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Factbox – Canada changes mortgage rules to cool market

Feb 16 – Canada said on Tuesday it will bring in new mortgage rules to cool the country’s red-hot housing sector, citing the need to prevent a property price bubble even as it gave assurances the market is stable.

Here are the main changes, to take effect on April 19, followed by some background on the Canadian Mortgage insurance industry.

New Rules

• Borrowers must qualify for a five-year fixed-rate mortgage, even if hey opt for a lower variable rate. Banks and insurers typically assess the borrower’s gross debt service ratio – the cost of financing their home relative to their income 0 and their total debt service, which includes total debt payments relative to income. Currently, they use either the fixed-rate, or the greater of the variable rate and the prevailing three-year fixed rate.
• Lower the maximum amount a homeowner can withdraw when refinancing a mortgage to 90% from 95% of the value of the property. The government wants to encourage home ownership as a savings tool so is limiting this type of financing which allows borrowers to lower their equity in their home.
• Increase the required down payment to 20% from 5% for insured mortgages obtained for purchasing speculative housing investments not occupied by the owner. Borrowers buying a property they intent to live in that also includes rental units will not be subject to the 20% rule.
• The rules that did not change, despite some speculation they might, were the maximum 35-year amortization period and minimum down payment of 5% for regular home buyers who plan to live on their properties.

Information by: Thomson Reuters 2010.

*New home prices rose more than expected in September as Canada’s real estate market showed further signs of recovery. 

*Statistics Canada said last Thursday its price index rose 0.5% during the month – the biggest monthly increase since January 2008 – following a 0.1% gain in August. Economists had forecast an increase of 0.2% in September.

*Prices rose the most in Vancouver, up 1.4% from August, followed by Ottawa-Gatineau, up 1%. Calgary was 0.6% higher, and Toronto, Oshawa, ON and Saskatoon were all up 0.5%.

*The biggest declines were in Windsor, ON, down 0.7%, Sudbury, ON and Thunder Bay, ON, both down 0.5%, Victoria, off 0.2%, and Edmonton, where prices were 0.1% lower.

*Yesterday CAAMP released its fall consumer report, the Annual State of the Residential Mortgage Market in Canada.

*The report, compiled by Will Dunning, CAAMP’s Chief Economist, reveals that overall Canadians are optimistic yet cautious about the housing market rebound.

*Canadians are decidedly more optimistic this year about whether now is a good time to purchase a home: 61% feel that it is, nearly double the response from this time last year when only 38% felt that way.

*The report found two thirds of all mortgages are fixed for terms of four or more years, with five-year terms remaining the most popular at 56%. Many people who took out a mortgage in the past year, however, chose a shorter term, with 20% at one year or less.

*68% of mortgage holders have fixed-rate mortgages, while 27% have variable- and adjustable-rate mortgages. Fixed-rate mortgages are the most popular among people between the ages of 18 and 34, while those in the 55+ age group are more likely to prefer variable-rate mortgages.

*Canadians take out equity for two primary reasons according to the report: debt consolidation and renovations. One third of Canadians said the home renovation tax credit influenced their decision to renovate and 30% of equity taken out in the past year was for renovations ($12 billion of the total $41 billion in equity takeout), with an average take-out of $41,000). 

*CMHC released its 2009 Canadian Housing Observer yesterday.

*Most of its findings are dated back to year-end 2008, but it contains some interesting tidbits nonetheless.

*One key takeaway is the massive importance of Canada’s real estate industry. It’s a point that can’t be overemphasized, with housing-related spending accounting for one fifth of our economy.

*CMHC’s report says that as of December 31^st, 2008, there were $903 billion worth of mortgages outstanding in Canada.

*Canadians say their top three financial priorities are retirement savings (50%), homeownership (47%) and regular payments to reduce or eliminate debt (41%), but not everyone puts their money where their priorities are, according to results released today for the RBC Financial Priorities Poll.

*Nearly half of Canadians with homeownership as a priority (47%) don’t put money towards it. Four-in-ten of those with retirement savings as a priority don’t put money towards this goal. Canadians were more successful with their debt reduction, with eight-in-ten putting money toward this priority.

by

Sharon Linwood, AMP

Dominon Lending Centres

www.SharonLinwood.ca

With the introduction of Tax-Free Savings Accounts (TFSAs) on January 1st, 2009, 26 million Canadians aged 18 and older received $5,000 in tax-free contribution room from the federal government. On January 1st, 2010, an additional $5,000 in tax-free contribution room was added to each account. Now is an excellent time to discuss your options for making the most of this new contribution room.

Remember that it’s important to review your overall tax-planning strategy with a professional to ensure you’re making the most of any opportunities available to you, especially as a result of new savings and investment vehicles, credits and policy changes that came into effect for the first time in 2009.

