30 Sep

What happens when you miss mortgage payments?


Posted by: Mike Hattim

By Annette McLeod

The best advice you’ll ever get about being late with your mortgage payment is not to be, but life is seldom so simple. The next best thing is taking an active approach to the problem if financial trouble hits.

The very first thing you should do is call the people who loaned you the money in the first place: your mortgage lender. Even if you know the cash-crunch is coming down the road — say, you lost your job but have enough saved up to get you through the next three months — call them now and disclose your circumstances fully.

“Contact your servicing branch!” says Michael Stechnicki, director of domestic collections for Scotiabank. “If necessary, the branch can refer you to an alternative centre within the bank that specializes in helping customers through difficult financial times.

“They will discuss each unique situation with a goal of assisting them in making payments and negotiating a reasonable solution.”

TD Canada Trust, for example, has TD Canada Trust Helps, the sort of “alternative centre” to which Scotia’s Stechnicki refers.

The bottom line: There isn’t a hard-and-fast course of action in the early stages, and the sooner you act, the better it’ll go.

It’s also true that relationships are important. Stechnicki says the bank “always takes every aspect of the relationship into account prior to making a decision.”

Tracy Axford, a mortgage agent with The Mortgage Centre in Durham Region, used to run a sales team of 12 at a credit union.

“If someone missed a payment, got a couple of weeks or a month overdue, our feeling was that we didn’t want to be a collection agency.

“We’d choose to assume they forgot, went on vacation, whatever the case.

“People get scared, but the best thing you can do is go in, talk to the lender.”

Even though her role as a broker ends when she finds her clients financing, Axford would still welcome calls from clients looking for direction.

“Hopefully your broker placed you where they did you because they have a good relationship with that lender,” she says. “The lenders want to help. They get to keep the client. They get referrals in the future. Everybody wins.

Scotiabank’s Stechnicki says being forced out of the home happens only when “all efforts and options have been exhausted by all parties. This is a last resort and rarely occurs.”

Of course, there are times when it simply doesn’t make sense to keep the house, but you still want to act long before the lawyers do.

“The bank might be okay with missing a payment or two, but if you know you can’t afford it in the long run, you need to sell it,” Axford says, especially if you have little equity.

The lender’s help, often in co-operation with an insurer, such as Canadian Mortgage and Housing Corporation (CMHC) if the loan amount is more than 80 per cent of the purchase price, can lead to a bridge loan, a longer amortization period to lower your monthly payments, a switch from a variable to a fixed-rate mortgage to save you from any future interest rate hikes, a second mortgage, or even tacking on any missed payments to the back of your current mortgage.

The worst-case scenario is a power of sale, a foreclosure method used in Ontario and some other provinces that can have you out of your home in less than two months once it gets rolling. It gives the lender the right to sell the property to recover the outstanding balance of your mortgage loan. Once the lender is paid, the new owner takes possession, and you get the balance. According to Ontario’s Mortgages Act, power of sale action can begin in as few as 15 days from default.

The best chance to stay in the home, save your credit rating, and save yourself a huge hassle, is to take action before the lawyers’ letters start coming through the mail slot.

27 Sep

Terence Corcoran – Carney vs. Dimon: Rematch!


Posted by: Mike Hattim

Terence Corcoran

Bankers’ battle highlights regulatory risks to global economy

The Mark Carney vs. Jamie Dimon matchup looks like fun. Too bad nobody got to see the fisticuffs. The headlines are certainly hot: The JPMorgan Chase CEO is said to have delivered a “tirade” and “attack” that “roasted,” “ripped” and “lashed” the governor of the Bank of Canada. Unfortunately, the actual words used by Mr. Dimon at a closed-door meeting in Washington last Friday were not reported by the Financial Times, which originated the story. All it said was that Mr. Dimon had complained that new bank rules proposed by the Basel III regulatory festival were bad for U.S. banks and he would continue to call them “anti-American.” Some lashing.

