The Canadian economy grew 6.1% in the first quarter of 2010, compared to 4.9% in the fourth quarter of 2009 according to Statistics Canada. The increase will no doubt put more pressure on the Bank of Canada to raise rates when they meet tomorrow. Most analyst are expecting a 25 basis point hike and a series of small hikes that would see Canadian interest rates rise about 2% by the end of 2011.
Last week Garry Marr, of the Financial Post wrote one of the more interesting articles on what effect there might be on those who have been funneled into a 5 year fixed rate mortgage due to the changes that came into effect on April 19, 2010. I can’t help but think this might end badly as it seems when ever people are herded into a particular term or product the clients end up being the losers. More troubling is the fact that most research indicates that shorter and more flexible terms are often better for the client. Below is a link to the Financial Post article which is a must read for anyone considering a 5 year fixed term.
After hitting 6.25% the 5 year fixed rate has been easing and effective Friday May 21’st, the RBC will lower its posted 5 year fixed rate to 5.99%. Expect other banks and lenders to follow with a rate drop. Canadian bonds and equities have both been falling as the economic outlook has become a little more cloudy both globally and domestically.
After a recent TD report expecting Canadian real estate to cool in 2010-2011, the CMHC has issued a press release and its forecast for the housing market in 2010 and 2011 is very similar to the TD’s outlook. With housing starts expected to be up over the next two years and the changes to rules for government backed mortgage insurance that took effect on April 19, 2010, the CMHC forecast that growth in real estate should be more stable and inline with the historic long term growth rates after the market had strong gains in 2009, rebounding the lows early in the year.
Often getting a mortgage can be a challenge for any self employed individual, especially for those who are newly self employed. Merix Financial, Business for Self Simplified is designed to help those who have been self employed 3 years or less and show little income. To qualify the applicant must have at least 2 years previous experience in the same industry; for example someone owning a restaurant 2 years may have previously worked 5 years managing a restaurant before deciding to open their own.
With interest rates rising and the high margin between fixed and variable rate mortgages in Canada, it seems that more Canadians are interested in hybrid or combination mortgages. According to RBC’s 17th Annual Homeowners Survey 40% of Canadians who are likely to buy a home within the next 2 years plan on taking out a combination mortgage. Only 32% of those surveyed in 2009 planned on taking a combination mortgage.
Banks have been quick to capitalize on the demand for combination mortgages as the product has become more widely available and actively promoted. Many clients enjoy the diversification that hybrid mortgages give them, having 50% of their mortgage fixed and 50% variable allows some exposure to lower variable rates while giving them added security that fixed rates offer.
Canadians for many years ranked near the top in personal savings rates among industrialized countries, in 1982 Canada’s personal savings rate peaked when the average Canadian managed to put away a whopping 20% of their income. Canada’s personal savings rates have been dropping ever since and were only 4.6% in the last quarter of 2009 (numbers courtesy of statscan). Now a new report by the Certified General Accountants Association of Canada warns that not only are we saving too little but Canadian household debt levels continue to rise.
The report found that despite the recession Canadians continued to spend, with the average Canadian owing $41,740, up 2.5 times 1989 levels. Perhaps more alarming has been the rising level of Canadian consumer debt versus secured debt which is typically backed by assets.
The Canadian Association of Accredited Mortgage Professionals has released its spring survey report and the results appear to indicate that Canadians are for the most part acting prudently and are well position for changes in the market place. Though sentiment remains positive it is slightly less optimistic in some areas than CAAMP’s fall survey. The survey was conducted by Maritz Research Canada in April 2010 and compiled by Will Dunning CAAMP’s chief economist.
Last week the Bank of Montreal announced it was the victim of a $70 million sophisticated mortgage fraud scheme involving lawyers, mortgage brokers and realtors. BMO alleges the scheme revolved around grossly inflating property values to obtain a higher value mortgage. Much of the money trail leads outside of Canada to countries like Pakistan, India and Dubai. If true it will likely be the largest case of mortgage fraud in Canada. Unfortunately it does not look like the police or the RCMP will be taking any criminal action so BMO is left to take legal action against over 300 individuals it claims were involved in the fraud.
The Toronto Dominion Bank released a report on the Canadian real estate market on Wednesday forecasting a cooling of the Canadian housing market to begin in the later part of 2010 and to carry over into 2011. Canada has enjoyed a relatively strong housing market, as it did not suffer the same sub-prime crisis as our neighbors to the south. Overall the TD expects Canadian home prices to continue to rise in 2010 with prices rising approximately 9% ($349,000) and sales increasing by 2.1%. Canada has enjoyed a relatively strong housing market, as it did not suffer the same sub-prime crisis as our neighbors to the south.
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