By

Dominion Lending Centres Inc. January 2010 Newsletter

Over the past two years, the degree of volatility observed in the Canadian housing market has been unprecedented. Within this short timeframe, house prices fell by almost 13%, only to rebound by an impressive 21%.

Meanwhile, resale activity is now rising by close to 67% on a year-over-year basis after falling by close to 40% in 2008. Housing starts are presently 33% higher than in April 2009 despite dropping by more than 50% earlier in the recession.

In fact, no other segment of the economy has rebounded as fast as the housing market, making it one of the real surprises of this recession. This rapid uptick in housing activity, in the face of recessionary conditions elsewhere in the economy, raises concerns about its sustainability, and is causing some to wonder whether house prices are, in fact, rising too quickly given current economic fundamentals.

Tal estimates that the Canadian housing market as a whole is indeed beginning to overshoot its “fair value”. At just under $350,000, the current average price of a home is estimated to be roughly 7% over what would be consistent with current housing market fundamentals such as interest rates, income growth, rents and demographics.

But this modest overshooting is far from uniform across the country. Those figures are skewed to western Canada, which has seen the most dramatic swings in house prices over the past 24 months. That market now appears to be overvalued by roughly 10-15%, suggesting that the imbalance in the rest of the country is much more modest.

Note, however, that overvaluation does not necessarily mean a bubble or a dramatic price correction. Given that the current overvaluation is occurring in a context of historically low interest rates, what we are most likely witnessing is a temporary period of exuberance that is “borrowing” activity from the future, as households take advantage of lower rates and accelerate their borrowing and home purchasing activities.

To the extent that current activity is simply a redistribution of sales from the future to the present, the housing market of tomorrow may be in store for a more muted level of activity. Housing starts will also catch up with the sudden spurt in demand, with the increase in supply helping to moderate price trends. Rather than plunging, house prices are more likely to stagnate in coming years (or fall modestly in the most overheated markets) as fundamentals catch up with a market that has gotten ahead of itself.

With the rush of the holiday season and New Year’s celebrations now over, many Canadians are turning their attentions to their taxes. Following are some useful tips to help simplify your 2009 tax filing process and get the most out of future returns.

While the 2009 tax filing deadline is months away, January is often the best time of year for
Canadians to evaluate their overall tax strategies, especially as time will run out to realize a variety of tax-saving opportunities early this year.

By

Dominion Lending Centres Inc.
January 2010 Newsletter

Insurance Claims: According to the J.D. Power and Associates 2009 study, only about 6% of homeowners per year file a home insurance claim.

WETT Certification and Insurance:  If your home has a wood-burning fireplace, insert or stove–in short, any type of wood-burning system—chances are insurance company will want a WETT Certification, otherwise they will not provide homeowner insurance. If selling, we advise you obtain a WETT certificate confirming that the fireplace complies with current fire and building codes. Otherwise, the buyer will make it a condition of the offer to obtain certification. If the inspection reveals that the fireplace has not been installed to codes, with proper wall and ceiling clearances, this could cause your offer to fail.  

Purchase Plus Improvements Mortgages: A purchase plus improvements mortgage can eliminate the need for a 2^nd mortgage after buying a home to pay for improvements. CMHC and Genworth Financial can help you finance renovations at time of purchase by adding the estimated costs to your mortgage.

The insured loan will be based on the lower of

1.     The purchase price plus actual cost of improvements, or

2.     The “as improved” market value.

CMHC and Genworth will finance up to 95% of the value after renovations, by way of an appraisal. Lenders, however, may have a maximum amount they will finance. (Example: Now up to 10% of the initial value or $40,000).

If you are interested in a purchase plus improvements home purchase, we invite you to contact one of our experienced in-house mortgage agents with Centum Omni Mortgage Corporation (either Betty Talbot or Gidia Molinaro)

Betty Talbot-AMP

Mortgage Agent #M08000481   

CENTUM Omni Mortgage Corp #10321

282 Geneva St.,

St. Catharines, ON

L2N 2E8

ph-905-937-2594

fax-905-871-9522

Most of the recent changes are not major and won’t have a big effect on investors purchasing rental properties. Most true investors don’t like to purchase with less than 20% down payment anyway.  The major change that will have a HUGE impact is that now the allowable income used for servicing a rental property has been changed. 

The old rule allowed 80% of the rental income to be used to offset the carrying costs of the property being purchased- Prin., Int, Taxes & Heat -the new rule reduces that amount to 50% of the rental income and instead of an off-set- it is now an add-on to existing proveable income….this makes a very big difference and will further restrict the number of rental properties any individual can own. 

For investors that don’t have the 20% down payment and the proveable income (line 150 on Rev Can Notice of Assessment + 15%) to service the debt;the choices will be limited:

1. be prepared to look for private financing and the rates & fees that accompany that tyoe of financing  OR 2. look for a partner to provide the down payment and or the income to qualify….. 

