17 Aug

Real estate buyers to focus on low interest, ignore market turmoil: economists


Posted by: Mike Hattim

By Mary Gazze, The Canadian Press

TORONTO – Canada’s real estate market is now expected to grow this year rather than decline, as buyers take advantage of continued low interest rates that are intended to offset recent economic turmoil, economists said Tuesday.

The comments came after the Canadian Real Estate Association revised its 2011 national forecast for home resales, citing stronger than expected sales and higher prices in the second quarter.

An earlier CREA forecast that called for a one per cent dip in sales this year from 2011. But the association said Tuesday sales should grow this year — albeit less than one per cent above 2010.

CIBC deputy chief economist Benjamin Tal said recent stock market uncertainty due to the European debt crisis and the United States credit downgrade is actually helping boost sales in Canada’s real-estate market.

Bad economic news abroad tends to keep Canadian interest rates low, he said.

Since the European and American debt issues came to a head in recent weeks, economists have been predicting the Bank of Canada will leave its key rate untouched at one per cent until at least next year.

That’s a change of opinion since last winter, when economists widely expected Canada’s central bank would begin hiking its rates sometime in 2011 as the economy strengthened — putting upward pressure on the price of borrowing.

With the global economy now looking weaker than expected, and the U.S. Federal Reserve promising last week that it will keep its key short-term rate at an all-time low for another two years, the Bank of Canada is now expected to put off raising its short-term lending rates.

“The uncertainty globally is really benefiting mortgage holders because it’s really postponing the increase in interest rates in Canada,” Tal said, explaining that when the stock market turns volatile, real estate becomes an attractive investment because of its security.

“Many people can use this opportunity to look into extremely low mortgage rates, so again the misery of other people elsewhere is helping Canadian home buyers.”

Sonya Gulati, an economist at TD Economics said the bank is anticipating that sales will be a bit more subdued in the next two months, but buyers, especially first timers and immigrants won’t likely be deterred in the longer term as interest rates stay low.

“People may be waiting to see whether or not they want to purchase homes, see if things turn for the better. It really has been a roller coaster for the last little while so we anticipate a little bit more subdued activity in August and September,” she said.

“(The stock market) will be a factor in their decision making process, but at the end of the day one of the key things for people is the interest rate and mortgage rates are still very low and they may actually want to enter the market for that reason despite the uncertainty out there.”

Meanwhile, CREA’s chief economist Gregory Klump said it is too early to judge whether buyers are moving towards or shying away from real estate due to volatile stock markets. But he said historically, real estate does well during times of uncertainty.

“During periods of financial market upheaval the Canadian real estate market has remained far more stable,” he said, adding that even though some investors put off buying high end homes during the financial crisis of 2008 and 2009, those buyers returned to real estate soon after recovery began.

“The last time we had financial market instability, the housing market wasn’t immune, but it was certainly less volatile and certainly Canadians recognize that and feel comfortable investing in their home.”

Overall, CREA said Tuesday that 450,800 housing units are expected to be sold across Canada under its Multiple Listing Service in 2011, and the average selling price will be slightly higher. In May, it had estimated 441,100 units would be sold through the MLS.

About 90 per cent of home resales in Canada are listed on MLS.

Both Gulati and Tal said they expect the market to cool off in 2012 once interest rates rise again. Gulati said home prices could fall as much as 10 per cent, while Tal said they could fall between five and 10. Gulati described this as a “correction” while Tal said it was an “adjustment,” but “nothing to write home about.”

Meanwhile, the association said it was revising its sales expectations for 2012 downward to 447,000 units, roughly on par with the 10-year average.

On a regional basis, British Columbia’s 2011 sales forecast has been revised slightly higher as home sales in the province appear to have bottomed out soon than predicted, while stronger than expected activity in Ontario is expected to offset slightly softer than anticipated demand in Quebec, Manitoba and Newfoundland and Labrador.

CREA said it now expects the national average home price will rise 7.2 per cent in 2011, to $363,500. The previous estimate in May was $352,500.

