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Thursday, December 17, 2009

Bank of Canada Governor Mark Carney again warned Canadians Wednesday not to borrow more than they will be able to handle when ultralow interest rates start to rise, urging households and lenders to be responsible while the risks that debt poses to the economy are "still manageable."
"When risks are still manageable is precisely the best time to act," Carney said in the text of a speech he was delivering to a business audience in Toronto. "We must be vigilant, and all parties must fulfill their responsibilities."
While saying lenders should "actively monitor risk" and not take "false comfort" from mortgage insurance and the past health of household credit, Carney implored Canadians to "ensure that in the future, when the recovery takes hold and extraordinary measures are unwound, they can still service their debts."
Carney's remarks expand on the central bank's semi-annual review of the financial system last week, in which he said household debt is now the biggest risk to the country's financial system, even if it's still "relatively low" and unlikely to reach levels that could cripple banks' balance sheets.
That review used a "stress test" to show rising interest rates between mid-2010 and mid-2012 would saddle a growing number of Canadians with debt loads big enough to leave them "financially vulnerable."
At the same time, Carney said in his remarks that although the Canadian economic outlook has improved, tepid demand in the U.S. for Canadian exports will make the economic recovery not only "more protracted" than usual, but also more dependent on spending at home.
And as the Canadian economy – which resumed growth in the third quarter on the strength of domestic spending – picks up steam, Carney warned that Canadians may save too little and borrow too much.
Nonetheless, he hinted that he would not seek to rush a return to higher borrowing costs to rein in spending and that monetary tightening won't come until inflation is closer to the bank's 2-percent target.
"Whatever happens, the bank's monetary policy reaction to consumer behaviour will always be driven by its implications – taken in conjunction with all other relevant factors – for inflation over the medium-term horizon," he said.
The central bank has made a conditional commitment to keep interest rates on hold until at least the middle of next year.
With the Bank of Canada's benchmark policy rate at a record low 0.25 percent since April, cheap mortgage rates, and fiscal incentives such as allowing first-time home buyers to use more of their registered retirement savings as a down payment, have fuelled buying in the housing market and elsewhere in the economy.
In the speech, Carney pointed to the U.S. subprime mortgage collapse and the subsequent meltdown of that country's financial system to remind Canadians that growing debt burdens, even if confined to a small slice of the population, can cause problems for the whole economy.
"A shock to economic conditions could be transmitted to the broader financial system through deterioration in the credit quality of loans to households," Carney said. "In such an event, increased loan-loss provisions and reduced quality of the remaining loans could lead to tighter credit conditions more broadly."

Monday, December 14, 2009

NET WORTH RISES ALONG WITH HOUSEHOLD DEBT

Tavia Grant wrote an article in Dec 14th Globe and Mail stating that Canadians' net worth in the third quarter of 2009 rose, but house debt rose also.

Canadians' net worth swelled in the third quarter, riding the crest of rising equity markets. But debt levels rose too, sending the household debt-to-income ratio to a record high. Household net worth climbed 2.3 per cent in the quarter, as Canada's benchmark stock index (TSX-I11,530.88106.950.94%) gained 10 per cent, Statistics Canada said Monday. Net worth hit $5.7-trillion, marking two quarters of gains after three straight drops.

Debt, too, is rising. Household debt, as measured by mortgages and consumer credit swelled 1.6 per cent as low borrowing costs caused Canadians to buy more homes and renovate them. They also bought more cars, sparking a further increase in consumer credit, the agency said. Personal debt has been steadily rising in Canada since 1982.

“Falling mortgage rates, along with increased sales of existing homes and renovations, sustained increases in mortgage demand,” the report said. “Strength in auto purchases led to a further increase in consumer credit.”

Thus the household debt-to-income ratio rose 2 points to 145 per cent, the highest level since quarterly record-keeping began in 1990. That means for every $100 of personal disposable income, Canadians are now carrying $145 in debt.

Back in 1990, by comparison, Canadians were carrying $88.60 in debt for every $100 of income.
Household debt has become the biggest risk to the country's financial system, the Bank of Canada cautioned last week in its review of the financial system. The central bank cut interest rates to a record low this year, and expects to keep them there until mid-2010, a move which is both kick starting the economy and fuelling an increase in borrowing.

