April 2010

[Ally]

Foreigners continue to buy Canada

Foreign investors continue to flock to Canadian securities, snapping up bonds for the 14th month in a row in February.

Non-residents added another $6.7-billion to their holdings of Canadian securities in the month, all of which were bonds as they sold stocks and money-market paper, Statistics Canada said Monday.

Foreign investors have added Canadian bonds to their portfolios for 14 straight months, with acquisitions totalling $100.7-billion since January of last year, the agency said. Foreign holdings of federal government bonds nearly doubled during the period.

Read the full article here.

 

[Ally]

Impact of new mortgage rules limited

Ottawa`s tougher mortgage rules have sparked a rush by home buyers to get in before the new regulations take effect Monday, but may not dampen the real estate market to the extent observers believed.

"When the new mortgage insurance rules were announced, there was widespread expectations that this could help to cool the market," said Toronto-Dominion Bank economist Craig Alexander. "But the true impact should prove limited."

The rule that was expected to have the most widespread effect says all borrowers must meet the qualification standards for a five-year fixed-rate mortgage, even if they choose a variable-rate mortgage or one with a shorter term.

That means that, as of Monday April 19th, lenders must test customers who seek, for instance, a three-year variable-rate mortgage or a three-year fixed-rate mortgage, and ensure that they could still afford their monthly payments if they had to pay the higher rate that applies to a five-year fixed-rate mortgage.

But the rule doesn`t apply to customers who want a five-year fixed-rate mortgage. As a result, those customers face a less stringent test, since they need only prove that they can afford the rate they are actually signing up for.

Read the full article here.

 

[Ally]

Canada dollar closes above U.S. greenback as Bank of Canada opens door to June interest rate hike

OTTAWA — The Canadian dollar surged above parity with the U.S. greenback Tuesday after the Bank of Canada opened the door to a June rate hike and the possibility that Canada will become the first G7 country to begin unwinding emergency lending rates.

By the end of trading, the dollar had jumped 158 basis points to $1.0012 US after the central bank removed its conditional commitment to keep its key lending rate at a record-low 0.25 per cent until the second half of 2010.

"Removing the conditional commitment to keep rates on hold until July (is) as good as cementing a June 1 hike," Scotia Capital economists Derek Holt and Karen Cordes said in a research note. "That leaves open the debate over whether 25 basis points or 50 basis points is likely."

In fact, said Shaun Osborne, chief currency strategist at TD Securities, a 25-basis point hike in June is now priced into currency markets.

Osborne also said it is now likely the loonie will trade higher the greenback for months to come, as Canada gains the yield advantage of raising rates before the other G7 countries and sports some "enviable" economic characteristics, to use the words of Patti Croft, chief economist at RBC Global Asset Management

Read the full article here.

 

[Ally]

How a high Canadian dollar affects you

OTTAWA -- The Canadian dollar`s value on Tuesday surpassed that of the U.S. dollar for the first time in almost two years.

The strength of the loonie against the American currency has significant effects on Canadian consumers and businesses, both positive and negative, such as:

• Giving Canadian consumers more purchasing power at home to buy imported goods -- there is, however, often a lag in retailers adjusting prices to reflect the stronger loonie.

• Increasing the appeal of cross-border shopping trips to the United States.

• Reducing the incentive to shop at a Canadian store close to a U.S. border.

• Making out-of-country travel for Canadians more affordable, which could result in fewer Canadians staying home for vacations -- airlines and tour operators are in a good position to benefit.

• Making travel from abroad to Canada less affordable -- businesses most affected include hotels, restaurants and other tourism-related operations.

Read the full article here.

 

[Ally]

Most Canadian dealers now see June rate hike

TORONTO -- Most of Canada`s primary securities dealers now say the Bank of Canada will raise interest rates in June instead of July after the bank on Tuesday dropped its conditional pledge to hold rates steady.

