Tighter mortgage rules announced Monday by the federal government will have a disproportionate effect on the purchasing power of homebuyers in Metro Vancouver.

Amid rising concern about increased household debt in Canada, Finance Minister Jim Flaherty cut the maximum amortization period from 35 years to 30 years and tightened the rules for mortgage-backed lines of credit. Canadians will only be able to borrow up to 85 per cent of the value of their homes, down from 90 per cent. And Ottawa will no longer insure the popular home equity lines of credit.

The amortization change, which affects purchases with a down payment of lower than 20 per cent, means somebody with a four-per-cent rate on a $300,000 mortgage would pay about $100 a month more.

The new rules will disproportionately affect first-time homebuyers and people who live in B.C., home to the country’s highest housing prices, said Tsur Somerville, director of the University of B.C. Centre for Urban Economics and Real Estate.

“The sense is, there are more first-time buyers in the Lower Mainland who have been using the 35-year mortgage,” he said in a phone interview. “Either those people have to come up with a slightly higher down payment, or they just can’t bid the same price on a house.”

The longer amortization periods have become popular among Canadians since they were introduced.

As of November, 30 per cent of all new mortgages in Canada had a 35-year amortization period, according to the Canadian Association of Accredited Mortgage Professionals. While B.C. numbers are not available, that percentage is undoubtedly higher here, Somerville said.

Ottawa discontinued the 40-year mortgage amortization and the zero down payment in October 2008, two years after the controversial features were introduced. About six per cent of existing mortgages have a 40-year amortization.

The mortgage changes come at the worst possible time for Guy Pearson.

The Surrey resident, who lives with his wife and three children in his mother-in-law’s house, has been looking to buy a house with a suite and was pre-approved for a purchase price of $340,000. The reduction in the maximum amortization period means Pearson now only qualifies for a $325,000 purchase.

“It’s not a ton, but it’s enough for me to go, ‘Oh my goodness, I’m not going to really get what I want now,’ ” said Pearson. He is now looking at staying put or house-hunting in Langley.

Somerville said that in addition to reducing purchasing power, he expects the rule changes to dampen upward pressure on housing prices and cut into renovation work funded by home equity.

“We’ve had a lot of house price appreciation, so people use the home equity line of credit,” said Somerville. “It’s not going to be as big a piggy bank.”

Feisal Panjwani, senior mortgage consultant with Invis-Feisal & Associates in Cloverdale, described the changes as “prudent” and said reducing maximum amortization was a better option than hiking the minimum down payment (now five per cent).

“The government is trying to ensure that people don’t get in over their heads,” Panjwani said.

BMO Bank of Montreal also applauded the “measured and timely” moves, noting the amortization change is equivalent to a 56-basis-point hike in interest rates.

But Vancouver mortgage broker Angela Calla described the rule changes as “misguided” because they will hurt people who have been using home equity lines of credit to pay down higher-interest debt. They will also hinder people who need to dip into their home equity because of unforeseen life events such as health issues.

The new amortization and refinancing limits take effect on March 18. The withdrawal of government insurance on home equity lines of credit takes effect on April 18.

Household debt measured as a ratio of money owed to disposable income was near 150 per cent as of the third quarter of last year. That surpasses the level of debt held by U.S. households, whose appetite for borrowing helped stoke the financial crisis of 2008.

The Bank of Canada recently warned debt levels are growing faster than income, adding the risk posed by consumer indebtedness to the domestic economy would continue to escalate without a “significant change” in how consumers borrow and banks lend.

Changing mortgage rules allows the Bank of Canada to tackle household debt while avoiding an interest rate hike.

Read more: http://www.vancouversun.com/business/Tighter+mortgage+rules+announced+feds+hardest/4123855/story.html#ixzz1BWpyHX00

OTTAWA—The Bank of Canada today raised its trend-setting interest rate for the third consecutive time—to 1 per cent—but signaled this may be the last increase until the central bank sees signs of a durable recovery.

“Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook,” bank governor Mark Carney wrote in a brief explanation of the decision.

The move means higher interest costs for some mortgage holders and consumer and business borrowers.

