Thursday, March 30, 2006 - Home affordability dropping, RBC finds

Canadians spent a higher portion of their income on housing in the fourth quarter, as high home prices and utility costs pushed affordability to its worst level in a decade, said a report by the Royal Bank of Canada.

That deterioration is coming at the end of ten years of generally 'excellent' affordability conditions, the report by the bank's economics department noted.

And, while affordability will likely continue to slide in the first half of this year, rising incomes and steady interest rates and house prices should stop the declines in 2007, economists said.

RBC Financial Group's (TSX: RY) latest housing affordability index, measures the proportion of pre-tax household income needed to service the costs of owning a home.

Such surveys are a popular promotional tool for Canada's banks and mutual fund companies. Many use public opinion polls to gauge demand for financial products and services, promote specific brand names and learn more about the public's financial management habits.

All the banks are focused on the housing market since mortgage lending is one of their key sources of profit and the average mortgage borrowed by homebuyers has been growing in recent years as house prices have soared.

Last year ended on a 'mildly sour note' after three quarters of improvement, the bank said, with housing affordability deteriorating across the country.

The worst-hit cities were Vancouver and Calgary, where house prices escalated rapidly as the economies in those energy- and mineral-rich western provinces grew faster than than the Canadian average.

While the markets in British Columbia and Alberta "continue to power forward," Royal Bank expects the pace of demand for new and existing homes in the rest of the country to slow moderately over the next two years because of the decline in affordability.

It will be "a controlled slowdown, with both new supply and demand expected to cool down simultaneously," the report said.
Much of the drop in affordability stems from slower growth in household income, said Derek Holt, the Royal Bank's assistant chief economist.

"This was unable to offset increases in mortgage rates, house prices and utilities costs," he said.
Benjamin Tal, senior economist at CIBC World Markets, expects affordability to get worse before getting better.

"Income growth in Canada is starting to accelerate, wages are rising," Tal said. "But the increase in house prices has been faster. Add to it higher interest rates, and the overall size of mortgages is rising, so affordability is going down."
The impact of rising interest rates has been more pronounced, Tal said, because about 22 per cent of mortgages are now variable-rate — moving with the bank's prime lending rate — rather than being fixed at long-term rates.

"With interest rates rising by maybe another (quarter to half point), we probably will see affordability continue to deteriorate, at least for the next few months," he said.
Beyond that, he expects it to stabilize because interest rates will stop rising, house prices will level off, and Tal predicts that incomes will be stronger than expected.
"So, I think affordability will not be much worse a year from now. It might even be better."

The housing market's soft landing will be supported by growth in home renovation spending, the Royal Bank report said.
Canada's renovation spending has grown by more than 50 per cent since 2000, to over $26 billion in 2005.

"While the recent takeoff in renovation spending is taken by some to be a sign of a bubble, our view is that homes built in the 1980s boom will continue to enter their prime renovation years, such that growth in renovation spending will partly offset weaker new home construction," the report said.
Ontario, in the meantime, is seeing new home construction decline as construction workers flock to Alberta.

Last year, housing starts in Ontario pulled back 7.4 per cent while residential building permits dropped for the first time in a decade.

"Migration and housing starts tend to move closely together in Ontario," Holt said. "Labour-hungry western provinces, most notably Alberta and British Columbia, continue to pull workers from other provinces, putting downward pressure on new home construction in Ontario, which still remains at elevated levels."

Wednesday's report suggests that condominiums were the most affordable Canadian housing type during the fourth quarter, with an index of 25.7 per cent. A standard townhouse is next at 30.1 per cent, followed by a detached bungalow at 37 per cent.

A two-storey home remains the least affordable type with an index reading of 43 per cent.

Wednesday, March 29, 2006

CNW Group: "42% of Canadian mortgage holders still happy with their rates despite recent increases

Canadian Institute of Mortgage Brokers and Lenders releases report on
mortgage choices and perceptions in a changing market

TORONTO, March 28 /CNW/ - A majority of Canadians believe their current
mortgage interest rates are manageable, despite recent hikes, according to a
report released today by the Canadian Institute for Mortgage Brokers and
Lenders (CIMBL). The information, gathered by Pollara in a phone survey in
February and analyzed in conjunction with Canadian housing analyst and CIMBL
economist Will Dunning, indicates that 42 per cent of Canadian residential
mortgage holders polled have not seen their overall standard of living
significantly affected by the recent mortgage rate increases.
'As the spring home buying season begins, interest rates remain at a
historic low and mortgage holders continue to be satisfied with their rates,'
said Ron Swift, President of the Canadian Institute for Mortgage Brokers and
Lenders. 'Our latest survey reveals that Canadians find their current mortgage
rates manageable, despite increases over the past eight months. In addition,
although mortgage holders anticipate further rises, the study suggests that a
majority will be able to tolerate an increase of up to 1 percent. That's great
news for the marketplace.'
For the mortgages currently held by Canadians, the average mortgage
interest rate is 4.9 per cent. Consumers are in tune with what the Bank of
Canada and economist are forecasting - 66 per cent of consumers say they
expect mortgage rate increases in the near future.

