The bank has kept the rates low for the following seeming reasons –

1. Global economy is weak. There are no chances of improvement in clear sight.
2. Canadian economy is weak.
3. Many people are under massive debt load.
4. Export is weak. Raising the rate will strengthen Canadian currency – that is not desirable.
5. Inflation is lower than its target. Therefore it is not necessary for the bank to raise rates.
6. Before raising rates the bank has pull its financial stimuluses’ out of the market.

What were the intensions of keeping the rates low:

1. To provide businesses with access to low cost funds.
2. To subdue the Canadian dollar exchange rate.
3. To give enough time for household borrowers to control their debt level.
4. To boost some household demand.

Did those work?

I am not an expert of global economy. I am barely able manage my household and business expenses. Therefore I can have my personal take (may be not so right) on the results.

1. Household demand did increase. The policy helped people to borrow. So much that now some are at a verge of a financial collapse. Socially speaking – if all the people were responsible and wise then we did not need laws and regulations. So, people borrowed recklessly and the issue became not only a fiscal threat but also a political mess.
2. The policy helped to bring long term yields down. Government is thinking about cutting pensions now. BoC repeatedly promised to keep rates low for a long time – thus killing any long-term yield expectations. Did it encourage short term profiteering? Looking at the spread between 1 year and 10 years mortgage rate we can learn a great deal about it.
3. Global economy is weak but Canada cannot pull the globe. It is just a part of it. So, that cannot be a reason to keep rates low. May be it helped our exports a bit.
4. Low rates drove the house prices up. Luckily the lender of last resort does not consider it as a factor in inflation.
5. It poured money to help the banks in 2008. Did it ever have an exit plan? As far as we can see that it was all talk – no plan.
6. The steps bank took were just following footsteps of other countries.

Now what?

Simply put – the rate should raise. There will be trouble and the bank should now prepare for it.

The real facto is that the bank may not be interested to raise rate till next election. The next federal election will be held in 2015. Therefore if the rate to raise then end of 2014 will be a good time to start it – a bit by bit.

Actually a recent Reuters poll suggested that the median forecast of 36 analysts was –  Bank of Canada rate hike in the third quarter of 2014.

Sources:

Reuters

Bank of Canada

All the recent actions taken by the government are generally targeted for the lenders. Lenders are being called to increase rates and now they are looking into ways to stop long term mortgages.

OSFI is looking into ways to put a break in the accelerating real-estate price. Everyone is skeptical about red hot real-estate market; OSFI is the newest addition to the team.  

I have never seen such worry about the gasoline price. It has been boiling hotter than houses but no one really cared.

An article in The Globe and Mail stated –

“We are working to determine the desirability of some changes given current conditions in housing markets and recent trends in household indebtedness,” OSFI spokesman Brock Kruger said in an e-mail to the Globe.

Right now the banks are worried about the Plan – B if in case CMHC takes a hit. According to a report in Financial Post – the banks may have to shell out – in the event that CMHC goes bust. Such talks do not appear from thin air, there must be something behind it. In general the article points out to the taxpayers’ responsibility if in case a bank takes a wrong step.

Canadian Mortgage Trends has confirmed the following

A spokesperson from Canada’s banking regulator, The Office of the Superintendent of Financial Institutions Canada (OSFI), verified that it is looking at the issue of limiting amortizations to 25 years on conventional mortgages (those with 20%+ equity). Currently, those “low-ratio” mortgages can have amortizations up to 35 years.

Now the question remains on the intent of the regulator. The consultation process is not as clear as the other processes were. Normally OSFI announces any such consultation publicly, but this time they decided to keep it behind the closed doors.

OSFI should first decide if it wants to manage the housing market or just regulate the lenders closely. If it is just looking for ways to remove excessive risks from the financial industry then that is right step in the right direction.

Since the introduction of the new mortgage regulations – to cut amortization period and restriction on home equity loans – it is not surprising that a number of borrowers will be looking for lenders with fewer restrictions.