The upward revision reflects increases in the second quarter in Vancouver and acceleration in other parts of the country, particularly Toronto. Vancouver has experienced a surge in multimillion-dollar home sales this year.

CREA said the two markets have a high number of sales and average price, so they play a big part in influencing the national average.

Additional new listings should also result in a more balanced resale housing market in most provinces, with the national average price forecast to stabilize in 2012.

16 Aug

What you (really) made on your home


Posted by: Mike Hattim

In recent years, homeowners have been feeling pretty smug about their investing prowess as they’ve watched home prices surge. But the costs homeowners face to buy, sell and maintain their homes mean they haven’t made nearly as much as they think.

In this example, we calculated your real profit — after expenses — if you bought a typical home in the Greater Toronto Area 10 years ago, and sold it this year. We assume that it was purchased with a 10 per cent down payment and a five per cent fixed-rate mortgage. The home would have cost $248,601 to buy in 2001 and today it would sell for a hefty $456,147.

So does that mean you made $200,000? Not even close.

2011 sale price: $456,147

• $168,434 for the amount still owing on the mortgage;
• $4,000 for legal fees to buy and sell;
• $22,807 in realtor fees for the sale;
• $159,265 for 10 years of mortgage payments ($1,327 per month for 10 years);
• $42,000 for 10 years of property taxes;
• $19,000 for 10 years of home maintenance;
• $2,211 for the land transfer tax when the home was bought;
• $24,860 for the original down payment; and
• $358 in provincial sales tax on the mortgage insurance.

Actual profit: $13,212

Plus, you got a place to live for the last 10 years, of course.

15 Aug

Shall I rent or shall I own?


Posted by: Mike Hattim

Donnie Wahlberg may have been a New Kid on The Block, but his cutie-boy brother Mark Wahlberg, (Marky Mark to those who remember the 90s) has become a new kid on a block in Toronto…in the form of a $12 million penthouse condo. The posh bachelor pad is close to Wahlberg’s usual digs at The Hazelton Hotel, where rooms run between $500 to $2400 a night. Given that the star of Boogie NightsThe Fighter and former leader of hip-hop group The Funky Bunch spends an increasing amount of time filming movies in the city and hanging out at the Toronto International Film Festival, it seems he’s decided to quit forking over money in hotel room rentals and instead buy his own place.

Wahlberg probably has the advantage of owning his new condo outright, giving him full equity ownership. For the rest of us mortgage-carrying mortals, however, now is not an ideal time to be investing in a condo in Toronto. According to Ben Rabidoux, financial adviser, real estate expert and author of the website The Economic Analyst (www.TheEconomicAnalyst.com), in most Canadian cities right now (but certainly not all), the house price versus rent ratio and the house price versus income ratio are at or near their all-time highs. This suggests that, overwhelmingly, it makes better financial sense to rent in these markets and invest your equity elsewhere.

There is no free equity

Building equity is undeniably a wise financial move. The mistake many people make is equating equity with a mortgage. A mortgage doesn’t give you equity; equity is only as much as you pay. A down payment is equity. Anything you pay toward the principle of your mortgage is equity. Paying interest to the bank is as useful to your financial situation as paying rent to your landlord.

If you start out with a very small down payment and arrange for a long future of low monthly payments, your ability to build equity before selling your home becomes seriously limited. With less than 15 per cent equity, you may end up merely trading one mortgage for another. If there is a drop in the housing market, the value of your home could fall to the point that if you were to sell it, you would owe more on your mortgage than the actual selling price of the house. Once it’s sold, you’d have to write the bank a cheque to make up for the difference. This is called a ‘negative equity’ situation and while it’s a worst case, it happens more often than you might realize.

Renting space or renting money?


Most likely, everyone from your father to your banker has drilled the idea into your head that renting is a waste of money and buying a home is the only prudent way to build equity. According to Rabidoux, this is not always the case, especially in markets that are currently overvalued and highly vulnerable to a real estate crash, such as Vancouver, Victoria and the Toronto condo market.