In a Reuters poll conducted after the central bank announced it was jettisoning the pledge, 11 of 12 dealers surveyed by Reuters said they expect the central bank will boost rates on June 1. That is up from the three who forecast a June rate hike in a Reuters poll conducted on April 15.

On Tuesday, the bank left its key rate unchanged at 0.25%, where it has sat for the past year.

"The Bank of Canada has abandoned its conditional commitment two months ahead of schedule and that`s a clear indication it`s not comfortable delaying hiking," said Eric Lascelles, chief Canada macro strategist at TD Securities.

One dealer said rates would stay on hold at the June meeting. RBC Capital Markets said the probability has clearly risen for rates to rise earlier, but it maintained its forecast for the first hike to come in July. It said the consumer price index data for March this Friday may alter its views.

Read the full article here.

 

[Ally]

Canadians may be hit with half-point raise

OTTAWA -- Canadians could be facing higher borrowing costs as early as June and may even be hit with half-point rate rises after the Bank of Canada signalled Tuesday it was bringing its era of record-low interest rates to a close.

In a surprisingly hawkish decision that sent the Canadian dollar soaring more than US1.5¢, the bank ditched its conditional pledge to keep rates at 0.25% until July, saying the recovery was proceeding more rapidly than expected, housing activity was "very strong" and that inflation was expected to move above its 2% target over the next year.

"With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus," the bank said in its statement.

In the depths of the financial crisis a year ago, the bank pledged to keep rates at 0.25% until July, conditional on the outlook for inflation.

While most Bay Street economists expect the bank to begin raising rates with a traditional quarter percentage point increase, some said a half-point hike was a possibility.

"Removing the conditional commitment … [is] as good as cementing a June 1 hike," said Derek Holt, vice-president of economics at Scotia Capital. "That leaves open the debate over whether 25 basis points or 50 basis points is likely."

Read the full article here.

 

[Ally]

IMF upgrades Canadian economic forecast

OTTAWA — The International Monetary Fund`s latest economic outlook has Canada leading G7 countries in economic growth this year and next, while the organization`s global forecast was upgraded due to a quicker-than-expected recovery from recession.

The IMF — an organization whose mandate is, among other things, to facilitate proper functioning of the world`s financial systems — said in its World Economic Outlook that Canada`s gross domestic product would grow 3.1 per cent this year and 3.2 per cent in 2011.

"Canada entered the global crisis in good shape, and thus the exit strategy appears less challenging than elsewhere," the IMF said in its report. "The main priorities are returning Canada`s debt to a downward trajectory, ensuring that financial stability remains intact — amid rising house prices — and raising Canada`s labour productivity and potential growth."

The IMF`s forecast for Canada for this year was upgraded from the 2.6 per cent growth it expected in January, though the 2011 forecast was downgraded from 3.6 per cent.

The IMF`s expectations regarding Canada trails the Bank of Canada`s latest forecast, released Tuesday, for 3.7 per cent growth this year. Canada`s central bank, however, is slightly more cautious for next year, predicting a 3.1 per cent economic expansion.

Read the full article here.

 

[Ally]

Bank signals higher interest rates only weeks away, as dollar soars

OTTAWA - The Bank of Canada signalled Tuesday it is poised to start raising interest rates in a matter of weeks, a move that will make borrowing costs higher on everything from car loans to mortgages.

Over the last few weeks, Canadians have already felt the impact of expectations that rates were due to rise - most major Canadians banks started hiking fixed-rate mortgage rates by as much as 0.85 per cent.

But with the central bank now saying it is prepared to move off its emergency 0.25 per cent overnight rate as early as June 1, the whole menu of variable and short-term rates are being brought into play.

"The one that will be affected is the prime lending rate... so the whole gamut will go up when the Bank of Canada raises its rate," said Bank of Montreal economist Michael Gregory. Those include variable-rate mortgages, lines of credit and short-term car loans, he said.

The bank is also risking sending the Canadian dollar into the stratosphere by moving significantly and robustly before the U.S. Federal Reserve moves off its own zero per cent interest rate policy.

