exchange for higher risk.

Irish bonds fell Tuesday as the prime minister expressed doubts that an agreement to resolve his country’s fiscal crisis could be reached at a meeting of European finance ministers.

Investors are also nervously watching as Greece and Portugal make attempts to manage their own massive fiscal crises.

Meanwhile, North American stocks fell broadly, in part due to concerns about Europe's debt problems, which may have helped demand for U.S. Treasury debt.

With files from the Star’s wire services - Source: By Madhavi Acharya-Tom Yew | Tue Nov 16 2010

Bank of Canada increases overnight rate target to 1 per cent

From Bank of Canada website:

OTTAWA –The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies. In the United States, the recovery in private demand is being held back by high unemployment and recent indicators suggest a more muted recovery in the near term.

Economic activity in Canada was slightly softer in the second quarter than the Bank had expected, although consumption and investment have evolved largely as anticipated. Going forward, consumption growth is expected to remain solid and business investment to rise strongly. Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in global bond yields.

The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary Policy Report (MPR), largely reflecting a weaker profile for U.S. activity. Inflation in Canada has been broadly in line with the Bank's expectations and its dynamics are essentially unchanged.

Against this backdrop, the Bank decided to increase its target for the overnight rate to 1 per cent. As a result of monetary policy measures taken since April, financial conditions in Canada have tightened modestly but remain exceptionally stimulative. This is 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 in light of the unusual uncertainty surrounding the outlook.

Information note:

The next scheduled date for announcing the overnight rate target is 19 October 2010. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 20 October 2010.

Canada Mortgage Interest Rates

Recently, the real estate industry has dominated the headlines. 

 

Mark Carney, Governor of the Bank of Canada, raised warning flags about the impact of higher interest rates on those Canadians who are already stretching to carry their mortgages. 

 

There’s been coverage of the dispute between the Competition Bureau and the real estate industry over proposals that would allow greater price competition among real estate agents.

 

And there have been suggestions from within the industry that there needs to be increased professionalism among real estate agents. 

 

For many Canadians, none of these is the central issue when it comes to real estate. Rather, the key question comes down to the appreciation they can expect on the investment in their home. After all, the past decade has been a great period for homeowners. Expecting this to continue, some Canadians have stretched to buy larger houses now, before prices get away from them. Research firm Investor Economics points out that residential mortgages are at a record level, approaching $1 trillion. 

 

Click here for the full Globe and Mail article.

Canada's major banks reduce mortgage rates again

Interest rates have been reduced again by 1/10th of a percentage point by each of Canada's big five banks. The new lower interest rates took effect yesterday.


The posted five-year closed mortgage rate is now 5.49 per cent annually with Royal Bank of Canada leading the way and followed by Bank of Montreal, Scotiabank, CIBC and TD Bank.

This is the second time major banks have lowered their rates this month, and follows the report from the Canadian Real Estate Association that home sales were down 6.8 per cent in July from the previous month.

 To keep informed of the latest interest rates, you can sign up for my Rate Minder email - click here - or you can also visit my website - Richmond Hill Mortgages -  to check the latest mortgages rates and use the mortgage calculators.

Bank of Canada gives notice on rate hikes, no date

By Janet Guttsman and Ka Yan Ng
OTTAWA (Reuters) - The Bank of Canada laid the groundwork on Thursday to raise interest rates from current record lows, saying it was time to start withdrawing some of the stimulus that helped pull Canada out of recession.

Reinforcing a message it delivered earlier this week, the central bank said it was no longer promising to keep its key rate at 0.25 percent until the end of this quarter.

It forecast growth of 3.7 percent this year, and said core inflation, which strips out one-off factors, was set to stay close to its 2 percent target.

"With recent improvements in the economic outlook...it is appropriate to begin to lessen the degree of monetary stimulus," it said in a low-key Monetary Policy Report that paves the way for Canada to become the first big industrialized nation to raise rates since the recession started.