The bank said “economic activity in Canada was slightly softer in the second quarter” than it had expected and the economic recovery in Canada will be “slightly more gradual” than expected a few months ago. This largely reflects “a weaker profile for U.S. activity,” Carney said.

The Canadian economy expanded at a robust 5.8 per cent pace (on an annualized basis) in the January-through-March period but slipped to 2 per cent from April to June.

“The global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies,” the bank observed.

“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.”

Still, looking ahead in Canada, the bank said “consumption growth is expected to remain solid and business investment to rise strongly” as a result of accommodative borrowing conditions.

In early 2009, Carney took the unusual step of announcing that he would hold the bank’s key overnight rate at 0.25 per cent for a year to help combat the recession. But, with the Canadian economy on the mend, he has been gradually raising the rate in recent months.

However, many analysts expect this to be the last upward move in interest rates by the bank for some time, perhaps until next year, unless business conditions rapidly improve.

In fact, economists were sharply divided over whether the bank, faced with a sputtering recovery in the vital United States market, would hike rates again today or take a breather to assess the economic trends.

But Carney pointed out today that, although monetary policy in Canada has tightened since April, financial conditions remain “exceptionally stimulative.”

“Since the start of this year, the (central) bank’s outlook for economic growth in 2011 has been too rosy,” TD Bank economist Craig Alexander responded.

Based on today’s decision, “the odds favour the Bank of Canada pausing for some time” before raising its key rate again, Alexander said. “TD Economics does not anticipate another tightening before March of next year.”

The next scheduled date for announcing the overnight rate target is Oct.19.

OTTAWA – Interest rates are expected to rise for the third time in as many months on Wednesday.

A consensus of economists believe Bank of Canada governor Mark Carney will overlook recent disappointing economic data and continued U.S. weakness and hike the trendsetting rate a quarter point to one per cent.

But the answer is somewhat different when economists are asked if Carney should move.

The reasoning for hiking rates is that while Canada’s economy has noticeably slowed, there is still plenty of evidence suggesting the country no longer needs emergency rates.

But many economists also question how much further Carney can go in his current tightening phase considering that the U.S. is heading in the opposite direction.

And some believe Carney has already moved too quickly, blaming the sharp slowdown in economic activity during the spring and summer to the anticipation of higher interest rates.

Last week, Statistics Canada reported that the country’s gross domestic product rose two per cent in the second quarter, a far cry from the previous quarter’s 5.8 per cent advance.

The slowdown was most acute in the two areas that are most sensitive to interest rates, home and car sales, notes economist Carl Weinberg of High Frequency Economics.

Stock Markets have been on a steady clime as of late. Hopefully it keeps going!!

The Toronto stock market closed modestly higher Friday with the TSX failing to get much traction from an American jobs report which blew past expectations.

The S&P/TSX composite index closed 33.83 points higher at 12,144.92 as buying sentiment was tempered by a weaker than expected reading on the U.S. non-manufacturing sector and falling gold stocks.

At the same time, investors also took in some major deal making in the precious metals group.

The TSX Venture Exchange rose 34.71 points to 1,565.96.

The Canadian dollar was ahead 1.3 cents at 96.22 cents (U.S.).

The TSX had been up almost 100 points but gains were pared in the wake of a report from the Institute for Supply Management that its service sector index for August came in at 51.5, down from 54.3 July and lower than the 53.2 reading economists had expected.

“Still expanding, mind you, but at the slowest pace since October,” observed BMO Capital Markets senior economist Jennifer Lee.

“It was worrying to see the employment component (of the index) fall below 50 again,” which signals contraction.

The data took some of the shine from the U.S. Labor Department report that the U.S. private sector created 67,000 jobs last month, much higher than the 40,000 or so that analysts expected.

“However, longer term, we think that the jobs market remains challenged,” said Philip Petursson, director of institutional equities at MFC Global Investment Management, who added that the U.S. economy needs to generate at least 200,000 jobs a month.

The U.S. jobless rate edged up 0.1 of a percentage point to 9.6 per cent.

The Canadian jobs report for August comes out next Friday.