Read the full article here.

 

[Ally]

Existing home sales, listings, prices, all rise in March

OTTAWA - Existing home sales in Canada rebounded in March, climbing 1. 4 per cent from the month before and totalling 43,621 units on a seasonally adjusted basis, the Canadian Real Estate Association reported Thursday.

Further gains in Toronto more than offset a decline of activity in Vancouver, the board said. In February, month-over-month sales slipped 1.6 per cent.

Prices also rose, as did the number of listings, with the national average in March hitting $340,920, the second highest national average on record, $300 below the record reached last October.

Listings climbed 20 per cent over the previous record set in March 2008. A total of 97,663 properties were listed for sale in March, and 233,402 listings have come on stream since the beginning of the year, more than in any other first quarter period on record, the board said.

"With the increase in sales during the month, the number of new listings rose for the sixth straight month, rising by a big 5.9 per cent month over month following the upwardly revised 3.2 per cent month-over-month gain in February. This continues to point to a normalization in Canada`s housing market,`` said TD Securities portfolio strategist Ian Pollick.

Read the full article here.

 

[Ally]

Canadians not worries about rising mortgage rates: poll

OTTAWA - Mortgage interest rates may be on the rise, but a new poll shows minimal worry about this among Canadians holding mortgages.

The Investors Group, in announcing results of its poll released Tuesday, said Canadians "may be overly confident that they can take higher borrowing costs in stride.``

Some of the results include 35 per cent of respondents saying they are not worried about their ability to make payments as interest rates rise, and 41 per cent saying it would take rate increases of three percentage points or more to ``cause them to lose sleep.``

"Individuals aren`t as concerned as we might have thought they were,`` said Peter Veselinovich, the Investors Group`s vice-president of banking and mortgage operations. "And that probably differs from the response we would have got generation ago, where debt was very much seen as that thing you wanted to pay down very quickly.``

Discussing Canadians` apparent confidence to deal with rising mortgage rates, Veselinovich said: "Part of that may be because they are fully knowledgeable about what`s going on because they have a financial plan, they`ve had discussions, they`ve looked at what their risk tolerance is and what their affordability tolerances are.

Read the full article here.

 

[Ally]

Bank of Canada expects economic growth to slow

The economy grew at the fastest pace in more than a decade between January and March but will slow between now and 2012 as the housing market cools, the dollar trades near parity and the impact of government stimulus spending fades in Canada and the United States, the Bank of Canada said in its latest forecast.

The central bank’s projections flesh out a statement made two days ago by Governor Mark Carney, in which he kept his benchmark lending rate at an historic low but, citing hotter-than-anticipated core inflation and ``front-loaded” growth, hinted he could start raising borrowing costs as soon as his next policy decision on June 1.

"The economic recovery is proceeding somewhat more rapidly than expected,” Mr. Carney and his governing council said in their April Monetary Policy Report. "Although some slowing is anticipated from the rapid pace registered early in the year, consumer spending is expected to grow robustly throughout the projected horizon, aided by an accommodative monetary policy, gains in employment and labour income, and improved consumer confidence.’’ Gross domestic product expanded at a 5.8-per-cent annual rate in the first quarter – the most since the fourth quarter of 1999 – the central bank said, significantly revising its 3.5 per cent forecast from January.

Read the full article here.

 

[Ally]

Staging for success

It was a house in need of a little pizzazz.

Home to the elderly mother of real estate agent Rosita Fon Lee, the five-level back split near Pharmacy and Steeles Aves. in Scarborough had to be sold, but was in serious need of sparkle.

With her mom moving into a seniors` community a few kilometres away, Lee decided to call in home-stager Ella Zetser, owner of The Last Detail. Zetser turns weary houses into real estate showpieces that translate into higher sale prices for the owner.

"When you stage your house, you sell buyers on a lifestyle, creating a home that makes them say, `I want to live like that,` " Zetser explains.