"The extent and timing of any additional withdrawal of monetary stimulus will depend on the outlook for economic activity and inflation, and will be consistent with achieving the 2 percent inflation target," it added.
The report added details to a statement the bank made on Tuesday in which it left rates unchanged but made clear that higher rates were coming.

Before that statement few had forecast the bank would raise rates at its next rate-setting date on June 1. But a Reuters poll conducted on Tuesday showed 11 of Canada's 12 primary dealers now expect a June rate hike of 25 basis points.

Yields on overnight index swaps, which trade based on expectations for the Bank of Canada's key policy rate, edged lower after Thursday's report, showing the market saw rate hikes in 2010 as a touch less likely than it did before the report.

The Canadian dollar rose as high as C$0.9990 per U.S. dollar, or $1.0010, from C$1.0014 per U.S. dollar before the report.

At news conference, Bank of Canada Governor Mark Carney declined to be drawn on the timing of a rate hike. "Next question," he said tersely.


Thursday's central bank forecasts assume an average exchange rate of 99 U.S. cents per Canadian dollar, matching the average of the last month. But a strong dollar is one of a raft of factors that could upset the bank's forecasts, by slowing growth or making Canadian firms less competitive.

"There are still a fair number of key things that they are worried about," said Sheryl King, chief economist at Banc of America-Merrill Lynch.

"The immediate implications for the Canadian dollar are neutral to slightly negative right now because the market has gotten slightly excited and probably a little bit over-anticipatory about very aggressive rate increases, and I don't think these headlines validate that."

TURNING POINT
The central bank said risks to its forecasts were roughly balanced. Stronger growth could boost demand for Canadian exports and add to inflation, while a higher Canadian dollar and poor productivity could slow growth and dampen inflation.

It said global imbalances could "pose significant risks to the outlook" and insisted that advanced economies like the United States need to rein in deficits, while other countries must boost demand and allow exchange rate adjustments.

Carney, who will attend top level international talks in Washington this weekend, said talks about a global tax on banks to cover the costs of any future financial crisis are a "distraction" from core issues such as bank capitalization and liquidity.

The bank expects the private sector to become the sole driver of domestic demand in Canada by 2011, making this year a "turning point" as monetary and fiscal stimulus, which kick-started the recovery, are withdrawn.

Finance Minister Jim Flaherty, already in Washington for the Group of 20 talks, said he was "relatively comfortable" with the Bank of Canada's projections, saying they show Canada is emerging from the recession stronger than any other G7 country.

The central bank said the housing sector, marked by fierce bidding wars in Toronto and Vancouver, had exceeded its expectations, but that activity in the sector should weaken later this year.

(Additional reporting by David Ljunggren, Claire Sibonney, Jennifer Kwan, Euan Rocha and Louise Egan; editing by Peter Galloway)

Canadian Mortgage Industry Headlines

From Dominion Lending Centres Weekly Bulletin - Industry News Highlights]

Mortgage Application

Mortgage fraud may not be the most serious crime in the grand scheme of things, but it’s not something the government should be helping. But that’s exactly what real estate professionals say is a likely result of the new mortgage rules being put into place on April 19th.

“There’s going to be a dramatic increase in mortgage fraud again,” says Don Campbell, President of the Real Estate Investment Network (REIN), a Calgary-based association of investors who collectively own more than $3 billion in property. “You watch this thing start to take off.”

The reason? It’s virtually impossible for investors to buy a third rental property without putting 20% down because the new CMHC rules use a 50% add-back policy instead of an 80% offset for rental income. Essentially, that means investors get less mileage from the rent that is typically used to pay off the mortgage.

The more difficult financing multiple properties beomes, the more tempting it is to cheat the system. One way to get around the rules is to not claim properties as investment vehicles.

“People are going to start signing documents and say, ‘Ah, yes, I’m moving in,’ or ‘This is my principal residence,’ just to get a mortgage that doesn’t require 20% down, but is 5% down,” says Campbell.