It would be surprising, however, if Mr. Dimon did not have a few choice words to say about the Basel III bank reforms and other regulatory initiatives championed by Mr. Carney. The Bank of Canada governor is a tireless and voluminous generator of global bureaucratese on the subject of bank regulation and the wonders of Basel, the G20, the Financial Stability Forum and macroprudential regulation. Most of it is beyond the ken of mortals not blessed with a willingness to put up with haze-inducing flabberwagging. A couple of days after allegedly having had Mr. Carney against the ropes, Mr. Dimon would have had to endure a speech from Mr. Carney at a meeting of the world’s top bankers in which, among other things, Canada’s top banker said:

In addition, policymakers are significantly enhancing the mutual-surveillance processes that each jurisdiction accepts as part of its membership on the Basel Committee on Banking Supervision (BCBS). In particular, the Financial Stability Board (FSB) and the standard-setting bodies, including the Basel Committee, are jointly developing an implementation-monitoring framework that will co-ordinate activities and include annual progress reports on a country-by-country basis to the FSB and G-20, as well as less frequent, but more in-depth, peer reviews. Ad hoc reviews of new legislation and regulations could also be conducted. In this regard, a review by the BCBS of new European and American rules would be welcome to build confidence today in the consistency of application in major jurisdictions.

This is the central-banker view of the world, the know-it-all top-down political perspective that fills the global economy with frameworks and implementation bodies that clog the financial system and can create paralysis. Basels past helped underwrite the crises of the past and currently appear to be undermining economic activity and laying the seeds for future crises. Bankers around the world, not just Mr. Dimon, are fighting back against what looks like a bout of regulatory overkill.

Canadian bankers have been on the same case. Just last Friday, Scotiabank CEO Rick Waugh lit into Basel on BNN. He suggested that the Basel I and Basel II structures — established by the 10 central bankers (including Canada) that run the Basel Committee on Banking Supervision in Switzerland — have a bit of a history of backing rules that create their own form of havoc. Basel rules for securitization proved to be flawed. The 2004 Basel II established capital-risk rules that said banks could hold sovereign debt at zero or minimal risk, depending on rating-agency norms, which is why many banks hold so much sovereign debt and the world is currently in a sovereign-debt crisis.

Mr. Waugh’s comments may not rank as a “tirade” or a “lashing,” but he is making some of the same points that are being made by Mr. Dimon. To some extent, Mr. Dimon has a specific and seemingly justifiable beef with Basel’s attempt to impose a “capital surcharge” on banks that are considered too big to fail. This idea, supported by the Bank of Canada, was given a fresh boost on Monday by Canada’s top regulator. Julie Dickson, Ottawa’s Superintendent of Financial Institutions, said such a surcharge was necessary to bring discipline to “Global Systemically Important Financial Institutions,” a category that is certain to capture Mr. Dimon’s bank but not, for example, Canada’s banks.

But there’s more than simple national self-defence in Mr. Dimon’s run at regulation. In his view, echoed by bankers around the world, the expanding regulatory regimes promoted by Mr. Carney and his regulatory associates are making a bit of mess of economic policy and bank regulation. In an earlier attack on regulatory expansionism, Mr. Dimon told the Financial Times:

We’re all simultaneously working on understanding and complying with Basel III rules, liquidity rules, operating capital rules, derivatives rules, Volcker rules [that ban proprietary trading], cash flow rules, Durbin rules [which limit debit-card fees charged to retailers], disclosure rules, consumer rules. I do feel all of these things together are slowing recovery, but I can’t prove it. I think that market participants are overwhelmed by the amount of regulation and change being imposed at one time.

Basel is only one part of an onslaught of national and international rules. The Dodd-Frank regime in the United States has been widely credited with setting up roadblocks to growth. In the United Kingdom, the Vickers report — described by Neil Mohindra in an accompanying commentary — promises to raise costs to the industry by £7-billion ($11-billion) and drive bankers out of Britain, where job growth in the industry is already crashing, with 35,000 layoffs pending and hiring in a state of collapse.

In there’s anything to this battle between Mr. Carney and Mr. ­Dimon, it appears to be overdue. Rematch!

26 Sep

Carney, Waugh spar over new banking rules


Posted by: Mike Hattim

Mark Carney and Rick Waugh are two of Canada’s most recognizable figures in the world of finance: Mr. Carney as the leader of a Group of Seven central bank, Mr. Waugh as the chief executive officer of Bank of Nova Scotia, which has the biggest international footprint of all the country’s lenders.

This can make them allies. But on Sunday in Washington, Mr. Carney and Mr. Waugh were opponents, squaring off over the overhaul of international financial regulation.

The venue was the annual meeting of the Institute of International Finance, the banking lobby of which Mr. Waugh is the vice-chairman. Mr. Carney, who was in the U.S. capital for weekend meetings of the International Monetary Fund and World Bank, was the day’s first speaker – and he felt no need to curry favour with his hosts.