“There is a very unfortunate stigma attached to renting,” Rabidoux says. “This is dangerous and damaging to many people’s finances. The reality is that the majority of new home ‘owners’ are still renters; they’ve just gone from renting space to renting money.” With rents in large cities exceptionally cheap compared to owning, home ownership becomes a very steep tax on those unwilling to crunch the numbers or who give into the societal pressure to buy. Don’t be that girl!

Comparing the costs

Rabidoux suggests wannabe-homeowners start by figuring out the monthly costs of owning a home.  Calculate the mortgage principal and interest, taxes, insurance and any additional monthly payments such as condo fees. Also add the often ignored but very necessary maintenance costs — two per cent of the cost of the house per year is a good rule of thumb — then divide by 12 to get a monthly cost.

Next, figure out what it would cost you to rent a similar property in the area. Kijiji and online classifieds are a good place to start. Realtors can also help with rent statistics. Remember that rent is often negotiable, particularly if you don’t have pets or kids, if you do have a stable job, are a non-smoker and have good references.  Landlords often give steep discounts to ‘good tenants’ they believe will care for their property.

Most importantly, consider the lost opportunity cost of your down payment: what you could be earning by investing your equity in something other than real estate. With stocks or bonds, for example, you can earn a minimum of three to four per cent with a very conservative, low-risk investment. If you have a $20,000 down payment, that means you are foregoing at least $600-$800 a year that this money could be earning you.

You may be tempted to think that you can easily earn that kind of return on the value of a home, as house prices climb to teetering levels and buyers engage in wild bidding wars for the luxury of overleveraging themselves to buy their dream home. Yet, the definition of a housing ‘bubble’ is an unreal, overly inflated market where people expect prices to rise forever. Depending on the market where you live, you must consider the risk of when the bubble may burst and how you might safely build equity elsewhere. This needs to be factored into the ‘true’ cost of ownership.

Save the difference


If you find a substantial cost difference between owning and renting and choose to rent, you have a great opportunity to have the best of both worlds — rent the place you want and bank the difference. Of course, there is no financial benefit if you end up using the cost savings to splash out every month on Frette linens, Fall & Barrow paint and a fabulous home theatre system. The wise renter is disciplined enough to invest her monthly cost savings and therefore build that equity that everyone has told you can only come from home ownership.

The long-term view

If you plan to buy a home and live in it for many years or even decades, you will likely ride out numerous market fluctuations, will be more likely to sell at a profit and less likely to find yourself in a negative equity situation. As for Marky Mark, he’s probably not in it for the profit; he has his movies for that. We do hope, however, that his foray into Canadian real estate means that he and his “Good Vibrations” will be here for a very long time.

12 Aug

Market downturn could jeopardize surprisingly strong housing market


Posted by: Mike Hattim

By Sunny Freeman, The Canadian Press

A stronger than expected housing market has helped propel growth in the Canadian economy this year, but economists say recent economic and market tumult could jeopardize momentum in the sector.

The Canada Mortgage and Housing Corp. said Monday that national housing starts rose to 205,100 units on a seasonally adjusted basis in July, 11.6 per cent higher than the 188,900 reported in the same month last year and 4.3 per cent more than the 196,600 recorded this June.

However, the pickup, driven by strong construction on condos and apartment buildings in urban centres, is likely due to builders catching up to robust demand last year, rather than expectations of coming growth.

Home building activity has been increasing through the first seven months of 2011, but starts are still down 4.6 per cent from a year ago.

During the first half of last year, the market was rebounding from recession and buyers were on a tear, prompting an influx of demand and the need to build more units.

Housing starts tend to lag activity in the resale market, and economists believe the recent strong construction activity is the result of increased demand last year.

But they doubt whether the pace can continue as the prospect of a double dip recession in the U.S. forces them to rethink the prospects for economic growth in Canada.

The housing market and the Canadian economy as a whole are more susceptible to an economic downturn than they were at the outset of the 2008-2009 recession, said Diana Petramala, an economist with TD Bank.

“Households aren’t starting in a position where they have a strong ability to take on more debt (and) continue spending despite the economic downturn and help drive a recovery,” Petramala said.

“I think at this point . . . households would start to ease on their rate of borrowing and probably cut back on purchases.”