Click here to read more in the Financial Post.

Continued low interest rates and quickly rising home prices are helping encourage those who have been on the fence about buying their first home to go ahead and take the plunge.

But according to a TD Canada Trust poll of female homeowners, there are a number of things that they wish they’d known before they bought – for example, 25% said they’d wished they’d researched their mortgage options better.

“Whether you choose a variable-rate or a long-term fixed interest rate mortgage will depend on your comfort with interest rate fluctuation and your ability to carry a higher mortgage payment if interest rates rise,” says Chris Wisniewski, the bank’s group product manager for real estate secured lending.

“As anticipation about rising interest rates grows, more women may be interested in exploring longer-term fixed interest rate mortgages. Either way, it’s important to consider all options early because once you put in an offer, things will move very quickly.”

Click here to read the full story in The Province.

The honeymoon isn’t exactly over, but the partners – new home buyers and low mortgage rates – drifted apart a bit last week as seven major Canadian banks raised their posted rates.

The increases reflect a strong bond market, with the key five-year closed rate affected the most, rising 0.6% to 5.85%.

It means a homeowner taking the new rate will see monthly payments on a $250,000 mortgage rise to $1,577, up from $1,489 – an increase of $88 per month.

The rate increases come three weeks before new federal government regulations on minimum mortgage qualification requirements come into effect April 19th.

Click here to read the full Calgary Sun article.

According to the March RBC Canadian Consumer Outlook Index, most Canadians (65%) are losing sleep over their finances. More than one-in-four Canadians (27%) are up at night worrying about paying off their debt, followed by nearly one-in-five (18%) who worry about having enough for retirement and 16% who worry about having no emergency fund.

The survey also found that one-in-three (34%) were not confident about any aspect of their financial situation.

More Canadians believe the national economy will worsen over the next 12 months (20% in March compared to 13% in February). Similar to February’s findings, Canadians are still divided on the overall state of the economy, but the balance remains in positive territory with 54% of Canadians believing the economy is good and 46% describing it as bad.

Overall, the March RBC Canadian Consumer Outlook Index remained virtually flat at 108 points, down from 109 in February, suggesting Canadians see the overall economic recovery as a bumpy road ahead.

Click here to read more about the RBC index.

Bank of Canada maintains overnight rate target at 1/4 per cent

As expected BoC didn't touch overnight lending rate today, see below for press release from their website.

[Source - Bank of Canada]
Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010

OTTAWA — The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

The global economic recovery is under way, supported by continued improvements in financial conditions and stronger domestic demand growth in many emerging-market economies. While the outlook for global growth through 2010 and 2011 is somewhat stronger than the Bank had projected in its October Monetary Policy Report, the recovery continues to depend on exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.

Economic growth in Canada resumed in the third quarter of 2009 and is expected to have picked up further in the fourth quarter. Total CPI inflation turned positive in the fourth quarter and the core rate of inflation has been slightly higher than expected in recent months. Nevertheless, considerable excess supply remains, and the Bank judges that the economy was operating about 3 ¼ per cent below its production capacity in the fourth quarter of 2009.

Canada's economic recovery is expected to evolve largely as anticipated in the October MPR, with the economy returning to full capacity and inflation to the 2 per cent target in the third quarter of 2011. The Bank projects that the economy will grow by 2.9 per cent in 2010 and 3.5 per cent in 2011, after contracting by 2.5 per cent in 2009.

The factors shaping the recovery are largely unchanged - policy support, increased confidence, improving financial conditions, global growth, and higher terms of trade. At the same time, the persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity in Canada. On balance, these factors have shifted the composition of aggregate demand towards growth in domestic demand and away from net exports. The private sector should become the sole driver of domestic demand growth in 2011.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. Consistent with this conditional commitment, the Bank will continue to conduct term Purchase and Resale Agreements based on existing terms and conditions and according to the accompanying schedule: http://www.bankofcanada.ca/en/notices_fmd/2010/notice_fad190110.pdf

In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April 2009 MPR.