The company reported 17% jump in its first quarter profit compared to last quarter of 2012.

• Its single family lending is still growing albeit at a slower pace compared to last quarter of 2012.
• Commercial lending part saw a stellar growth. This is where the numbers may indicate some unwanted impact of regulation. Small business owners depend on their own home equity to arrange funds. The amount CBA (through big name banks) offers is small and difficult to access. Since there is no HELOC for more than 65% loan-to-value of the asset – it is possible that the business owners are finding it difficult to access funds from conventional sources.
• Number of delinquent mortgages remained at an elevated level. By the nature of its business it is not unexpected.
• Its Common Equity Tier 1 (“CET1″) ratio (Basel III Capital Ratio) stands at 12.2%

Mortgage News:

Real-Estate News:

Financial News:

Thanks for reading. Have a good weekend. Wish all the mothers a Happy Mothers Day!

An average buyer visits about ten homes before making up their mind. You should aim for the top of the list. Look or prices alone are not enough to get you there. There are more and some of them are discussed here.

Appearance:

Love at first sight. 80% potential buyers know right away if they like the home or not at the first glance.  Do not get too much excited about that, 68% buyers are ready to settle for less. So, even if a buyer likes your home – there are more factors to consider.

 You should also pay attention to the Curb Appeal of your home. It should be attractive and at the same time should give a buyer a welcoming feel. A home with good landscaping and curb appeal can get about 5% more than another similar property without any landscaping.

Price:

An average first time home buyer in Canada wants to spend about $300,000 on their home. On an average they manage to arrange $48,000 as down payment.

Remember, the amount of down payment is enough to let them buy more than $900,000 home on the basis of minimum 5% down. The point is that they have enough wiggle room to adjust for a bit higher price but whether they would do that or not depend on many other factors. You should be able to motivate the buyer to purchase your home.

The average price expectation varies widely from province to province. Therefore it also depends on where you live.

Psychology:

When someone is looking for a home their psychological state is different than who is not looking for a home. They are worried about many things and mistakes they may make with the biggest financial decision of their life.

If you know the worries then you can try to address those.

As an example – to feed the excitement you can have some surprise home improvements. To calm the worried one down you can offer some water or drinks. Some nice painting will also do the job. It is all about creating the ambiance for the right audience.

They hate bidding:

Majority of the buyers set a budget and try to stick to it during the house hunting process. A bidding war is a problem for that mindset. So, they avoid bidding wars. Unfortunately in cities it is a reality and as a buyer you should know the numbers.

Before you try to list your home at a lower price please consult an experienced professional. First of all your home should worth the risk.

Location:

Location is the most important factor of all. There is so much to describer that a chart would save me a day.

Sources:

BMO – 1
BMO – 2
BMO – 3
BMO – 4
BMO – 5
CENTURY 21

So, inevitably some not so bright kids become a financial drain on parents’ pockets. It is easy to blame the parent for not teaching the kids properly about finances but that is not simple as that. The place we live in is full of advertisements to sell us loans or credits.

Those credit products do not come with the caution – Excessive credit is harmful to your financial health.

To support their families people keep working past their retirement age and for some the debt just keeps growing and one day they just can’t take it anymore.

A recent study went through the profile of many Canadian insolvency cases and the fact is that a person declares insolvency at an average age of 43. By that time he will have over $61,000 in unsecured debt, on an average.

It is a good idea to monitor debt and all other personal financial activities closely and not to give in to any impulsive financial actions.