Any continuation of stock market volatility could weaken consumer and business confidence, meaning that households may hold back on big ticket purchases like home buying and developers could be jittery about new builds, she added.

“Home prices in Canada are 10 to 15 per cent overvalued, particularly in Toronto and Vancouver,” she said. “That certainly leaves the market susceptible to any potential economic downturn.”

TD Economics has predicted that home prices will contract by about 16 per cent in 2011-2012, but Petramala said that could now happen sooner than expected.

Stock markets — although they rebounded sharply on Tuesday — have seen severe selloffs in recent days over fears about U.S. and European debt loads and the potential for a double-dip recession south of the border.

The Canadian economy is so closely linked to the U.S. that slower American growth translates into less demand for Canadian goods, and lower employment and income growth in Canada.

Those worries could soon sour the mood of real estate investors who may not want to bet on an improving economy by the time new builds go on the market.

Buyer sentiment is “vulnerable to recent market turmoil,” as the large decline on stock markets has a negative effect on consumer wealth and confidence, making them less inclined to make big purchases, said CIBC economist Peter Buchanan.

“That of course can cut both ways, it can make investors fearful of buying real estate, on the other hand it does mean the Bank of Canada won’t be tightening quite as early,” Buchanan said.

“The other thing is that if people are worried about putting their money into the equity market, hey real estate may not look so bad.”

Many observers believe the Bank of Canada may now hold its overnight rate — which affects variable mortgage rates tied to bank prime rates — at the current low one per cent until next spring. Fixed rate mortgages could also fall as bond markets react to government debt issues.

The U.S. Federal Reserve announced Tuesday that it will likely keep interest rates at record lows near zero through mid-2013. The Fed had previously said only that it would keep it low for “an extended period” and the more explicit time frame was aimed at giving nervous investors a clearer picture of how long they will be able to obtain ultra-cheap credit.

Low mortgage rates are a big incentive for buyers to get into the market, and led to rampant activity last year.

But even with low rates that make the cost of carrying a mortgage cheaper, pent up demand in the housing market could be largely exhausted.

Many buyers rushed into the market during the closing months of 2009 and early 2010, when the Bank of Canada rate was set at an emergency low of 0.25 per cent. Others decided to buy before the implementation of the new HST in Ontario and British Colombia in July 2010, or to beat two rounds of tighter lending rules.

The trend toward much higher construction on multiple-unit dwellings, and a decline in single family starts, could indicate the housing market isn’t as strong as it appears at first glance. Single family homes are usually the barometer of growth in household formation and more multiple unit homes could signal more people are looking to rent.

Multiple urban starts were 13 per cent higher at 120,200 units, while urban single starts decreased by 7.8 per cent to 65,000 units.

For the first seven months of 2011, multiple units starts are up 16.4 per cent year over year while single units are down 22.1 per cent.

CMHC overall urban starts were up 36.1 per cent in the Atlantic region, 33 per cent in British Columbia and 1.7 per cent in Ontario. Quebec posted a decrease of 7.8 per cent in July, while urban starts were off 0.3 per cent in the Prairies

11 Aug

Analysis: Canada rates seen lower for longer; cuts unlikely


Posted by: Mike Hattim

TORONTO (Reuters) – A dovish U.S. Federal Reserve will likely force the Bank of Canada to keep its interest rates lower for longer, but market bets on a Canadian rate cut by year-end are unlikely to pay off.

Analysts said a rate cut would send all the wrong signals for an economy that is growing, albeit slowly, and could hurt the central bank’s credibility.

“In the current situation, a rate cut by the Bank of Canada would mean that you have a second recession in Canada,” said , Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities International in New York.

“And that’s not something that we see happening.”

Expectations for Canadian interest rates have swung wildly in recent weeks. As recently as July 19 traders priced in higher expectations of a rate increase this year, following unexpectedly hawkish language from the Bank of Canada.

A July 20 survey of primary dealers showed most saw a rate hike in September or October.

But tightening expectations fell sharply as the U.S. debt ceiling debate and the downgrading of the U.S. credit rating by Standard & Poor’s fueled fears of a recession there, triggering some of the worst stock market selloffs since the collapse of Lehman Brothers in 2008.