The risks to the outlook for inflation continue to be those outlined in the October MPR. On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength of the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation. While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.

Information note:

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 21 January 2010. The next scheduled date for announcing the overnight rate target is 2 March 2010.

Housing bubble talk premature: Bank Of Canada

Great article on current status of Canadian Housing Sector

[Source - THE CANADIAN PRESS]

The Bank of Canada appears to be cooling its rhetoric on the country’s housing boom, all but ruling out raising interest rates to dissuade prospective home buyers from taking on too much mortgage debt.

Bank official David Wolf said in a speech Monday that in the central bank’s view it is premature to be talking about a housing bubble in Canada.

And he said even if the bank judged that housing prices were getting out of hand, raising interest rates is too blunt an instrument since it would have the effect of cooling off the entire economy.

“We would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession,” he said in an Edmonton speech delivered on behalf of deputy governor Timothy Lane, who could not travel to the Alberta capital for personal reasons. Notes from the speech were posted on the bank’s website.

“As a result, it would take longer for economic growth to return to potential and for inflation to get back to target,” he added.

“This is why we say monetary policy is a blunt instrument for achieving financial stability.”

Wolf, a former chief economist with Merrill Lynch Canada who is currently adviser to governor Mark Carney, said there were other ways to dampen Canadians’ enthusiasm for homes without resorting to raising interest rates.

Finance Minister Jim Flaherty has also openly discussed policy measures to cool the housing market, including raising the minimum down payment requirement above 5%, or reducing the maximum length a house can be amortized from the current 35 years.

The bank has been highlighting for months the danger of Canadians getting in over their heads in purchasing homes, warning that buyers should ensure they don’t take on too much debt.

The bank’s worry is that homeowners with large mortgages that are manageable now with interest rates at record lows won’t be able to afford their monthly payments once interest rates start rising, as is expected later this year.

Read Full Article Here

Dominion Lending Centres Mortgage Industry News Highlights

Dominion Lending Centres Mortgage Industry News Highlights - December 16th, 2009

National home sales increased by 73% in November from the trough seen a year ago, with Ontario and Quebec hitting new monthly records as buyers took advantage of record low interest rates to secure mortgages.

The national average price gained 19% compared to November 2008, at $337,231, CREA said. Since the beginning of the year, prices have gained 4.4% compared to the same time last year.

“The year-over-year increase in November continues to reflect the high degree to which the average was skewed downward last year by plummeting activity in Canada’s priciest markets, and then upward by rebounding activity,” the association said.

CREA tracked 36,383 deals on its Multiple Listing Service in November. Crediting the housing market for leading “the overall Canadian economy out of the recession,” association President Dale Ripplinger said the numbers were a sign of an entrenched recovery. “National home sales activity last month shows how strongly the housing market has rebounded since the beginning of the year.”

Click here to view the full CREA release.

Canada’s real estate market is finding its balance.
A surge in new listings in November helped ease a chronic supply shortage and temper prices from a month earlier, easing fears of a bubble in the making even though the rebound in the market continued unabated.

That’s what economists were looking for because a steady string of monthly price increases could inflate an asset bubble and lead to a severe correction when interest rates eventually rise.

For the past several months, prices have been rising month-over-month, with double-digit percentage increases posted year-over-year.

Listings in November increased by 5% compared with October, the largest one-month gain in two years, CREA said Tuesday. The increase is a sign of consumer confidence, and signals a return to normalcy in what has been an extremely volatile market.

More inventory ultimately means lower prices. The average national price in November declined by 1.1% from October to $337,231, although that was still up sharply from the depressed levels seen 12 months ago.

Prices for new homes in Canada rose 0.3% in October after a 0.5% increase the previous month, Statistics Canada said Friday.

It was the fourth straight monthly gain in the federal agency’s new-home price index, although the increase was slightly below the 0.4% many economists had expected.