Sources:

TD
Hoyes Michalos’

• Overall average outstanding loan amount of $140,587
• At the end of 2012, CMHC’s total insurance-in-force was $566.1 billion essentially unchanged over 2011.
• Average borrower credit score of 726 for CMHC high ratio homeowner insurance-in-force at year-end 2012.
• CMHC’s arrears rate at the end of 2012 was 0.35%, an improvement over 0.41% at year-end 2011.
• The average equity in CMHC’s insured portfolio is 45%
• 79% of borrowers with high ratio loans approved for insurance in 2012 have credit scores of 700 or greater.
• Visits to CMHC website surpassed 9.5 million.
• According to CMHC’s base case scenario, the five-year mortgage rate is forecast to be within 5.00% to 5.75% in 2013 and will be within 5.50% to 6.25% in 2014. (Obviously this is Bank of Canada’s posted five years mortgage rate or something close to that. The current offered rates by the lenders are much lower.)
• In 2013 growth in employment and economic activity will be tempered by increases in mortgage interest rates.
• CMHC’s point forecast is 451,100 MLS® sales for 2013 and 472,300 for 2014.
• According to CMHC’s forecast, the average MLS® price is expected to be $367,500 in 2013 and $377,300 in 2014.
• CMHC expects the vacancy rate to remain relatively unchanged at 2.5% in 2013. (Was 2.2% in 2011)

Mortgage News:

• The pros and cons of using a mortgage broker – Toronto Star
• An Avoidable Potential Conflict – CMT

Real-Estate News:

Financial News:

Other News:

Thanks for reading.

Some interesting notes from its Quarterly results.

• Net premiums written of $84 million were $33 million lower than the prior quarter
• Net premiums earned of $144 million were $3 million lower as compared to the prior quarter
• Losses on claims of $44 million were $2 million lower than the prior quarter due to fewer new reported delinquencies across most regions, particularly in Alberta.
• The regulatory capital ratio or Minimum Capital Test (“MCT”) ratio was approximately 216%, 6 percentage points higher than the Company’s ratio as at January 1, 2013
• Total new insurance written this quarter was $5.7 billion as compared to $8.5 billion in the prior quarter and 38% higher than the same period last year, primarily due to larger volumes of portfolio insurance.
• The sequential decline in volumes of high loan-to-value mortgages was attributed to a combination of seasonality and general housing market slowdown.
• As part of an ongoing effort to improve its estimate of the outstanding insurance exposure, the Company recently surveyed its largest customers and obtained the amount of the outstanding balances.
• It estimates that the outstanding balance of insured mortgages was approximately $150 billion as at December 31, 2012 and believes that this does not have an impact on the premium recognition curve, which is based on the pattern of loss emergence.  Under the $300 billion outstanding insurance cap for private mortgage insurers as set by the Minister of Finance, the Company believes that the private sector industry has ample remaining capacity.

Question is why Genworth has to estimate outstanding balance using survey? Are people pre-paying too much that it can not even estimate a ballpark number without a lenders survey?

Stephen Poloz. Source Bank of Canada

Starting from 3rd June 2013, Stephen Poloz will succeed Mark Carney – the outgoing BoC Governor – as Governor of the Bank of Canada for a seven-year term.

Following is taken from the Banks website;

He joined EDC in 1999 as Vice-President and Chief Economist, and in 2004 was promoted to Senior Vice-President, Corporate Affairs and Chief Economist, with added responsibility for Corporate Planning, Communications, Government and International Relations, Engineering, Corporate Social Responsibility and Corporate Research. From 2008 to 2010, he was Senior Vice-President, Financing, with responsibility for all of EDC’s lending programs, in addition to the Economics and Corporate and International Trade Intelligence groups. Prior to joining EDC, Mr. Poloz spent five years with Montreal-based BCA Research, and 14 years with the Bank of Canada in Ottawa. He has been a visiting scholar at the International Monetary Fund in Washington, and at the Economic Planning Agency in Tokyo. He has also served as President of the Ottawa Economics Association. Mr. Poloz holds a Ph.D. and M.A. in economics from the University of Western Ontario, and a B.A. (Honours) in economics from Queen’s University. He is a Certified International Trade Professional and a graduate of Columbia University’s Senior Executive Program.