Canadian overnight index swaps, which trade based on expectations for the Bank of Canada’s key policy rate, and short-dated government debt began to show expectations of a rate cut rather than an increase.

The Canadian dollar also fell more than a nickel against the greenback as the outlook for monetary policy moved from tightening to easing.

Rate cut expectations were reinforced by the U.S. Federal Reserve ‘s unprecedented announcement on Tuesday that it would likely keep rates near zero for another two years.

Analysts said the Bank of Canada is likely to keep interest rates lower for longer than previously expected because of the Fed move. One issue is that widening the rate differential between the two countries could cause an unwelcome appreciation in the Canadian dollar.

But they caution that swap markets, which are pricing in a quarter-point rate cut before year end, have it wrong.

Analysts said a cut is not needed because the Canadian economy, though highly dependent on the big U.S. market, is still growing. The central bank’s key policy rate, currently at 1.0 percent, is also seen as still being very accommodative. The rate was cut to a record low of 0.25 percent after the financial crisis.


Those emergency rates provided conditions for the domestic housing market to surge to bubble-like proportions in some parts of the country, and allowed Canadians to take on massive personal debt loads.

Analysts said a rate cut could reignite these two segments of the economy, risks that have already been flagged by the central bank.

“The bank is going to need a lot more evidence that the downside risks are going to stick with us before they totally rewrite their script from the last statement and move toward outright easing,” said Derek Holt, an economist at Scotia Capital, noting that dovish language would inevitably have to accompany a decrease in the central bank’s key rate.

“That would be a blow to business and consumer confidence in the country as opposed to the more supportive role, which would be essentially to just stay off on the sidelines and not do anything on rates for a long time yet.”

Holt is already the most bearish among Canada’s 12 primary dealers — institutions that deal directly with the central bank as it carries out monetary policy — and is comfortable with his call that the next rate hike will be in the second quarter next year.

If anything, it could be later, “if the Fed is true to its word in terms of maintaining stimulative policy all of next year and into 2013,” he said.

Analysts said the risk of a rate cut is now more likely than an increase, given Canada’s trading ties to the United States and the risk that a recession there would also pull Canada’s economy lower.

“It is probably appropriate to price in some risk of the next move by the BoC being more a cut than a hike, just at this stage,” said Michael Gregory, senior economist at BMO Capital Markets.

“But I think that fades within six months and you start to believe that is going to skew to the next risk being a hike rather than a cut.”

($1=$0.99 Canadian)

(Editing by Jeffrey Hodgson and Rob Wilson)

10 Aug

Why use a mortgage professional


Posted by: Mike Hattim

There are generally two ways to get a mortgage in Canada: From a bank, or from a licensed mortgage professional.

While a bank only offers the products from their particular institution, licensed mortgage professionals send millions of dollars in mortgage business each year to Canada’s largest banks, credit unions, and trust companies … offering their clients more choice, and access to hundreds of mortgage products!
As a result, clients benefit from the trust, confidence, and security of knowing they are getting the best mortgage for their needs.

Mortgage professionals work for you, and not the banks; therefore, they work in your best interest. From the first consultation to the signing of your mortgage, their services are free. A fee is charged only for the most challenging credit solutions, and it’s especially under those circumstances that a mortgage professional can do for you what your bank cannot.

Whether you’re purchasing a home for the first time, taking out equity from your home for investment or pleasure, or your current mortgage is simply up for renewal, it’s important that you are making an educated buying decision with professional unbiased advice.

Top Reasons for Using a Broker:
1. Choice – access to multiple financial institutions
2. Costs – using a broker is free and they can negotiate lower rates for you
3. Knowledge – brokers stay up-to-date on available products and services
4. Flexibility – mortgage products are even available for the self-employed or those who have credit blemishes.
5. Accessibility – Brokers are typically easier to get a hold of and answer any questions or concerns that you may have than a bank rep.