Mr. Carney, an influential figure in the crafting of the revised financial guidelines because of his experience as an investment banker, attacked the IIF’s contention that stricter rules are hurting the economic recovery, calling the group’s arguments “questionable.” Mr. Carney also dismissed as fatalistic the notion that new rule-writing is a waste of time because creative bankers will only find ways around the obstructions.

“In no other aspect of human endeavour do men and women not strive to learn and improve,” Mr. Carney said. “The sad experience of the past few years shows that there is ample scope to improve the efficiency and resilience of the global financial system.”

Bankers are under pressure; big financial firms have fired tens of thousands of people in recent weeks.

The economies of the United States, Europe and Japan are barely growing and financial markets are volatile because of worries over the solvency of countries such as Greece and the banks that hold the debt of those nations.

On top of all that, they are facing a future of much tougher regulatory requirements, including demands that they keep much more capital in reserve and a tighter limit on the amount of lending they can do in excess of that capital base.

The Washington-based IIF, which represents 450 firms from 70 countries, is pushing back. While the group supports the broad efforts of the Group of 20 nations, its leaders say the authorities are pressing ahead too quickly.

In June, JPMorgan Chase chief executive officer Jamie Dimon confronted U.S. Federal Reserve chairman Ben Bernanke, using the question-and-answer session after a speech by Mr. Bernanke to complain about the new regulatory regime. Mr. Dimon demanded to know whether the Fed had studied how the rules were affecting economic growth. Mr. Bernanke conceded the Fed had not.

On Sunday, Mr. Waugh was more polite to the leader of his central bank. “He’s my governor and I’m very proud of that fact,” Mr. Waugh said in introductory remarks.

But the IIF’s position on regulation put Mr. Waugh and Mr. Carney on opposite sides on this day.

The IIF this month released a study that said, once implemented, the G20’s regulation plans will cut economic output by 3.2 per cent by 2015, costing 7.5 million jobs.

“There is no doubt in our minds that banks have to lend to contribute to the economic recovery,” Mr. Waugh told a small group of reporters later. Calling the level of new regulations that banks face “huge,” Mr. Waugh said it “doesn’t make much common sense” to advance with such a strict regulatory regime at the same time governments are fighting to reduce unemployment.

Mr. Carney told the IIF that its study was seriously flawed, in part because it fails to assume any economic benefit from reducing the risk for future financial crises.

Several assessments, including one by the Bank of Canada, suggest tighter regulations will have a positive impact on economic growth over the longer term. Mr. Carney emphasized that banks have until 2019 to adapt to the changes – a window that many critics say is too generous.

“It is difficult to believe that prolonging this implementation phase even further would have material impact on real economic outcomes,” Mr. Carney said. “If some institutions feel pressure today, it is because they have done too little for too long, rather than because they are being asked to do too much, too soon.”

26 Sep

Banking watchdog boosts scrutiny of consumer loans


Posted by: Mike Hattim

John Greenwood 

Canada’s banking regulator is increasing its scrutiny of loans made to consumers especially mortgages.

Amid rising concern about the high level of household debt, the Office of the Superintendent of Financial Institutions is “stepping in to increase (its) monitoring” of consumer loans made by the major banks, said the head of the organization.

Speaking to reporters in Toronto, Julie Dickson said recent moves by the government to tighten mortgage rules had a positive impact and that insured consumer home loans are not growing as fast as they were. However, Ms. Dickson said lenders also need to keep an eye on their uninsured mortgages.

She made the comments following a speech to business leaders on the lasting impact of the financial crisis on the financial system.

Ms. Dickson also said that in the face of intense competition in the financial sector there is concern that banks may lower their lending standards. She said OSFI is looking at the issue.

Regarding OFSI’s participation in the international effort to beef up financial regulations she said there will likely be a decision to publish a list of so-called too-big-to-fail banks later this year, but that no Canadian banks are likely to make the cut.

Currently there are 28 institutions being considered “but the list is not static,” she said.

23 Sep

Beware the pitfals of collateral mortgages


Posted by: Mike Hattim

By Mark Weisleder

When you apply for a mortgage, you usually just ask about the term, amount, interest rate and monthly payment. Not many people understand the difference between a conventional mortgage and a collateral mortgage. Yet many banks are now asking borrowers to sign collateral mortgages — and it could result in them being tied to this bank, for life.