Goldcorp Inc. and Andean Resources announced a friendly agreement Friday under which Goldcorp is to acquire Andean for about $3.6 billion. The deal appeared to trump a rival $3.4-billion bid by Eldorado Gold Corp. Andean’s main asset is the Cerro Negro gold project in Argentina, estimated to contain 2.1 million ounces of gold and 20.6 million ounces of silver.

Andean shares soared $2.17 or 45 per cent to $6.98 on very heavy volume of 73.9 million shares, while Goldcorp stock was down $1.69 at $44.49 and Eldorado was off 64 cents at $19.89.

Petursson noted the acquisition is another in a string in which companies have found it more efficient to pick up other miners and not just rely on developing new production.

“The exploration costs are increasing and the actual finds are decreasing so it is much easier for a company like Goldcorp, which wants to increase production, to go out and acquire,” he said.

Overall, the gold sector was the biggest sectoral drag on the TSX as bullion prices fell back following the U.S. jobs data.

The December gold contract faded $2.30 to $1,251.10 (U.S.) an ounce. Barrick Gold lost 52 cents to $47.09.

The base metal sector moved up 0.68 per cent even as early gains in copper prices disappeared with the December copper contract on the Nymex unchanged at $3.50 (U.S.) a pound. Teck Resources climbed 92 cents to $39.70 while Western Coal Corp. rose 12 cents to $4.44.

The energy sector lost much early lift as oil prices switched direction and the October crude contract on the New York Mercantile Exchange closed down 42 cents at $74.60 (U.S.) a barrel. Cenovus Energy shed 32 cents to $29.35 while Talisman Energy gained 24 cents to $17.45.

The financials sector was the strongest group, up 1.34 per cent with investors satisfied that Canada’s five biggest banks earned a combined $4.8 billion in third-quarter profit — nine per cent more than last year — as they cashed in on strong growth in mortgages, consumer and corporate loans and other retail operations.

TD Bank, which handed in earnings Thursday, gained $1.23 to $74.40, and Manulife Financial climbed 37 cents to $13.23 on heavy volume of 10 million shares. Its shares have been hammered since early August when the insurer handed in a $2.4 billion quarterly loss.

Markets in Toronto and New York racked up strong gains this week with the TSX rising 2.23 per cent to a three-and-a-half month high after a run of strong economic data from around the world earlier in the week, particularly manufacturing data out of the U.S. and China.

The Dow Jones industrial average jumped 127.83 points Friday to at 10,447.93 for a gain of 2.89 per cent this week.

The Nasdaq composite index rose 33.74 points to 2,233.75 while the S&P 500 index gained 14.41 points to 1,104.51.

In other corporate news, remarks by Dubai’s police chief suggest a tough line in talks with BlackBerry maker Research In Motion Ltd. Lt.-Gen. Dahi Khalfan Tamim says that worries about spying by the U.S. and Israel spurred plans to sharply limit BlackBerry services in the United Arab Emirates.

The UAE plans to block BlackBerry email, messaging and Web services Oct. 11 unless authorities can gain access to the encrypted data traffic — a warning that echoed similar threats by a number of other countries, including India. Nevertheless, RIM shares edged up a penny to $46.51.

Pacific Rubiales Energy Corp. has struck an agreement to give a further interest in the Buganviles oil and gas block in Colombia to a South American subsidiary of Petrodorado Energy Ltd.

The farm-out agreement allows Petrodorado to earn a larger participating interest in the Visure and Tuqueque prospects by covering all of Pacific Rubiales’ related costs. Pacific Rubiales shares lost 17 cents to $24.40, while Petrodorado shares were up half a cent at 36.5 cents.

Air Transat, the airline operated by Transat A.T. Inc. has reached a tentative 48-month labour contract with its pilots. Transat shares gained 10 cents to $12.60.

Packaged ice company Arctic Glacier Income Fund announced Friday that a subsidiary has reached an agreement with authorities in Michigan to resolve allegations that it violated the state’s antitrust laws. Its units were up 15 cents at $1.80.