10 Aug

Fed to Hold Rates "Exceptionally Low" Through Mid 2013


Posted by: Mike Hattim

WASHINGTON — The Federal Reserve said Tuesday that it will hold short-term interest rates near zero through mid-2013 to support the faltering economy, but it announced no new measures to further reduce long-term interest rates or otherwise stimulate renewed growth.

The Fed’s policy-making board said in a statement that growth “has been considerably slower” than it had expected, and that it saw little prospect for rapid improvement, prompting the change in policy. It had previously said that it would maintain rates near zero “for an extended period.”

“The committee now expects a somewhat slower pace of recovery over the coming quarters,” the Fed’s statement said. “The unemployment rate will decline only gradually.”

Many economists and outside analysts argue that the Fed should act more aggressively in response to rising unemployment and faltering growth. But internal divisions are limiting the central bank’s ability to pursue additional steps.

Even the modest commitment announced Tuesday was passed only by a vote of 7 to 3. The central bank prefers to act unanimously whenever possible.

The dissenters included Richard W. Fisher, president of the Federal Reserve Bank of Dallas; Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis; and Charles Plosser, president of the Federal Reserve Bank of Philadelphia.

The three men regard inflation as a more serious threat to the economy than unemployment.

The Fed’s announcement was eagerly awaited by investors who have responded to grim economic tidings in recent weeks by driving down global markets.

The economy grew only 0.8 percent during the first half of the year. The work force is shrinking. State and local governments are cutting back. And fiscal policy is immobilized by partisanship, leading Standard & Poor’s to remove the United States from its list of risk-free borrowers.

That has left investors to hope that the Fed would consider new steps to help the economy.

The central bank has held its benchmark short-term interest rate near zero since December 2008, flooding the financial system with the nearest thing to free money. It has promised after each of its meetings since late 2008 to keep interest rates near zero “for an extended period,” which Mr. Bernanke defined earlier this year as meaning a period of at least several months.

The central bank also has amassed more than $2.5 trillion in Treasury securities and mortgage-backed securities, putting downward pressure on long-term interest rates. The purchases have pushed investors into the stock market and other riskier investments, and reduced the value of the dollar, helping American exporters. The Fed has said that selling off these assets would be its first step when the economy begins to improve, but it has avoided setting any timetable for a wind-down.

Mr. Bernanke said last month that the Fed was “prepared to take further steps if needed,” but he made clear that the central bank was reluctant to do so. He said the Fed would act only if growth continued to falter and, importantly, only if price increases slowed, stopped or reversed.

The inflation of prices and wages is the Fed’s primary concern. By law the Fed is responsible for keeping prices steady and unemployment as low as possible. But Mr. Bernanke, like his predecessors, places greater emphasis on prices, in part because the Fed has concluded that slow, steady inflation — about 2 percent a year — is the best atmosphere for enduring job growth.

The Fed projected in June that inflation could reach 2.5 percent this year, a key reason it has shown little interest in taking additional steps to help the 25 million Americans who can’t find full-time work.

There are signs that inflation is abating, as a temporary spike in commodity prices earlier this year works through the economy, and as growth weakens. But conservative members of the policy-making board remain focused on the risk that inflation will sneak up on the Fed.

The Fed’s policy-making committee next meets Sept. 20.

9 Aug

Don’t panic: Harper urges calm as stock markets tumble on financial woes


Posted by: Mike Hattim

BRASILIA – Don’t panic.

That was Stephen Harper’s message today as the Toronto stock market plunged to its lowest point in almost a year on the first day of trading after the United States had its credit rating bumped down a tier.

“To date, this doesn’t change our overall assessment,” the prime minister said during a visit to the Brazilian capital.

“Notwithstanding the fragility of the economy and the headwinds that are there, we believe that a gradual recovery can continue. Our policies have been achieving that in Canada.”

The Toronto Stock Exchange and Wall Street’s main market both fell 300 points in afternoon trading, while the price of gold soared as investors looked for shelter in a rout sparked by the historic downgrading by Standard & Poor’s.

At a signing ceremony with Harper for several modest bilateral deals, Brazilian President Dilma Rousseff criticized the credit-rating agency for an “incorrect assessment.”