Canada's national net worth fell 1.3 per cent to $5.9-billion, the third straight drop and the biggest decline on record, largely due to an increase in net foreign debt.

Household per capita net worth is now $168,800 in the third quarter, still below the peak of $179,000 in the second quarter of last year, Statscan said. The third-quarter increase in household net worth was due to higher values of financial assets, which include fixed income securities, corporate equities, mutual fund investments, and pension assets.

Friday, December 11, 2009

The 4 major banks have made slight changes in some of their posted rates over the past 2 days.

Scotia has its 4 yr closed at 5.14% and 5 yr closed at 5.49%

BMO has a i yr at 3.00%, 4 yr fixed at 5.14% and 6 yr closed at 5.49%

TD has a 4 yr closed at 5.14 and 5 yr closed at 5.49%

RBC has a 1 yr closed at 3.40%, 4 yr closed at 5.14% and 5 yr closed at 5.49%

My best rate is 4 yr closed at 3.79%, 5 yr closed at 3.85% and 1 yr closed at 2.35%

Tuesday, December 8, 2009

Bank of Canada holds rate at 0.25%

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.
While significant fragilities remain, global economic developments have been slightly more positive and the global outlook has improved modestly relative to the Bank's projection in its October Monetary Policy Report (MPR).

In Canada, as expected, the composition of aggregate demand is shifting towards final domestic demand and away from net exports. In the third quarter, the balance of these shifts resulted in weaker-than-projected GDP growth. Core inflation in recent months has been slightly higher than the Bank had projected, although total CPI inflation remains close to projections.
The main drivers and the profile of the projected recovery in Canada remain consistent with the Bank's views in the October MPR. The Bank continues to expect economic growth to become more solidly entrenched over the projection period and inflation to return to the 2 per cent target in the second half of 2011.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April MPR.

The risks to the outlook for inflation continue to be those outlined in the October MPR. On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength in the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation. The Bank views all of these risks through the prism of achieving the 2 per cent inflation target.

Monday, November 23, 2009

Housing Market and Ontario Economy Outlook

A recent CMHC outlook Conference recently reporeted the following:

- economy has rebounded and consumer spending grown
- mortgage rates are expected to stay low until well into 2010
-mortgage payments have put less of a burden on after tax income and affordibilty is very positive in Canada
- house sales will continue to improve in 2010 but will rely on employment growth
- Canadian saving rates have moved up due to uncertaincy about jobs etc. As the recovery continues, saving rates will start to decrease
- this recession has not been as deep as the previous one
- our exporting will be slow to recover as US households are saving more and consumption has decreased
- Canadian consumer spending will remain low for 2010
- Walmart profits have increased significantly, indicating consumer spending awareness
- 68% of Canadian mortgages are fixed term
- debt consolidation is the biggest reason for refinancing at these low rates
- finance, insurance and real estate sectors have seen an increase in jobs.

Monday, November 16, 2009

REPORT on CANADA's RESIDENTIAL MORTGAGE MARKET

The Canadian Association of Accredited Mortgage Professionals has just released their annual survey results on how Canadians feel about housing and mortgages.

61% of those surveyed feel that now is a good time to purchase a home compared to 38% at this time last year.

77% are either satisfied or completely satisfied with their current mortgage. This has been due to the decline in rates over the past year.

42% in Ontario, 43 % in Alberta and 47% in BC feel that house prices will rise in the next year.

16 % expressed concern over job loss. Over 80% of this group have more than 20% equity in their home.

2/3 of all mortgages are for 4 or more years, with 56% having a 5 year term.

The average amount of equity in a Canadian home is $142000 while those with no mortgage have $322000 equity in their home.

Canadians take equity out for 2 main reasons - debt consolidation and renovations.

68% have a fixed rate mortgage while 27% have variable and adjustable rate mortgage. Fixed rates are most popular among the ages of 18 and 34 while those in the 55+ are more likely to prefer variable rate mortgages.

To read the full report, CLICK HERE