The biggest price increase was in Quebec City, up 1.1%, followed by Vancouver, up 0.7%.

As the Canadian real estate market continues to rebound from a steep decline a year ago brought on by the recession, homebuyers remain nervous about the stability of the economy, according to a survey of 1,225 Royal LePage agents and brokers across Canada. But few buyers think home prices will decline again.

When asked to comment on the most common fears they are hearing from homebuyers over the past three months, 38% of Royal LePage agents and brokers cited economic stability and related factors such as job security. Some 23% said homebuyers fear they may not be able to sell their existing homes at the price they are hoping for, while 12% said buyers are hesitant because they believe prices have not yet hit the bottom of the cycle. Twenty percent of agents and brokers said they are not hearing any concerns from buyers.

The Royal LePage Advisor Survey, conducted online in November, also found that an increasing number of Canadians are purchasing homes as investment properties, and almost 50% of brokers and agents say the number of buyers intending to renovate their properties after purchase is increasing.

“Given the volatility in the real estate markets over the past 18 months, it is not surprising that the state of the economy continues to weigh on the minds of Canadians as they consider buying a home,” said Phil Soper, President and Chief Executive, Royal LePage. “Canadian real estate markets are enjoying a strong recovery as 2009 draws to a close and appear poised for healthy growth in 2010. Our survey shows that consumer confidence is edging towards normal levels. Canadians clearly believe that the worst of the recession is behind them and that the real estate market is on the path to sustainable recovery.”

Click here to view the full Royal LePage release.

A new report from Statistics Canada carries a sober message: collectively, Canadians are deeper in debt than ever before.

But economists say record-low interest rates mean that debt loads are still manageable and will likely improve as the economy begins to recover from the recession.

The StatsCan report, issued Monday, comes on the heels of a stern warning about rising debt issued last week by the Bank of Canada.

Surging stock markets pushed up Canadians’ net worth in the third quarter, StatsCan said. The S&P/TSX Composite Index rose 9.8% in the third quarter. That’s on top of a 19% gain in the previous three months.

Household net worth, the value of families’ assets such as cars, homes, savings accounts and investments, minus what they owe, reached $5.72 trillion at the end of September. That’s an increase of 2.3%, marking two quarters of gains after three consecutive drops.

But household debt, mainly mortgages and consumer credit, rose from July to September as Canadians rushed to take advantage of low interest rates. Personal sector liabilities rose to $1.41 trillion, up 1.6%.

Click here to read the full article in The Star.

Bond yields and mortgage rates could head higher before the Bank of Canada’s pledge to hold interest rates steady expires in July, the Chief Economist at Bank of Nova Scotia said last week.

“There’s a very good chance long-term rates will head up before then,” Warren Jestin said in Toronto at a briefing sponsored by the Investment Funds Institute of Canada.

He warned new homeowners with variable-rate mortgages not to be influenced by the central bank’s neutral statements on rates last Tuesday. The bank has pledged to hold rates at a historic low of 0.25% until the end of the second quarter of next year, inflation conditions permitting.

Read the “fine print” and he believes it’s likely three-year and five-year mortgage rates will be higher before July 2010.

Click here to read the full Financial Post article.

The Royal Bank says Canadians can expect to be hit by higher interest rates in the second half of next year and in 2011.

Royal Bank economists say the Bank of Canada will be among the next group of central banks to move off floor-low rates, with the Canadian bank’s overnight rate finishing 2010 at 1.25%. And RBC economists say they believe the trend-setting rate could rise to as much as 3.5% in 2011.

The bank rate has been at 0.25 for most of 2009, a rate that is encouraging borrowing but also raising concerns that Canadians may be overextending themselves.

The Royal Bank says Canada has not suffered as badly as other economies in the recession, and will be among the first, after Australia and Norway, to start raising rates.

Click here to read the full article in The Star.

Mark Carney is urging prudence among Canadians who are borrowing at super-cheap rates today but may not be able to afford higher payments tomorrow.