I jsut thought i would quickly drop a post about something i have been reading about alot lately. It is a very creative way to save on taxes and seems like a very good option for certain clients. Check out the website below to learn more.

http://www.tdmp.com/index.php/1howitworks

Thanks,
Cody Sjogren

 

The Canadian Press

Date: Monday Aug. 16, 2010 2:26 PM ET

Australia and Canada led the pack in housing price appreciation at the beginning of the year, followed by Sweden and the U.K. The U.S., Japan and Spain all saw declines.

But Canada has had the most severe decline in pricing in the second quarter, says the bank in a report released Tuesday.

“Demand and prices have softened alongside moderating global growth, heightened financial volatility and sluggish job creation,” said economist Adrienne Warren. “The slowdown has been the most dramatic in Canada.”

Average home prices in Canada in the first quarter were up 16.6 per cent year over year in the first quarter, but just 6.6 per cent in the second quarter, says Warren.

“We expect demand to be at a lower ebb into next year and prices on average to be roughly flat.”

Canadian housing starts fell in July for a third consecutive monthly decline as the evidence mounts that the market is slowing.

Starts fell by 1.6 per cent or an annualized 189,200 units last month according to figures released Tuesday by the Canada Mortgage and Housing Corporation.

“Canadian home sales have softened significantly so far this year and that should translate into a slower rate of housing starts in the second half of 2010,” said Bank of Montreal economist Robert Kavcic.

In Ontario, the single detached starts category weighed on home activity, while multiple unit construction, which includes condominiums and row housing edged up.

“The construction of single detached housing led the recovery in starts beginning in the second quarter of last year and is now the sector which has dampened activity in recent months,” said CMHC regional economist Ted Tsiakopoulos.

By Tony Wong Business Reporter http://www.thestar.com/article/845932–canadian-house-prices-see-dramatic-slowdown-bank

OTTAWA— The Bank of Canada acknowledged Canada’s economic recovery by raising its trend-setting interest rate to 0.75 per cent, but warned of a weak global economic picture.

While saying that consumer and government spending continue to drive the Canadian recovery, Bank Governor Mark Carney admitted that the rebound from the recession will unfold more slowly than the central bank had been predicting.

Facing an “uneven global recovery,” Carney signaled that the Bank will have to see improvements in the economic situation before it raises interest rates in Canada again.

“Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments,” Carney said in a statement accompanying the rate announcement.

The hike continues the Bank’s movement away from the rock-bottom interest-rate policy Carney adopted during the depth of the recession. After keeping the rate at 0.25 per cent for nearly a year to bolster the struggling economy, the Bank raised its overnight rate to 0.50 per cent on June 1.

But while the Canadian economy showed strong growth in the first months of this year, the current outlook is decidedly mixed, according to the central bank.

“The global economic recovery is proceeding but is not yet self-sustaining,” Carney said. In the U.S., private demand is picking up but remains uneven, and the European debt crisis, while staunched by government action, remains a question mark for the rest of the world.

“While the policy response to the European sovereign debt crisis has reduced the risk of an adverse outcome and increased the prospect of sustainable long term growth, it is expected to slow the global recovery,” the Bank’s statement said.

In Canada, the recovery will continue but at a slower place than the Bank predicted in April. Growth will hit 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. It will be late 2011 before the economy regains full steam.

“This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada.”

The Bank said housing activity is slowing sharply and, while job-creation has picked up, the needed rebound in business investment has yet to materialize.

“While employment growth has resumed, business investment appears to be held back by global uncertainties and has yet to recover from its sharp contraction during the recession,” Carney said.

The next rate setting is Sept. 8.

OTTAWA— The Bank of Canada acknowledged Canada’s economic recovery by raising its trend-setting interest rate to 0.75 per cent, but warned of a weak global economic picture.

While saying that consumer and government spending continue to drive the Canadian recovery, Bank Governor Mark Carney admitted that the rebound from the recession will unfold more slowly than the central bank had been predicting.

Facing an “uneven global recovery,” Carney signaled that the Bank will have to see improvements in the economic situation before it raises interest rates in Canada again.

“Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments,” Carney said in a statement accompanying the rate announcement.

The hike continues the Bank’s movement away from the rock-bottom interest-rate policy Carney adopted during the depth of the recession. After keeping the rate at 0.25 per cent for nearly a year to bolster the struggling economy, the Bank raised its overnight rate to 0.50 per cent on June 1.