CIMBL's research shows that current mortgage holders have a surprisingly
high tolerance for potential interest rate increases. The study suggests thatif rates remain at current levels, 62 per cent of Canadians would faceincreased interest rates at their next renewal. Yet, only 21 per cent ofmortgage holders would see a significant impact on their standard of livingfor a monthly mortgage rate increase of $100; 53 per cent would see an impactwith an increase of $200. Sequentially, a further increase of one-half of a percent wouldnegatively impact 20 per cent of Canadian mortgage holder's overall standardof living. An increase of one-half of a percent from current rates wouldresult in an average monthly increase of $50 in interest ($72 up from $22).Total interest costs for Canadian mortgage holders would jump by more than$2.7 billion ($3.9 billion up from $1.2 billion). An increase of one percentage point from current rates would negativelyimpact the overall standard of living of 29 per cent of mortgage holderspolled. Such an increase in rates would cause an average monthly interestpayment increase of $123, bringing the total interest costs for Canadianmortgage holders to $6.7 billion, up $5.5 billion from current costs. In anticipation of a rise in interest rates, consumers are more likely torenew their mortgages early to lock into current rates. For the 15 per cent ofconsumers scheduled to renew their mortgages in the next twelve months,relatively small increases are expected - an average of $6 per month. Forthose renewing during the next one to six years, average costs will rise andpeak in about four years. "As always, there is uncertainty about future changes in interest rates,"Swift added. "CIMBL's report demonstrates that although mortgage rates are onthe rise, Canadians continue to borrow - whether they are taking out a newmortgage, renewing or refinancing an existing one. There is still a strongreal estate demand in Canada." The survey, "Consumer Mortgage Choices in a Changing Market", contains awealth of additional industry data including the age distribution of mortgageholders in Canada, popularity and rates of different mortgage types andmortgage terms, and the amount of remaining principal on existing mortgages.For a full copy of the survey, please visit:"

Tuesday, March 28, 2006

Mortgage Broker vs. Mortgage Banker

Many consumers assume that “mortgage companies” are banks that lend their own money. In fact, a company that you deal with may be either a mortgage banker or a mortgage broker.

A mortgage banker is a direct lender; it lends you its own money, although it often sells the loan to the secondary market. Mortgage bankers (also known as “direct lenders”) sometimes retain servicing rights as well.

A mortgage broker is a middleman; he does the loan shopping and analysis for the borrower and puts the lender and borrower together. Many of the lenders through which the broker finds loans do not deal directly with the public (hence the expression, “wholesale lender”).

Using a mortgage banker can save the fees of a middleman and can make the loan process easier. A mortgage banker can give you direct loan approval, whereas a broker gives you information second-hand. However, many mortgage banks are limited in what they can offer, which is essentially their own product. In addition, if you present your loan application in a poor light, you’ve already made a bad impression. I am not suggesting you lie or mislead a lender, but understand that presenting a loan to a lender is like presenting your taxes to the IRS; there are many ways to do it, all of which are valid and legal. Using a mortgage broker allows you to present a loan application to a different lender in a different light (and you are a “fresh” face).

A mortgage broker charges a fee for his service, but has access to a wide variety of loan programs. He also may have knowledge of how to present your loan application to different lenders for approval. Some mortgage bankers also broker loans. As an investor it is wise to have both a mortgage broker and a mortgage banker on your team.

Monday, March 27, 2006

Controlling debt...

Controlling debt...: "Mar 24, 2006

Mike Lacey - More from this author

Managing personal finances is among the biggest challenges facing Canadian households. Personal debt continues to climb as people seem either unable, or unwilling, to effectively manage their money.

This time of year is when the giving of the Christmas season comes home to roost, says Steve Wesley, manager of the credit counselling program at the Community Counselling and Resource Centre.