Household debt is now the biggest risk to the financial system, even if it is not expected to climb to levels that could cripple bank balance sheets, the central bank said last Thursday in its review of the financial system. It used a “stress test” to show that rising interest rates between mid-2010 and mid-2012 would saddle a growing number of Canadians with unmanageable debt loads.

Carney, the Bank of Canada’s Governor, who has guided monetary policy throughout the crisis, is relying on consumers to help drive a recovery juiced by his historically low interest rates. Yet he is also warning borrowers and lenders not to go overboard and to think about the consequences of hefty debt in an inevitable environment of rising rates.

The semi-annual report marked the first time the bank has analyzed the risks based on interest rates reaching specific levels.

Click here to read the full article in the Globe and Mail.

Your first-time buyer clients have a chance to win one of two gift cards from Sears worth $250 apiece by filling out the following survey by January 10th for Buying Your First Home magazine (a consumer publication owned by CMP parent company, KMI Publishing & Events Ltd): http://yourfirsthomecanada.ca

The survey targets readers of the publication, but the magazine is also interested in hearing from those who haven’t read it, but are planning to buy their first home.

Bank of Canada maintains overnight rate target at 1/4

True to his word Mark Carney and the Bank of Canada have not raised the overnight lending rate, and still maintain it will not increase until the middle if 2010.

Although consumers in Canada have been spending, propping up our economy, economists speculate that this will only last for a few quarters. What they would like to see is our trading partner's economies to get better so that Canadian exports increase, which would have a much more lasting and better effect on our overall economy.

One area consumers are spending is housing.

"Canadians are responding to the central bank's price signal and rushing to buy homes at what many see once-in-a-lifetime mortgage rates." Globe and Mail.

Bank Of Canada Press Release December 8, 2009

Canadians on mortgage "binge"

[Source - MortgageBrokerNews]

Canadians are taking out mortgages nearly eight per cent faster than they did a year ago, according to a report in the Globe and Mail, sparking concern that highly leveraged borrowers will be in over their heads when interest rates rise.

"We know that cheap money in the past caused some problems. This is a time to be prudent," CIBC economist Benjamin Tal told the Globe, adding that household debt in Canada rose 3.4 per cent in the first half of the year and the debt-to-income ratio rose to 140 per cent. In the meantime, U.S. consumers have been steadily increasing their rate of savings.

The report warned that borrowers' decision to take on bigger mortgages is not consistent with larger paycheques and could be problematic if housing prices take a hit once the buying frenzy cools down. There are also concerns of a housing "bubble" due to the high number of sales and the pace of price increases.

"It's environments like these that breed bubbles," ING Direct Canada CEO Peter Aceto told the Globe. "There is what feels to be a little bit of irrational behaviour in the real estate market, and I do think it's in a large way fuelled by how low interest rates are."

Mark Carney downplayed the risk of a housing bubble in a recent speech, saying he expects the real estate market to cool down by 2011. He added he will take necessary measures if low interest rates continue to spur out-of-the-ordinary activity.

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If you have any questions or concerns regarding your current mortgage, please feel free to contact me for a free mortgage check-up.

If you are a first time home buyer and are getting ready to make your first purchase, have you done enough research and budget analysis? I would be more than happy to speak with you to make sure you are well-informed and are confident that you will be making educated and sound decisions with respect to your purchase.

Central banks signal low rates here to stay

The low interest rates we have today may be here for longer than was originally expected. The Bank of Canada had said it planned to keep the overnight lending rate at 0.25% into the second quarter of 2009, now the rate may stay as low or very close to this rate into 2011.

This news comes after the world's leading central banking leaders met in Wyoming on the weekend. In a recent article published in the Financial Post, there a some great points on why:

"It seems more likely that there will be no increases in interest rates in any of the major economies over the next 12 to 18 months."

Most leaders around the globe agreed with this but also warned not to leave the rates too low for too long.