With a normal conventional mortgage you bargain for a set amount, rate and amortization. Say the property is worth $250,000 — you bargain for a $200,000 loan, at 3.5 per cent, a five-year term/25-year amortization, payments of $998.54 per month.

A conventional mortgage is registered against the property for $200,000. If all the payments are made on time, the mortgage is renewed on the same terms every five years and no prepayments are made, the balance is zero after 25 years.

Should another lender decide to lend you money as a second mortgage, there is nothing stopping them from doing so, subject to their own guidelines. Under normal circumstances the principal balance on a conventional mortgage goes only one way, down. In addition, banks will accept “transfers” of conventional mortgages from other banks, at little or no cost to the consumer.

A collateral mortgage has as its primary security a promissory note or loan agreement and as “backup,” a collateral security, being a mortgage against your property. The difference is that, in most cases, the mortgage will be for 125 per cent of the value of the property. In our example, the mortgage registered will be for $312,500. But you will only receive $200,000. The loan agreement will indicate the actual amount of the loan, interest rate and monthly payments.

The collateral mortgage may indicate an interest rate of prime plus 5-10 per cent. This will permit you to go back to this same bank and borrow more money from time to time, without having to register new security. The lender will offer you a closing service, to register the mortgage against your property, at fees that will be cheaper than what a lawyer would charge you. Sounds good so far, doesn’t it?

However, this collateral loan agreement has different consequences, which are usually not explained to the borrower.

  Most banks will not accept “transfers” of collateral mortgages from other banks, so the consumer is forced to pay discharge fees to get out of one mortgage and additional fees to register a new mortgage if they move to a new lender. Thus the bank is able to tie you to them for all your lending needs indefinitely because it will cost you too much to move.

  Lenders may be able to use the collateral mortgage to offset any other unpaid debts you have. Offset is a right under Canadian law that says a lender may be able to seize equity you have in your home, over and above the mortgage balance, to pay, for example, a credit-card balance, a car loan, or any loan you may have co-signed that is in default with the same lender. In essence any loans you may have with that lender may be secured by the collateral mortgage. Nobody goes into a mortgage thinking about default, but “stuff” happens in people’s lives and 25 years is a long time.

  Let’s say your house value is $200,000. A collateral first mortgage registered on the property is $250,000. The amount owing on the mortgage is $150,000. If you were to need an additional $20,000, but the lender declines to lend it for any reason, then practically speaking you won’t be able to approach any other lender. They will not go behind a $250,000 mortgage. Your only way out would be to pay any prepayment penalty to get out of the first mortgage and pay any additional costs to get a new mortgage.

  Let’s say your mortgage is in good standing but you default under a credit line with the same bank. The bank could in most cases still start default proceedings under your mortgage, meaning you could lose the house.

  Some lenders are offering collateral mortgages in a “negative option billing” manner. Unless you are informed enough to say you want a conventional mortgage, you will be asked to sign documents for a collateral mortgage.

One bank is only offering collateral mortgages.

I spoke with David O’Gorman, the president and principal mortgage broker with MortgageLand Inc. He tells me it is his duty under the law to ensure the “suitability” of any mortgage he arranges for a consumer.

He would be hard pressed to justify the recommendation of this type of collateral first mortgage to any consumer, without disclosing both verbally and in writing the points listed above, and he believes the consumer should have their own lawyer review everything before they sign.

Lending money to people without proper explanation of the consequences is wrong. The banking regulators need to look into this practice and stop it. In the meantime, do not sign any mortgage document without discussing it first with your own lawyer.

22 Sep

How to teach your kids about credit cards


Posted by: Mike Hattim

By Gail Vax-Oxlade

Some people think that credit cards are evil and that keeping kids on the other side of the moat is the only way to keep them safe. But that assumes that credit card companies will never breach the castle.

Hey, it’s only a matter of time. Far better that kids know what to do with plastic when they finally have some in their hot little hands. And who better to teach them than you?

The first time most kids learn about credit is when they go off to university and the credit card companies start throwing cards at them. With no experience and very little understanding of the long term negative ramifications, kids start to charge. And they charge, charge, charge until they’re in a hole. That’s because they’ve had no prior experience with how a credit card works, or how to use one so that it’s a tool and not a Debt Pit.