The use of home stagers has grown with Toronto`s burgeoning real estate market, professionals who combine an interior decorator`s expertise with the eye of a prospective buyer, creating a clean, inviting home.

Read the full article here.

 

[Ally]

Real estate fight heats up

The battle between the Competition Bureau and the Canadian Real Estate Association over an upcoming court hearing continues to percolate.

This time the two sides are arguing over who should be allowed intervenor status at a Competition Tribunal hearing. The hearing, likely in the fall, will determine whether organized real estate is being anti-competitive by shutting out companies that would make the business of selling homes cheaper for consumers.

CREA has found an unlikely ally in the National FSBO Network (NFN). The organization says it represents some for-sale-by-owner websites who provide an alternative to the Multiple Listing Service that is controlled by Ottawa based CREA.

The network says it wants to be heard at the tribunal, because it fears that the Competition Bureau`s actions against CREA would result in for-sale-by-owner companies going out of business.

It would be "very difficult for FSBO businesses to compete with agents who would have full use of the MLS," said the organization in a submission to the tribunal. This "could ultimately lead to the demise of the FSBO businesses and the cost effective services they provide."

Lawyers for the Competition Bureau requested that the for-sale-by-owner organization not be allowed to have status at the tribunal in a response filed Tuesday.

Read the full article here.

 

[Ally]

Canada`s GDP to lead the G7, IMF asserts

Canada`s economy will grow the fastest among Group of Seven countries in 2010 and 2011, the International Monetary Fund said in its World Economic Outlook report.

The new forecast is part of an updated and upbeat global growth forecast delivered by the IMF yesterday, which nevertheless warns of rising government debt levels.

Canada`s gross domestic product will expand 3.1% in 2010 and 3.2% in 2011, the IMF said yesterday. The United States will match Canada`s growth this year before falling behind in 2011. In January, the IMF predicted that the Canadian economy would grow 2.6% this year and 3.6% in 2011.

"Canada entered the global crisis in good shape, and thus the exit strategy appears less challenging than elsewhere," the report said.

The Bank of Canada said on Tuesday it expects the economy will grow 3.7% this year and 3.1% in 2011. The central bank, which cut its benchmark lending rate to a record 0.25% last April to spur growth, indicated it will raise rates this year and become the first among G7 central banks to withdraw monetary stimulus.

Read the full article here.

 

[Ally]

CREA joins fight on competition

The Competition Bureau wants to block a network of independent private home sellers from participating in a hearing at the Competition Tribunal. The hearing is to determine if the real estate industry`s practices are anti-competitive.

It`s the latest twist in the battle between the Canadian Real Estate Association (CREA) and the government watchdog. CREA`s 98,000 agents, from more than 100 real estate boards across country, usually compete with private sellers for home listings.

But in this instance, CREA is arguing its competitors should be heard. And the Commissioner of Competition Melanie Aitken is arguing there should be no standing for the competitor at the hearing.

Ottawa-based National FSBO Network Inc. has filed an application to intervene at the hearing. "There is no suggestion that NFN offers residential real estate brokerage services or that it is a member of CREA. There is likewise no suggestion that NFN`s business is directly affected," Ms. Aitken says in a court filing.

Read the full article here.

 

[Ally]

If mortgage rates rise, does the sky fall?

These days, my banker has the air of a man who could use a long drink and a short nap. He is up to his neck in anxiety-ridden clients. They`re clamouring to renegotiate their lives.

By the dozens, they`re abandoning the good-times crapshoot of the variable rate mortgage and signing on to the solid-citizen path of the dependable, and more dependably expensive, fixed rate. This is happening everywhere. It`s like homeowners have discovered religion.

Meanwhile, that sound you hear is the clack of calculators determining just how much room homeowners will have left in their reconstituted budgets to do things like, oh, say, eat. In our part of the world, where a recent Conference Board of Canada report found that 67 per cent of Metro Vancouver households already "struggle with the high cost of housing," and devote 30 per cent or more of all income to shelter, the wiggle room would be, I estimate, diddly plus squat. I know it will be in mine.