Betty Talbot-AMP

Mortgage Agent #M08000481   

CENTUM Omni Mortgage Corp #10321

282 Geneva St.,

St. Catharines, ON

L2N 2E8

ph-905-937-2594

fax-905-871-9522

Here’s a checklist to help you on your way:

• Shop Smart. Ask about refund and exchange policies. Check for hidden fees. Keep track of your contracts, receipts, warranties and guarantees.
• Pay smart. Don’t deposit more than 10% in advance for any purchase and never pay more than 10% above the price in a written estimate.
• Surf Smart. Ensure that any and al websites that you shop on is secure! Look for the lock symbol in the bottom portion of your browser window or check to see if the URL contains “https”. When you see this it means that the data being sent is encrypted therefore the site is far more secure!
• Sign smart. Read the fine print on all written agreements prior to signing anything. Get all the details in writing.
• Shield smart. Safeguard your identity by protecting your PINs, SIN, bank account and credit card numbers
• Hire Smart. Get at least three references and check them carefully before hiring a professional, such as a contractor.
• Be smart. Get a free copy of your credit report at least once a year. Check it carefully and ask questions if you don’t understand.

For more information please visit www.ontario.ca/consumerprotection or call 1-800-889-9768 (toll-free)

Economists not sure the worst is over, but figures are greeted with enthusiasm anyway

March 21, 2009

Julian Beltrame
The Canadian Press

OTTAWA

Canadians hesitantly returned to the shopping malls and car dealerships in January in one of the few positive developments the staggering economy has seen in many months.

Economists welcomed the good news for a change, noting that the encouraging signal should be put in context, however.

Retail sales rose by almost double market expectations, rising by 1.9 per cent, but that only partly reverses December’s 5.2 per cent retreat, a 15-year record.

The advance included a welcome boost for the battered auto sector in the form of a 6.4 per cent hike in new car sales, but again, more recent numbers show that will be partly offset by a pull-back in February.

“Not wanting to look a retail gift horse in the mouth, any kind of a bounce, even if it was technical, is welcome news,” said Douglas Porter, deputy chief economist with BMO Capital Markets.

Porter says unless more upside surprises are revealed for the February-March period, he believes the quarter could see a shrinkage of about eight or nine per cent, easily beating 1991’s 5.9 per cent retreat for the steepest fall.

Still, many analysts say the retail sales number is consistent with an economy that is near bottom and has nowhere to go but up.

“We think the economy hit bottom in the first quarter. Certainly the signs we’re getting from the retail report and (others) bode well for the future,” said CIBC economist Krishen Rangasamy.

Aside from autos, winners in January included gas stations, which saw a 2.6 per cent pickup, clothing, food and beverage stores, pharmacies and personal care stores.

Meanwhile, sales at building and home supplies stores fell 1.4 per cent, while sales at furniture, home furnishings and electronics stores were down slightly.

by Jack Gage Thursday, March 19, 2009 
The economic downturn that’s swept the globe has crushed financial markets, exploded unemployment and shaken confidence in the banking system.

The disaster isn’t shared equally, though. Some countries are in a much better position than others to rebound from the current malaise by attracting entrepreneurs, investors and workers.

Who are they? Our fourth annual Best Countries for Business ranking looks at business conditions in 127 economies. Topping the list for 2009: Denmark, for a second straight year, takes the No. 1 spot. The U.S. is up two spots to No. 2, Canada is up four spots to No. 3, Singapore is up four to No. 4 and New Zealand is up seven to No. 5.
Go to Forbes.com to view the slideshow

Big movers included New Zealand (No. 5, up seven spots), followed by Jordan (No. 33, up 28), Australia (No. 8, up five), United Arab Emirates (No. 46, up 28) and Malaysia (No. 25, up 13).

This is not a tally of economies with high gross domestic product growth, or low unemployment. The goal is to quantify for entrepreneurs and investors the often-qualified information about dynamic economies and what they would consider desirable conditions for business.

Personal freedoms play a big part—it’s hard to start a company or find talented employees under totalitarian regimes and military juntas. So we include measures of the right to participate in free and fair elections, freedom of expression and organization.

Taking care of investors, with laws assuring recourse for minority shareholders in cases of corporate misdeeds, is also important. As a barometer for corruption, Transparency International examines the number and frequency of incidents where corporate assets are misused for personal gain.

Amid the financial turmoil this year, we added stock market performance to reflect the extent of disrepair in countries’ banking systems, as well as investor confidence in a recovery. Intellectual property rights, the promotion of free trade and low inflation, combined with low taxes on income and investment, give a snapshot of the conditions for business in each.