“We do not agree with the rushed evaluation, a little bit too quick evaluation, and I would even say incorrect assessment made by Standard & Poor’s which reduced the credit rating of the United States.”

The Prime Minister’s Office later clarified that Rousseff was speaking on behalf of Brazil, not Canada.

Harper opened a four-country tour of Latin America by announcing agreements with Brazil on air transport, social security, Olympic co-operation and international development aid effectiveness.

Harper and Rousseff also announced a business leaders’ forum that would see Canadian and Brazilian executives meet on the margins of high-level diplomatic talks.

“Brazil is a major global economic player and a key priority market for Canada,” Harper said in a press release.

“These agreements will benefit both countries by promoting greater two-way flow of people, goods and services, enhancing our competitiveness and further strengthening our partnership in key areas of shared interest.”

Canada is seeking bilateral free trade deals with a number of countries, placing a special emphasis on the countries of Latin America and the Caribbean.

The Conservative government is eager to make inroads with Brazil in particular, the world’s seventh-largest economy and expected to rise to No. 5 within a few years.

But doing a deal with Brazil is tricky. Brazil needs the consent of Argentina, Paraguay and Uruguay — members of a common South American economic bloc called Mercosur — to enter into such an agreement.

Harper said Canada has begun exploratory talks with Mercosur on a free-trade deal.

Harper’s trip takes him to Brazil, Colombia, Costa Rica and Honduras.

The Canadian Press

8 Aug

Should you buy a house before it’s too late


Posted by: Mike Hattim

Garry Marr, Financial Post

You better buy a house in this market before it’s too late.

How many times have you heard those words? The panic thinking is driven partially by prices continuing to rise to record levels but also by the sense that near-record-low interest rates could rise at any moment.

The sense of desperation to buy now out of fear you won’t be able to get it tomorrow is probably one of the first things taught to any sales person. Create a sense of urgency.

“There’s six left on the shelf, nope, it’s down to five,” jokes certified financial planner Ted Rechtshaffen, president of TriDelta Financial. “It’s an interesting phrase.”

Mr. Rechtshaffen says his clients are not uttering panic words but you have to wonder whether Mark Carney, governor of the Bank of Canada, might have been hearing them before making a speech to the Vancouver Chamber of Commerce this month.

“One cannot totally discount the possibility that some pockets of the Canadian housing market are taking on characteristics of financial asset markets, where expectations can dominate underlying forces of supply and demand,” Mr. Carney said. “The risk is that expectations become extrapolative, prompting the classic market emotions of greed and fear -greed among speculators and investors -and fear among households that getting a foot on the property ladder is a now-or-never proposition.”

It’s hard to measure desperation, but a recent survey from Toronto-Dominion Bank on first-time homebuyers might imply there is some urgency in the marketplace.

The survey found 45% of Canadians are willing to buy their home independently without a co-signer. Traditionally people wait until they are married to buy that first home but now they want to establish equity early so they can get their foot in the market.

More worrisome out of the TD report was the statistic that buyers are doing less research before jumping in. The bank said mortgage pre-approvals are down to 72% from 84% a year ago and home inspections have dropped from 85% to 67% during the same period. The report also shows declining percentages for buyers researching issues like electricity and closing costs.

It all sounds like somebody in a hurry to buy or at least in a bit more of a rush.

“I think people see affordability is still there. The employment numbers are strong and rates are relatively still low,” says Farhaneh Haque, regional manager of mobile mortgage specialists with TD Canada Trust. “In part there is a sense or urgency because they are worried about rates and unsure of what the markets will do.”

Benjamin Tal, deputy chief economist at CIBC World Markets, says the Bank of Canada is partly to blame for some of the urgency in the market because of the uncertainty over rates.

“People feel the window is closing,” Mr. Tal says. “People have been talking about the Bank of Canada raising rates. They look and say rates will be one or 1.5% [percentages points higher] next year. There is some logic to it.”

He adds that if you look at trends over the past 20 years on what happens before rate announcements, you see an acceleration of activity before the announcement.

“Look at the last year and half and we’ve had this sense of urgency,” says Mr. Tal, adding it has driven housing in Canada since the recession. “The real estate market has like nine lives.”