How big is my mortgage? Enough to make me do calculations in my head to figure out how long between the time it will take me to pay it off and the time my retirement arrives, or when my heart attack kills me, whichever comes first.

Read the full article here.

 

[Ally]

Bank of Canada`s rate-increase signals provide may lesson for fedsThe Bank of Canada signaled it could raise interest rates as soon as June, in a surprise shift in stance that underscores how Canada has pulled ahead of peers like the U.S. in its economic recovery.

Though the U.S. Federal Reserve has signaled no inclination to begin raising interest rates any time soon, Fed officials are likely to watch Canada’s move closely for another reason: To better understand the impact of a central bank’s words on markets.

During the crisis, the Bank of Canada and the Fed chose similar ways to communicate their plans to the markets, with Canada making an explicit commitment to keep rates low until a set date and the Fed offering vaguer guidance that it expected to keep rates low. Fed officials paid close attention to Canada’s approach and are likely to watch market reactions carefully now that its words have changed. One possible conclusion: Making a firm commitment as Canada previously did is dangerous because you could be forced to walk away from it later. That, in turn, could unsettle markets or damage the central bank’s credibility.

Canada’s central bank said it now sees the economy growing 3.7% this year — more strongly than expected a few months ago. Thus the need for ultra-low interest rates to stimulate growth is “now passing,” the bank said in its Tuesday policy statement. “It is appropriate to begin to lessen the degree of monetary stimulus,” it said.

The statement drops the bank’s previous commitment to wait until the third quarter of the year before it tweaks rates, and sets the stage for an increase of the target overnight interest rate — now at 0.25% — as early as its next policy announcement on June 1.

Read the full article here.

 

[Ally]

Should you be concerned about new mortgage rules?

As of April 19, home-buyers will have to meet tougher standards to get a mortgage. Among the new rules is a requirement that borrowers be able to afford a five-year, fixed-rate mortgage,

even if they plan to stay short and variable. It will also be tougher for speculators to jump into the market as they`ll now have to make a 20% down payment on any property they don`t live in.

For those of us who simply own a home as principal residence the new rules don`t mean much. The real question is whether today`s tempting variable-rate mortgages offer a good value. The short answer is, they aren`t. After the U.S. Federal Reserve raised its discount rate a quarter point in mid-February, the writing is on the wall: Interest rates are about to rise, so you better lock in to a fixed term quickly, ideally before July.

Read the full article here.

 

[Ally]

Fix in for mortgages

The fix is in, when it comes to the Canadian mortgage market.

New government rules, which kicked in this week, have taken away choice from many Canadians and will force them to lock into a longterm mortgage.

You`ll hear a chorus from commentators who will say this is a good thing because Canadians can be assured of their mortgage payments over the next five years -- especially important as the Bank of Canada looks set to raise its key lending rate in June or July. An increase in prime will immediately follow and that will raise the cost of borrowing for anybody with a variable rate product.

What nobody is talking about is how the discount on variable rate products has shrunk considerably. Prime is 2.25% but some light negotiation will easily get you 50 basis points off taking your variable down to 1.75% today.

Credit markets have calmed and the cost of capital on short-term money has shrunk to the point where discounts are heading down. At the height of the credit crisis, consumers were paying 100 basis points above prime for a variable-rate product. At the best of times, variable rates have been almost 90 points below prime.

Read the full article here.

 

[Ally]

IMF upgrades Canadian economic forecast outlook

The International Monetary Fund`s latest economic outlook has Canada leading G7 countries in economic growth this year and next, while the organization`s global forecast was upgraded due to a quicker-than-expected recovery from recession.

The IMF -- an organization whose mandate is, among other things, to facilitate proper functioning of the world`s financial systems -- said in its World Economic Outlook that Canada`s gross domestic product would grow 3.1 per cent this year and 3.2 per cent in 2011.

Read the full article here.