But while the Canadian economy showed strong growth in the first months of this year, the current outlook is decidedly mixed, according to the central bank.

“The global economic recovery is proceeding but is not yet self-sustaining,” Carney said. In the U.S., private demand is picking up but remains uneven, and the European debt crisis, while staunched by government action, remains a question mark for the rest of the world.

“While the policy response to the European sovereign debt crisis has reduced the risk of an adverse outcome and increased the prospect of sustainable long term growth, it is expected to slow the global recovery,” the Bank’s statement said.

In Canada, the recovery will continue but at a slower place than the Bank predicted in April. Growth will hit 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. It will be late 2011 before the economy regains full steam.

“This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada.”

The Bank said housing activity is slowing sharply and, while job-creation has picked up, the needed rebound in business investment has yet to materialize.

“While employment growth has resumed, business investment appears to be held back by global uncertainties and has yet to recover from its sharp contraction during the recession,” Carney said.

The next rate setting is Sept. 8.

THis article found at http://www.thestar.com/article/837806–central-bank-hikes-key-interest-rate-to-0-75-per-cent

When Maple Ridge’s Monika Novosadova went house hunting this spring, she faced an embarrassment of options, looking at 28 homes before putting an offer down on a three-bedroom, single-family home at the end of June.

And it was a shrewd offer since she faced a buyer’s market, like much of British Columbia in June, with rising inventories and declining sales putting home-hunters more in control.

“I felt I had cards in my hand because it was a buyer’s market,” Novosadova said in an interview. “And I felt fairly confident the price could be negotiated down.”

So the single mother wound up getting the house in a “perfect family neighbourhood” for $421,000, not the $429,900 it listed for.

Now she’s excitedly looking forward to moving into the home in September with her 10-year-old daughter. Her realtor Ron Antalek said Novosadova’s experience is typical.

“There’s not the necessity of multiple offers and competing bids,” Antalek said. “People are able to shop. They have time to compare.”

Across B.C. in June, realtors recorded 7,722 sales through the realtor-controlled Multiple Listing Service. That was down 22.5 per cent from the same month in 2009, the period when the biggest markets were just heating up again.

Active listings in inventory climbed almost 21 per cent to hit 59,232 units in June, which equalled a 9.3-month supply based on the pace of sales, said Cameron Muir, the B.C. Real Estate Association’s chief economist.

Muir said the key influences in June were simply an extension of the ones that have dampened demand since they took hold in April: tougher qualifying rules for some mortgages, particularly for first-time buyers and those seeking secondary suites, and a shift in long-term mortgage rates.

Plus, Muir added, the hot buying activity at the end of 2009 lured in many buyers who might have waited until now to purchase, which further reduces demand.

“I don’t know if there’s anything surprising about it, but we’ve seen a transition, in Vancouver in particular, from a seller’s market at the start of the year to a buyer’s market in the summer,” Muir said.

The experience, however, differs depending on which region homebuyers are looking in.

Victoria saw the biggest decline in June sales, down almost 36 per cent from June 2009, but it was closely followed by Metro Vancouver, where sales were down almost 30 per cent, and the region around Kelowna and Vernon, where sales were down almost 27 per cent.

As for whether B.C.’s markets are simply shifting balance or heading into a deeper correction, Muir believes buying activity is likely to increase again in the fall, but not enough to put dramatic pressure on prices.

The average B.C. home price, across all home types, hit $499,908 in June, up 8.2 per cent from the same month a year ago, but slightly off the average of $504,281 over the first six months of 2010.

Muir said home inventory levels sit at the highest they’ve been since March 2009. He said they are “at or near the peak as to where they’re going to go.”

Cameron McNeill, a new-project marketer with MAC Marketing Solutions, said that while sales have slowed, the decline is nothing like the collapse of sales that was experienced in late 2008 and early 2009.

“We’ve got 15, 17 projects open [for sales] and we’re doing deals on all of them,” Mc-Neill said.

depenner@vancouversun.com

© Copyright (c) The Vancouver Sun

Read more: http://www.vancouversun.com/business/homebuyers+territory/3285937/story.html#ixzz0tsPezYAy