All it takes is a little time and a thoughtful approach to help your children see credit for what it is: useful when used correctly, deadly when it isn’t. When you use your credit card to purchase gas or pay for a new bathing suit, take the time to explain how credit cards work. Show your children that you’re only putting on the card what you can afford to pay off when the bill arrives. Explain that you use your card for good reasons, not just to scratch your consumer itch, because this debt has to be repaid.

Even relatively young kids can get in on this lesson. Issue your 10- year-old a credit card on the Bank of Mom & Dad. (Have her design it herself, if you like.) Draw up a cardholder’s agreement that both of you sign. It should clearly state:

How much credit she can use: “Charges can be made to this card up to a credit limit of $40.” When the statement will arrive: “Statements will arrive on the 15th of each month.”

The date by which it must be paid—called the “grace period”: “Payments must be made by the 30th of each month.”

The minimum payment required: “The minimum payment is 25 per cent of the outstanding balance.” How much interest will be charged if the balance is not paid off in full: “If the balance is not paid in full and on time, interest will be charged on the entire balance at a rate of 25 per cent a year or 2 per cent a month.”

It’s important that you use a fairly high interest rate in your agreement. If you wuss out and charge just 5 per cent a year, the lesson that using someone else’s money can be expensive is likely to get lost. Charge a whopping amount of interest (hey, department stores charge more than 24 per cent), and the lesson will be made more real for your kids.

Your child can now use her credit card when she goes shopping with you. If she sees something she wants to buy, she gives you her card and you make the purchase on her behalf using your money.

You give her a charge receipt. Remind her that if she doesn’t have the money at home ready to pay the card off in full when the bill comes in, she’ll have to allocate her future allowance (or babysitting money) to pay the bill when it arrives. Make the point clear: she is spending money she hasn’t yet earned, and she’ll pay interest to do so if she can’t come up with the money in time.

If she spends more than she can afford, or makes her payments late, you’ll have to charge her interest on the balance. Use 24 per cent as your interest rate for this exercise, and don’t give in. To calculate the interest, multiply her monthly balance by 2 per cent (which is the equivalent of 24 per cent a year). So if she owes $16.50, the calculation would look like this: $16.50 x 2 ÷ 100 = $0.33.

Point out that she is paying that 33¢ for having used your money for a month. It is like she “rented” the $16.50 for a month, and the cost was 33¢. And if she doesn’t pay it off soon, it will continue to cost her money every month to keep “renting” the money she’s charged on her credit card.

Once your child is 16 or so (you’ll have to gauge his maturity), you may wish to get him an actual credit card (it will have to be in your name since only those 18 and older can have a credit card of their own) and start him using it and repaying it regularly. This is a habit, and one well worth the effort to form. By the time your child is 18, he should have a card in his own name so he can start building a credit history.

There are many people who don’t know how to use credit appropriately, all because they never developed the discipline of self-regulation through practice. Not all kids will be suited to using plastic. Not all adults should be using plastic. Be honest about your kids’ organization and sense of discipline. If Molly just doesn’t have the wherewithal to manage credit smartly, tell her that she isn’t well suited to using credit cards and that, until she develops some discipline, she should avoid them like the plague. Your own values will also come into play when it comes to teaching kids about how to spend money. Whether your family lives on cash or uses plastic, talk with your children about the choices you’ve made and why. And remember that they’re always watching, so be mindful of how your use of plastic influences your children.

21 Sep

Canada’s inflation hotter than expected


Posted by: Mike Hattim

OTTAWA — Canada’s annual inflation rate increased to a higher-than-expected 3.1% in August from 2.7% in July, in part due to higher prices for passenger vehicles and electricity, Statistics Canada data reported on Wednesday.

Market analysts had expected the annual rate to hit 2.9% in August. Prices grew by 0.3% in August from July, greater than the forecast 0.1% advance.

The data is unlikely to put much immediate pressure on the Bank of Canada, which expects inflation to gradually fall toward its 2.0% target.

The central bank, citing economic woes in Greece and the United States, made clear on Tuesday it was in no hurry to raise interest rates from near-record lows.

The annual core inflation rate, which excludes volatile items like gasoline, grew 1.9% in August from 1.6% in July.

Energy prices rose 13.4% during the 12 months to August, following a 12.9% increase in July. The price of passenger vehicles increased by 0.3% in the 12 months to August, compared with a 1.0% drop in the year to July.

Food prices climbed 4.4% in the year to August, compared with 4.3% in July.