He explains many of those unable to meet the credit card bills that pile up after the holiday season are facing collection agencies. Many people don't know where to turn as they're swallowed up by debt.

Mr. Wesley and others with his organization provide free credit counselling services to those in need, helping to set up personal budgets and provide tips on ways to get rid of debt.

He says there are some simple, common sense steps people can make to ensure they don't end up in financial trouble.

'The first thing anyone should do is sit down and draw up a monthly expense sheet,' he says.

'This is a snapshot of where the money is going.'

That way, a person can see if more money is coming in than is going out. If it is the reverse, the next step is to look at what expenses can be trimmed back or taken out of the equation all together.

'What are the necessities of life? Rent, mortgage, food, clothing, things you have to have to survive,' he says.

Items not necessary can be put aside, at least until the finances are in better shape.

'It's 99 per cent common sense but, for some reason, a lot of people will shy away from sitting down at the kitchen table [and putting together a budget],' he says.

That's a good plan for those who are not burdened by too much debt. But those facing an avalanche of bills can turn to Mr. Wesley and his staff. To book a free and confidential appointment with one of the organization's counsellors, call 742-1351 between 9 a.m. and 4:30 p.m. Monday to Friday.

Meanwhile, Credit Counselling Canada also provides the following tips on getting debt under control:
·Sell unsecured assets. Have a garage sale, sell used clothes or get rid a second vehicle if it's owned outright.

·Consolidate your debts. A consolidation loan can bring all of your debts into one payment with lower interest.

·Refinance over a longer period of time. Extend the length of time you have to pay on a personal loan, a car loan, a lease or a mortgage. This may reduce the monthly payment required.

·Borrow from friends or relatives.·Attempt to make a lump sum payment. If you're expecting a large sum of money, such as a tax refund or from selling an asset, talk to your creditor about them accepting a lump sum.

·Set up a repayment program with creditors if possible.

'The real threat is global imbalance'

The Rediff Interview/David Wyss, chief economist, S&P

'The real threat is global imbalance'Sunil Jain March 24, 2006

Standard & Poor's Chief Economist David Wyss predicts that 2007 will be a reasonably good year as well (4 per cent global growth as compared to 4.5 this year), but sees increasing global imbalances as the problem area.

Excerpts from a conversation with Business Standard:

Despite the risks associated with the twin US deficits, you're projecting pretty robust growth in not just this year, but also in 2007.

We're looking at 4.5 per cent this year and 4 per cent in 2007. The Eurozone is looking better and the good thing about Japan's growth (this is the third year it's over two per cent) is that it is now driven by domestic demand and not exports as in the past. Asia and Latin America continue to do well and account for half the world's growth.

The twin deficit is not just a US problem. France, Germany and the UK have sizeable fiscal deficits as well, roughly the same size in relation to GDP. The US trade deficit has to be seen in the context of a sizeable trade surplus in Japan and Asia.

So the issue is of poor spending in the rest of the world?

It's a real problem. The Eurozone accounted for 15 per cent of the world's GDP in 2004, but just 6 per cent of the world's growth. Japan accounted for 7 per cent of GDP but just 4 per cent of growth -- so, the two areas account for around a fourth of GDP but just a tenth of growth. This is the problem, and since they account for most of US exports, the problem gets heightened.

With poor productivity growth in the EU and Japan (it's around 1 per cent in both areas as compared to 2.5 in the US) and no population growth, few people want to invest here either. So, the overhang keeps getting worse.

People focus on China's mercantilist policy and the currency peg that is clearly artificial and aimed at keeping trade going (I think the remninbi's about 20 per cent out of whack), but Japan's got a larger trade surplus -- I think the yen should be around 95 or so to the dollar, instead of the 116 or so that it is today.

The S&P 500 are also sitting on piles of cash -- the problem is not so much a glut of savings as it is a dearth of investment.

With the dollar getting stronger, the problem's getting worse. So when does the dollar start weakening?

The Fed will probably have two more hikes by May and stop around 5 per cent, while the European Central Bank will move to 3 per cent by the end of June after two more hikes. Only when the Fed stops its tightening, will people wake up to the exchange risk, so the inflows to the US should slow down (this will then increase bond yields) and the dollar will soften. The problem is that while markets usually fix things by currency depreciation/appreciation, I see the Bank of Japan going back to playing an active role instead of letting the market function.

So you're seeing a soft landing? What about the Chinese moving to euros, and what of the property bubble bursting in the US?

