Posts

BANK of CANADA WARNING

The Bank of Canada is warning of an impending housing price correction, putting Canadian mortgage holders at risk. In a four-part series of papers, economists at the bank said a drop in home prices could also impact overall consumption and the Canadian economy. In one of the reports, authored by Brian Peterson and Yi Zheng, the bank cautioned that the risk for fluctuations in house prices has “increased markedly.” The authors noted that house prices have risen sharply in most parts of the country over the past decade, with house prices reaching a historically high level in relation to income. The percentage of household debt to income has risen from 110% in 1999 to 153% currently. “These facts (rising debt and house prices) are interrelated, since rising house prices can facilitate the accumulation of debt,” said guest editor Graydon Paulin, introducing the four papers. “Households could therefore experience a significant shock if house prices were to reverse.” The bank also sugges
Good article from the Globe and Mail: Canada’s housing market has two good years ahead of it yet, Canada Mortgage and Housing Corp. said Monday, with low interest rates and a “moderately” expanding economy keeping price corrections at bay. The Crown corporation – which insures Canadian mortgages – has had a consistently rosier view of the market than many private sector forecasters. Canadian banks have recently issued reports probing the consequences of cheap money, and trying to predict whether there is a bubble in prices that will eventually pop and cause prices to crash. They are particularly concerned about Vancouver and Toronto, where some have predicted price corrections of up to 10 per cent because of overbuilding in the condo market. But CMHC said Monday Canadian markets would “remain steady in 2012 and 2013. “With the Canadian economy set to expand at a moderate pace and mortgage rates expected to remain low, activity levels in 2012 in both new home construction and sales

CAAMP'S VIEW ON TODAY's MORTGAGE ISSUES

BASED ON OUR RESEARCH AND KNOWLEDGE OF THE SECTOR, WE SEE NO REASON TO TIGHTEN OR RESTRICT ACCESS TO RESIDENTIAL MORTGAGES AT THIS TIME 1. CURRENT ENVIRONMENT Canada has a well-earned reputation for exercising economic prudence. As a result, we have managed to avoid a mortgage or housing market meltdown. Our banks are stable and our economy, while impacted by the general global economic slowdown, remains healthier than most. CAAMP’s extensive industry research indicates that the Canadian mortgage industry is healthy. We must continue to “stress test” our own financial sector to determine how it would withstand potential weakening of the economy. The more educated we are about the debt we incur (mortgages, credit cards, lines of credit), the better off we will be 2. FEDERAL GOVERNMENT ACTIONS TAKEN The federal government responded promptly when it was determined changes were needed in the mortgage market. There have been three significant sets of changes in the past 36 months:

More Down Payment May Cost You More Money

The search for conventional mortgage financing just got tougher -- and may get tougher still -- with several Canadian lenders moving to cut their rental programs because of tighter access to bulk insurance. FirstLine, the CIBC-owned broker channel lender, kicked off the latest round of downsizing, last week announcing it would impose a $750,000 cap on rental property loans up to an 80 per cent loan-to-value. That’s $250K less than what owner-occupieds can qualify for. Street Capital announced a similar decision last week, axing its rental program altogether. And while it will consider exceptions on a case-by-case basis, that’s only where clients are willing to pay default insurance they technically do not need. Under Canadian mortgage rules, borrowers opting to go conventional by putting down a minimum 20 per cent are exempt from that requirement. But increasingly lenders have opted to insure those loans themselves through bulk insurance offered by the CMHC. The practice allows them to

CMHC CUTTING BACK ON INSURED MORTGAGES

(From the Financial Post) Canada Mortgage and Housing Corp. is cutting back on mortgages it insures as the Crown corporation edges closer to a $600-billion cap imposed on it by the federal government, the Financial Post has learned. A CMHC spokesman confirmed that it had approached a number of lenders at the end of 2011 about reducing its “bulk or portfolio insurance” after third-quarter results showed the agency had committed to back $541-billion in mortgages. CMHC, which guarantees mortgages held by financial institutions, is ultimately backed by the federal government and needs approval to go over the $600-billion limit — something that would create greater risk for taxpayers should the housing market collapse. “CMHC has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance.” said Charles Sauriol, a spokesman for the Crown corporation, in an email. “To ensure equitable access to portfolio insurance within CMHC’s annual limits, an allocation

MORTGAGES FOR NEW IMMIGRANTS

A Home of Their Own – New Immigrants Face Hurdles New Canadians are making their numbers felt in the housing market, as they get settled and make the transition from renter to owner, purchasing their first homes in this country. Over 280,000 new immigrants arrived in Canada in 2010, the highest amount in 50 years according to the Department of Citizenship and Immigration. Immigrants are expected to play a large role in the housing market in the coming decades. Between now and 2031, the foreign-born population of Canada could increase approximately four times faster than the rest of the population. For these new Canadians, first-time home ownership may prove harder than anticipated, as they face some unforeseen obstacles, but there are definite opportunities. Lack of Credit History The biggest challenge for new immigrants is establishing credit because they do not have a financial history in Canada. Without a credit history, it can be a struggle to get mortgage financing. It is importan

LOOKING BEHIND THE 5 YEAR RATE SPECIAL

A peek behind deeply discounted 5-year rates. A major bank has offered a record low 5 year interest rate. However it is a 2 week special only. Is it as good as it appears to be on first glance. Let’s look a little deeper. When considering a deeply discounted 5-year rate, keep in mind that cheapest isn’t always best. Strangely, we know that’s true when we’re shopping for anything else - but we still tend to believe that lowest rate is the one and only factor in choosing a mortgage. But, that low-rate mortgage could actually cost you more in the long run. An amazing cut-rate mortgage could have you locked in to a very rigid contract filled with financial “trip lines” that could work against you down the road. That’s why it’s important to check the fine print. For instance, is the mortgage fully closed? That means you’re not leaving the lender unless you sell your house, so your options are limited and you have no negotiating power if your needs change in the next 5 years. Low or no prepa