© Thomson Reuters 2011

20 Sep

Canadians okay with their non-mortgage debt, RBC finds


Posted by: Mike Hattim

Canadians are confident that they have a good handle on their personal debt and believe they’re in better financial shape than most, a new survey suggested Wednesday.

The poll, conducted by Ipsos Reid and released by the Royal Bank of Canada (TSX: RY), suggested nearly 70 per cent of Canadians have achieved non-mortgage debt levels that they are comfortable managing.

More than a fifth of survey respondents, or 22 per cent, reported being entirely clear of non-mortgage debt, while a further 45 per cent were not concerned about their current debt levels, the poll said.

Three-quarters of those surveyed said they believed they were in better financial shape than their friends and neighbours.

“The majority of Canadians feel confident that they are in a better debt position than everyone else, but the reality is that effectively managing credit takes discipline and proper planning,” RBC vice-president of personal lending Richard Goyder said in a statement.

“Taking a realistic look at your financial situation, along with planning ahead, spending within your means and getting the right type of financial advice are the keys to managing debt.”

The survey suggested indebtedness weighs heavily on the national conscience. The poll found 93 per cent of respondents believed paying down debt was just as important or more critical than saving money for the future.

Young Canadians were particularly anxious about getting out of debt, the survey found, saying 39 per cent of those between 18 and 34 reported feeling anxious about the money they owe. Anxiety levels fall to 21 per cent in those 55 or older, the poll found.

Debt concerns are prompting greater caution among Canadians, RBC said, adding 39 per cent of those surveyed reported delaying vacations or major purchases because of their financial burdens.

The survey also highlighted regional differences in Canadians’ approach to debt repayment.

Anxiety about debt levels was highest in Alberta, where 36 per cent of respondents reported being concerned about their outstanding balances. Quebecers were most likely to focus on paying down debt instead of saving for the future, with 54 per cent saying repayment was their more pressing focus.

Comfort with debt levels was highest in Manitoba, where 62 per cent of respondents said they were content with their current financial situation.

The online poll of slightly more than 2,000 Canadians conducted Aug. 18 to Aug. 23 is considered accurate within plus or minus two percentage points 19 times out of 20.

19 Sep

Toronto’s wealthiest are the most indebted


Posted by: Mike Hattim

The average Toronto household is carrying nearly $40,000 in debt on top of their mortgage, according to new statistics from Environics Analytics.

And the households carrying the largest debt are in Toronto’s toniest neighbourhoods, including the Bridle Path, Rosedale, Leaside and The Beach, where single-family homes are pushing past the $1-million mark.

“There’s always the question of how much is this wealth the illusion of wealth? The fact that these people live in expensive houses doesn’t necessarily mean that they are debt-free, said Peter Miron, senior research analyst for Environics Analytics.

Environics Analytics crunched numbers from surveys of financial behaviour and data from the The Bank of Canada, Statistics Canada and the Canada Revenue Agency, among others, to get at neighbourhood and Census Metropolitan Area (CMA) data.

Even once mortgages are taken out of the equation, residents of the Bridle Path, Rosedale and The Beach have higher levels of debt than households along the Danforth. In part, this reflects their ability to carry higher levels of debt because they earn more money.

But that kind of lifestyle can topple quickly in a financial downturn.

“If you’re expecting your $150,000 bonus to cover interest on the $3-million mansion, it’s a rude awakening when the markets fall,” says Miron.

He says 2008 and the summer of 2009 saw slowed growth in real estate values in areas like Rosedale as compared to the rest of the city.

Net worth in the CMA grew 9.6 per cent to $553,896 between 2007 and 2010, with Liberty Village, downtown Toronto along the Gardiner Expressway, and Vaughan recording the strongest growth.

Of that wealth, $297,060 is in real estate equity and $296,531 in assets like stocks, bonds, mutual funds, savings, chequing accounts, term deposits and RRSPs. On average Toronto households owe $39,694 in consumer debt on top of their mortgage.

Vancouverites owe just a bit less — $38,424, while Calgarians owe much more; $50,890.

Much of that increased wealth is due to rising real estate prices, says Morin.

Environics Analytics data also show a move out of the stock market and into savings and other conservative investments. Toronto investors increased bank deposits by 47.2 per cent.

According to Statistics Canada data released Tuesday, Canadian household net worth fell 0.3 per cent in the second quarter of 2011 — a total of $21-billion — as the increase in the value of residential real estate was more than offset by the latest decline in the value of household equity holdings.