Read Full Article Here - Financial Post - August 24, 2009

For anyone who is renewing your mortgage in the next few months and prefers to take variable rate mortgages, you should consider a 3 year term at Prime + 0.15 = 2.4% (today). You may also want to consider a 1 year rate @ 2.65% or a 2 year rate at 2.90%. It is always best to consult with a Mortgage Professional prior to accepting your renewal and always shop around for the best mortgage product.

Is now the time for you to Refinance your Mortgage

I was recently quoted in an article that appeared in The Liberal. The Liberal is a local newspaper in Richmond Hill, Ontario.

To read the entire article online, click here: Is now time for you to refinance your mortgage?

Yes, now can be an ideal time for you to refinance your mortgage. Whether you live in Richmond Hill , or anywhere in York Region, or Toronto, or Ontario!

All it takes is a quick call your lender to find out what your pre-payment penalty is. Then you call me to find out how much you can save on your monthly payments, and how much you'll save in interest for the remainder of your current term.

Today's historically low interest rates are:

Terms Posted Rates Our Rates 1 YEAR 4.20% 2.99% 2 YEARS 4.70% 3.69% 3 YEARS 4.90% 3.50% 4 YEARS 5.14% 3.80% 5 YEARS 5.45% 3.69% 7 YEARS 6.30% 5.15% 10 YEARS 6.70% 5.25% Rates are subject to change without notice. *OAC E&OE

Prime Rate is 2.25%. Greg Barrow, Mortgage Agent 416 807 7123 gbarrow@dominionlending.ca

Bank of Canada cuts interest rate to its lowest level ever

Bank of Canada lowers overnight rate target by 1/4 percentage point to 1/4 per cent and, conditional on the inflation outlook, commits to hold current policy rate until the end of the second quarter of 2010.

April 21, 2009 Bank of Canada Press Release

Bank of Montreal was first to follow lowering it's prime rate to 2.25%

Royal Bank has also passed on savings by lowering prime to 2.25%

The other majors are expected to lower their prime to match.

Great news for variable rate mortgage holders, enjoy the low rates before they start climbing up, is there really any other way for them to go at this point? The question is when that will occur and how fast will they move. I cant imagine that will happen any time soon and Bank fo Canada signals it wont happen until some time next year.

Mortgage rate cut won't be passed on

Mortgage rate cut won't be passed on
Kristine Owram - THE CANADIAN PRESS
Although mortgage rates are coming down as lenders respond to the Bank of Canada latest rate cut, the full benefit of the reduction won't be passed on fully to home owners and buyers.
Full Article

Banks only reduce prime rate by 1/2

After the Bank of Canada cut its key rate by three-quarters of a percentage point yesterday, Canada's six largest banks only passed on 50 basis point reduction to their clients lowering prime to 3.5%.

Several other non-bank lenders have also already reduced their prime rate to 3.5% and certainly all will follow.

This is good news for customers who have variable rate products, although we can all agree that receiving the full 3/4 would be even better news.

Banks argue that given the current economic turmoil and higher costs of borrowing funds, makes it harder for them to pass on the full rate cut.

With home prices reduced and low interest rates this is certainly a great time to buy real estate in most markets in Ontario. First Time Home Buyers who have been waiting to see what happens should seriously start looking and be ready to make a decent offer on a new home before the prices start to go rise again.

If you have not been pre-approved yet, please contact me to discuss your options.
gbarrow@dominionlending.ca

Have a great Day!

Bank of Canada lowers overnight rate target by 3/4 percentage point to 1 1/2 per cent

[Source - Bank of Canada]
OTTAWA – The Bank of Canada today announced that it is lowering its target for the overnight rate by three-quarters of a percentage point to 1 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 1 3/4 per cent.

Read Full Article Here - http://www.bank-banque-canada.ca/en/fixed-dates/2008/rate_091208.html

It will be interesting to see if the banks will match the 3/4 rate drop.