I'm seeing a soft landing, yes. I don't see the Chinese moving to the euro in a big enough way since this will hit them a lot more than it will hit the US. The property bubble will burst, but I don't see it bursting in the sense of property prices falling -- I see it bursting as in prices not rising. Of course, there will be pockets where you'll see actual declines.
Few people agree with this scenario. Aren't people taking double mortgages in the US, and so won't consumer spending take a huge fall once interest rates rise and prick the bubble?

Most US mortgage rates are fixed-interest and not floating, so even if rates rise, the immediate pressure will be restricted. The point of being over-leveraged is also over-stated. On an average, the mortgage value to the value of a house is around 45 per cent, which is safe. The US is actually not as high-debt as compared to the EU or Japan.

To what levels do oil prices need to climb to, before we see an impact on global growth?

Well, in real terms, we're seeing the highest oil prices in the past two decades. But the reason why it's not biting so far is that the share of energy in US GDP is around 7 per cent today as compared to 14 per cent in 1980 -- so we're a lot less energy-intensive. Plus there's more head room due to the enormous deflation brought about because of China and India in areas such as textiles (costs have gone down 4-5 per cent per annum here), and food's been pretty flat as well.

I don't think there's this cliff for prices to breach, but I think it could even go to $100 before we see a real problem. But the real issue here is how things unfold. If oil prices continue to rise due to demand, that's self-correcting since if prices start hitting demand, they'll self-correct.

A supply-side shock, however, is a different matter altogether. Over the next three to five years, however, there's a lot more capacity coming up (Canadian tarsand, coal liquefaction and Qatar's even putting up a plant to convert natural gas to diesel) and so prices should come down.

Can both India and China sustain their growth?

I think the weakness of the banking system in China can be tackled by recapitalisation, but the economy's now becoming too big to be led by exports and investment levels are already up to around 50 per cent.

India's growth is lead by tech and that can't go on because there's just so many engineers and software people you can produce -- don't forget, it takes 22 years to turn out a college graduate! India will keep to a 7-8 per cent growth and China will slow a bit, though it will still be more than 9 per cent.

Friday, March 24, 2006 - Man finds house was secretly sold - Man finds house was secretly sold: "Man finds house was secretly sold
Owner discovers new family living in house
Police say estranged wife made own deal
Mar. 22, 2006. 10:15 AM

A Toronto man got a shock when he tried to return his children to his estranged wife at their matrimonial home in Ajax after a weekend visit and found another family living there, police say.
Durham Region police allege that the man's wife sold the home on Delaney Dr. without his knowledge and bought a larger home in Ajax with the $200,000 proceeds from the sale � a situation known as title fraud.
'I've never heard of a case quite like it,' said Det. Jack Haze.
Since their separation, the man usually returned the children to his wife at a specified location.
However, on one day in January 2005, the man missed the appointment with his wife and decided to take the children back to what he thought was their home in Ajax.
'He got the shock of his life when another woman answered the door and said it was her house,' Haze said in an interview.
The Toronto man contacted police, who found that the home had been sold in the spring of 2004 without his permission.
Police allege his estranged wife forged her husband's name on an agreement of purchase and sale, and then had her brother-in-law impersonate her husband at the lawyer's office.
False Canadian citizenship papers, which are 'a dime a dozen' on the street, Haze said, were used as identification for the transaction.
There has recently been a great deal of publicity about title fraud, which involves stealing a person's identity and then selling their home out from under them. In some c"

Retirement income for many based on homes

TORONTO — About 17 per cent of Canadian homeowners say their homes will be their primary source of retirement income, according to a survey released Wednesday.

The survey, by RBC Royal Bank, also found that 32 per cent of respondents 55 and over hold a mortgage, and suggested that Canadians are increasingly comfortable with housing debt following the rise in house prices over the last few years.

‘‘There’s definitely a trend among aging baby boomers that they are very comfortable in holding debt later in their lives, and so I think that a reverse-mortgage, or at least leveraging the equity in their homes, is something they’re comfortable with,’’ Catherine Adams, RBC’s vice president of home equity financing, said in an interview.

Another recent study by the bank found that 48 per cent of Canadians do not believe it’s necessary to retire debt free.

Wednesday’s 13th annual Homeownership Survey also found that 60 per cent of Canadian homeowners currently hold a mortgage, up from 56 per cent in 2005 and from 50 per cent in 2000.

The average amount owing is $95,840.And nearly 40 per cent of mortgage holders have borrowed against the equity in their homes.

By: Tara Perkins

Monday, March 20, 2006