All was not lost in a tough year for believers in low taxes, free trade and limited bureaucracy. Despite swelling budget deficits, at least 50 countries recently cut or passed plans to cut taxes on individuals and businesses, including eight of the top 10, with individuals and investors in the U.S. and Norway left in the lurch.

The United Arab Emirates, in particular, has made strides in protecting intellectual property rights through initiatives like educational seminars for thousands of students, with support from corporations like Procter & Gamble, Estée Lauder  and General Motors. New Zealand improved its free-trade ranking by pursuing talks with India, Korea and Hong Kong, while securing the first (for a developed nation) free-trade deal with China late last year. Infrastructure improvements to the Jordanian stock market are improving enforcement of investment laws and compliance by broker members.

Sliding the most this year was Ireland (No. 14, down 12), which even saw plans for a Guinness mega-brewery shelved by parent Diageo  as exports slowed. Uruguay (No. 66, down 22), Armenia (No. 94, down 31), Paraguay (No. 99, down 29) and Latvia (No. 45, down 13) rounded out this year’s losers.

   Bulk of job losses in low-paying positions

            TORONTO

, April 15 /CNW/ - CIBC (CM: TSX; NYSE) - While Canadian jobs are disappearing at a rate not seen since the 1982 recession, the current recession has not hurt the employment quality of the remaining Canadian jobs, finds a new report from CIBC  World Markets Inc.

            Since October 2008, the Canadian economy has lost 356,000 jobs or 2.1 per cent of the national workforce. However, over the same period Canadian job quality has basically held steady, declining a trivial 0.2 per cent according to CIBC’s Employment Quality Index (EQI). The bank’s EQI ranks job quality by assessing a number of factors including the distribution of part-time vs. full-time jobs; self-employment vs. paid employment; and the compensation ranking of full-time paid employment in more than 100 industry groups.

            “The relative stability of employment quality during the current recession is at odds with not only the pace of job losses in the economy, but also the trajectory seen during previous recessions,” says Benjamin Tal, senior economist and author of the report.

            “During the 1991 recession, the three per cent drop in overall employment coincided with a 7.7 per cent drop in the quality of employment. The Canadian experience this time around is also very different than the situation in the U.S. where the quality of employment has fallen by 6.4 per cent over the past year and by 4.2 per cent in just half a year.”

            Mr. Tal attributes the surprising strength in Canadian employment quality to the fact that the bulk of job losses to date have been in low-paying positions. “To be sure, the number of high and low-paying jobs fell dramatically over the past six months, but the damage was more pronounced among low-paying jobs.

            “One reason behind the fact that employment in low-paying sectors is falling faster than in high-paying ones is the significant decline in employment among young Canadians. Total employment among workers age 20-24 fell by no less than 4.2 per cent over the past year and by 2.9 per cent over the past six months alone. And since many of these young workers are in sectors or occupations that earn less than the average wage, this trend worked as a positive for the quality measure.”

            But the key factor in the relative stability of the EQI during one of the most difficult recessions in the post-war era is the role of women in the labour force. Not only has the employment rate among women risen dramatically over the past decade, so has the quality of the jobs they hold. The number of women in professional occupations in business and finance has risen by no less than 50 per cent over the past decade — more than double the rate seen among men. The same can be found in many other sectors such as public service and the social sciences.

            “And so far, women are faring much better than men during this recession, with total employment among women hardly changed over the past year vs. a 3.3 per cent drop among men,” adds Mr. Tal. “And the fact that many of these women hold relative high quality jobs was an important factor behind the resiliency of our quality index.”

            The report also identified a number of key trends affecting job quality in the country.

    -  Full-time employment fell dramatically over the past year while part-time employment rose 3.5 per cent — with most of the gains coming during the past six months. This had a negative affect on the EQI.

   -  Over the past year paid-employment fell 2.1 per cent while self-employment rose 1.5 per cent. Since October 2008, self-employment has remained constant while paid employment has fallen by 2.4 per cent. Given that on average, the self-employed earn less than 80 per cent the income of paid employees, this trend worked as an additional negative pull on the index.

   -  Western Canada is clearly showing the fastest rate of deterioration in the quality of employment, reflecting economies that are rapidly losing momentum.

   -  In Ontario, growth in the quality of employment is now in negative territory, but only to a limited degree — despite the massive job loss in the manufacturing sector.

               -  The quality of employment in Quebec and Atlantic Canada continues to  rise.

            Mr. Tal notes that while the Canadian economy, including the Canadian labour market, will continue to deteriorate in the coming months, the strength of job quality bodes well for the future. “The relative stability of our employment quality index suggests that when the labour market turns a corner, job gains will translate into income gains much more quickly than they have in the past, as the base of the existing labour pool is of a higher quality when compared to previous recessions.”