Household debt also grew during the second quarter, a result of both higher mortgages and more consumer borrowing.

The Canadian household-debt-to-income-ratio has increased from 88.6 per cent in 1990 to 150.8 per cent in 2011. 

16 Sep

Canadian housing market immune to global turmoil in August, CREA finds


Posted by: Mike Hattim

TORONTO – The global economic turmoil that roiled stock markets around the world in August did little to dampen the Canadian housing market, which continued to show strong gains in sales and prices.

Analysts expressed universal surprise on Thursday that the wildly volatile swings on North American, European and Asian stock markets had little impact on housing, which for many years has been a pillar of economic growth in Canada.

While many analysts had expected a big slump — as Canadians felt poorer because of the stock losses and worried about a weak global economy — sales of resale houses remained steady and prices rose modestly in August.

The figures, released by the body that represents the bulk of Canadian real estate agents, suggest that the housing sector — propped up by low mortgage rates and solid regional economies — will continue to underpin growth in the national economy.

For years, housing has been a big job creator across Canada and has helped boost appliance, furniture, hardware and the retail sectors. Rising prices have also made consumers feel richer and made them more likely to spend money across the economy.

The Canadian Real Estate Association’s August resale housing report showed sales of existing homes maintained the same levels seen in July and increased significantly from the same month the year before.

New listings also remained steady, the association said, adding the number of balanced local real estate markets is currently the highest on record.

Housing prices rose 7.7 per cent year-over-year to $349,916, but have come down from levels posted earlier this year as frothy markets in Toronto and Vancouver began to flatten, the brokers group said.

Scotiabank economist Adrienne Warren said the latest numbers paint a picture of a real estate market returning to a balanced state.

“It’s nice to see prices cooling off a little bit, yet not falling terribly either,” Warren said in a telephone interview. “It’s a fairly ideal market at the moment.”

Analysts say balanced real estate markets help prevent a housing bubble, where prices rise so fast and high that an inevitable plunge occurs later, with potentially devastating effects on the economy.

The collapse of the American housing market since 2008 and the current high number of foreclosures south of the border is a major reason the U.S. economy remains mired in a slump and could easily slip back into recession.

The August markets turmoil — which wiped out tens of billions of dollars in stock values in Canada — did created enough consumer worries to offset some of the benefits of low interest rates for homebuyers.

Robert Kavcic, economist with BMO Capital Markets, said low borrowing rates and strong national job growth helped to fortify the real estate market against broader volatility. But the effect of even those influential factors was beyond his expectations.

“The one thing that continues to surprise us is how steady the Canadian housing market has been,” Kavcic said. “Granted, sales were down a little bit in August, seasonally adjusted, but I would say that’s hardly disappointing given all the other turmoil we’re seeing in financial markets obviously slowing global growth.”

In its monthly report, CREA said actual sales — meaning not seasonally adjusted — came in 15.8 per cent above national levels last year. A total of 324,030 homes traded hands via the association’s Multiple Listing Service system so far this year.

The association’s chief economist Gregory Klump foresees continued strength in the Canadian market, saying low borrowing rates underpinning the current numbers are unlikely to rise in the near future.

In the August resale report, Klump noted that economic turbulence outside Canada has been been keeping interest rates low and will continue to do so.

“Those headwinds will likely persist until, and indeed after, fiscal quagmires in the U.S. and Europe are resolved,” Klump said. “In the meantime, the Bank of Canada will have ample reason to delay raising interest rates further, which is supportive for the Canadian housing market.”

The persistence of global economic woes, however, sounds alarm bells for David Madani of Capital Economics, who believes housing prices could fall by 25 per cent over the next few years.

“If you consider all the negative news that we’ve seen outside of Canada, . . . it seems to be that the economic outlook is deteriorating, and so perhaps I think what we’re seeing in housing markets is a bit at odds with the losses in confidence and uncertainty that seems to be rising,” Madani said.

“It’s a surprise, and I guess the question is, does it sound right?”

Warren predicts housing will remain strong as long as interest rates stay low, but she cautions that prices in the hot Toronto market could come under downward pressure.

The housing market in Calgary, on the other hand, is expected to pick up as oil and natural gas prices which underpin the Alberta economy rebound,

Overall, Warren said, Canadian prices should remain stable. “There’s not really a trigger out there that’s going to cause prices to come down sharply.”