It’s easy to say wait until the market crashes in cities like Vancouver, where prices are up 25% from a year ago. But if rates go up, it could be just as expensive to carry a home.

Queen’s University professor John Andrew says it’s in the real estate industry’s interests to promote the idea prices will rise forever. But while he thinks it’s obvious in places like Vancouver there will be a price correction, it doesn’t help you if interest rates go up.

“You see a 10% price correction but if interest rates go up two [percentage points], you are not better off,” Prof. Andrew says. “Buyers are caught in this quandary that when interest rates go up, prices will come down.”

If you are sitting on the housing sidelines, it might seem like you can’t win either way.

5 Aug

World markets bleed


Posted by: Mike Hattim


Investors are losing faith in the global economy and the policymakers in charge of keeping it afloat, putting the two and a half-year bull market in serious jeopardy.

Stock markets around the world plummeted their most since the financial crisis on Thursday, as escalating U.S. recession fears and Europe’s ballooning sovereign debt crisis were further exacerbated by an emergency intervention of the Japanese yen.

“It’s getting more and more difficult to see the glass half full,” says Serge Pepin, head of investments at BMO Investments Inc. “I’ve always been sort of an optimist if anything, but it is definitely not a rosy picture.”

The S&P/TSX composite index, Canada’s key equity benchmark, suffered its biggest drop since June 2009, by falling 435.90 points or 3.4% to close at 12,380.13. It was the eighth time in the past nine sessions that the market has tumbled.South of the border, the Dow Jones Industrial Average dropped 512.76 points or 4.31% to 11,383.68. It was the Dow’s worst point drop since December 2008.  With each market now down 13% and 11% respectively since their most recent peaks in April, stocks have dropped well below the 10% pullback that marks an official correction.

Mr. Pepin said investors are starting to question whether the bull run that began on March 9, 2009 has finally come to an end.

“We are now more than 20% off the market’s all-time high in 2007, so by some people’s definition, we’re already in a new bear market,” he said. “If we can get a clear signal from the U.S. economy that things are moving to the positive, that’s when people will get some solace. At this point we just aren’t seeing that.”

In this type of environment, it makes sense that investors are selling some of their riskier assets including cyclical stocks and commodities, in favour of so-called safe haven investments, such as bonds, defensive equities like consumer staples and healthcare, and gold, which briefly hit another record high at US$1,684.90 an ounce on Thursday.

That said, Mr. Pepin thinks it’s premature to compare the market’s recent malaise with the extreme meltdown that occurred in 2008 at the height of the financial crisis.

“I think this is strictly sentiment and we are getting close to a bottom, ” he said. “I don’t believe we are headed for recession and corporate earnings are still very strong. That has to matter for investors.”

Just how much futher markets will fall could hinge on Friday’s crucial U.S. jobs report for July. If figures are better than estimates calling for an increase of 85,000 in non-farm payrolls and an unchanged unemployment rate at 9.2%, then a relief rally could take place. If the opposite transpires, the sell-off will likely only get worse, as the risk of a U.S. recession moves closer to reality.

“The economy is only one shock away from falling into recession,” said Michelle Meyer, an economist at Bank of America Merrill Lynch, in a note to clients Thursday.

Ms. Meyer believes there is now a 35% chance of a U.S. recession in the next year, about double what her odds were this spring.

With this week’s new debt deal in place, there is no appetite in Washington to provide more fiscal stimulus in aid of the slumping recovery, she said. At the same time, the Federal Reserve, which has left interest rates at near zero for nearly three years, may not have enough ammunition left to prevent another contraction.

On the one hand, investors are in a state of confusion and alarm, not knowing if the world’s problems can be resolved, said Andrew Pyle, a financial advisor at ScotiaMcLeod. On the other hand, panic is often the mother of all innovation.

“The [market slide] is creating the same pro-growth elements as we’ve seen before, such as lower energy prices and interest rates,” he said.  “This doesn’t mean we jump and start loading up on equities, but as Warren Buffett says the best time to buy is when there’s blood in the streets.”