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Facing Foreclosure ( part 2 )
Few of the low-income borrowers who were targeted by alternative lenders gave much thought to where their mortgage money was coming from.
"The way we understood it, as long as our mortgage was paid, they would just renew it. The joke was on me," said Joyce Marentette, a cook in Chatham, Ont., who was also told last year by Xceed that she would have to find other financing, when her three-year term came up.
The problem is more acute in depressed areas such as Southwestern Ontario and parts of Alberta, where there are fewer private financiers and property values have sagged, industry insiders say.
Mortgage brokers in Ontario cities such as Windsor, Chatham and St. Thomas say they regularly receive frantic phone calls from homeowners who are shocked to receive a letter explaining that their mortgage won't be renewed.
"We're not talking about a scoundrel that brought it upon himself. ... These are people that didn't do anything wrong," said Joel Katz, a Windsor mortgage broker. Mr. Katz said he believes the issue isn't on the government's radar because this type of lending accounted for such a small segment of the market compared with the United States. "The problem wasn't as big here, and there are people who are getting stepped on and overlooked."
But exactly how many people are being "stepped on?" Public records in Canada are so scarce, it's impossible - even for lawmakers - to know for sure. Ottawa relies on Canada Mortgage and Housing Corp. for data, but because none of these subprime players insured their mortgages through CMHC, the public agency knows very little about their state of their books. One source close to the Finance Department said officials at the Crown corporation figure that stranded borrowers account for only "a tiny sliver" of the country's homeowners.
Paul McGill, president of mortgage provider N-Brook and spokesman for the mortgage lenders lobby, argues Ottawa is understating the problem. He said he has supplied federal officials with data showing that $1.7-billion of healthy mortgages could be stranded and that these borrowers lack high enough credit scores to qualify for loans from more conservative lenders.
Mr. McGill said federal officials responded by asking mortgage lenders to supply extensive borrower details such as marital status and garage dimensions. Mr. McGill said the requests would have cost too much time and money to fulfill. Lenders have scaled back their proposal to call for a $1-billion Ottawa-backed fund that could renew stranded mortgages. He said Ottawa has not been supportive.
In response to questions, the Finance Department issued a statement saying: "The government is monitoring housing and mortgage markets in order to ensure they remain stable, strong and competitive."
Far away from the push and pull in Ottawa, Ms. Matthews has put her house up for sale. A handful of prospective buyers has wandered through, but she has received no offers. A few weeks ago, she received a letter from Xceed's lawyers, explaining that she owes the company nearly $128,000. This means that, despite paying Xceed about $40,000 over the past three years, she now owes $1,000 more than she originally borrowed.
When she opted to buy her first home, she had to get over the hurdle of her low credit score. An unpaid student loan had caught up with her. She had no down payment, and paid a 9.15-per-cent interest rate with Xceed.
"I just thought they were my foot in the door," she said.
Ivan Wahl, Xceed's CEO, said his company has identified 1,100 borrowers that his company will maroon over the next three years. For those people "it is an absolute disaster," he said. Despite his sympathy, he says he is contractually obligated to pay Xceed's investors, which means demanding full payment at renewal time. "The government certainly should step up to the plate to provide some facilities for people who got caught in the crunch."
Ms. Matthews said she doesn't expect the government to do anything for her, and is reserving her frustration for Xceed. She said the companies involved should be giving their customers more warning about their inability to renew. She received a warning letter 3½ months before her mortgage matured.
"If I knew it was going to end like this, I never would have done it."
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Facing Foreclosure
For the past three years, Lisa Matthews has never missed a mortgage payment - handing over $292, like clockwork, every week.But if nothing changes, a bailiff, acting at the request of her mortgage lender, will ring her doorbell and tell Ms. Matthews, her two daughters and her boyfriend to vacate the two-storey house for good.
"This was a pure slap in the face," said Ms. Matthews, a 36-year-old clerk with the City of Hamilton, who was recently told that, despite her perfect payment record, her mortgage will not be renewed at the end of its three-year term.
Ms. Matthews is one of many Canadians being abandoned by a breed of alternative lenders that have stopped lending to customers, who, because of poor credit scores, lower-paying jobs, or minimal home equity, couldn't obtain financing from a traditional lender, such as a bank.
Everyone from the chief executive officer of Ms. Matthews' lender, Xceed Mortgage Corp., to senior officials in Ottawa, agree that borrowers such as Ms. Matthews, who have dutifully paid their mortgage bills, are being unfairly stranded. What they can't agree on is how many Lisa Matthews are out there.
Records obtained under the Access to Information Act show that a lobby group representing these lenders has warned the federal government that, unless taxpayers offer help, they will be forced to foreclose on as many as 30,000 homeowners over the next three years.
These "orphaned mortgages," as the industry is calling them, are held by customers who have impeccable payment histories.
But they can't be renewed because the credit crunch has shut off the funding pipeline of non-bank lenders, the lobby says.
This wave of forced sales and evictions will hit its crest this coming year when nearly half of these mortgages - most of which were issued during the real estate boom of 2007 - will not be renewed, the mortgage companies say.
Executives with alternative mortgage companies say they cannot renew the stranded mortgages because the once-thriving securitization market that attracted investors to these risky - and lucrative - mortgages collapsed in the wake of the U.S. subprime mortgage crisis. To replace the lost pool of capital, lenders are asking the federal government to back a special billion-dollar fund that would renew the healthy mortgages of borrowers who do not qualify for loans from traditional lenders.
Finance Department officials, however, have responded to the lobby group's alarm bells with caution and questioned their estimates, according to sources close to the negotiations. These sources say Ottawa is frustrated that some of the companies in this small segment of the Canadian mortgage market have been unwilling to hand over data so the problem can be fully assessed, one source said.
"The government thinks this group is asking for help for itself," said the official close to the talks, which bogged down this summer. "Had they been willing to co-operate with the government and provide that information, some sort of program could have been designed. But you can't design a program on anecdotes."
The roots of the problem can be traced back to the housing and lending heyday of half a decade ago, when an assortment of "non-conforming," or subprime mortgage lenders launched operations. Some, such as Xceed and Mississauga-based N-Brook Mortgage Group Inc., had roots in Canada, and others, such as San Diego-based Accredited Home Lenders, migrated from the saturated subprime market in the United States.
Many of these mortgage companies aren't federally regulated so, unlike a bank, they aren't required to insure mortgages when the down payment is equal to less than 20 per cent of the value of the home. And unlike banks, they could - and often did - give loans to people who couldn't afford a down payment. After extra fees were piled on, some of these mortgages added up to as much as 104 per cent of the value of the house being purchased. Interest rates hovered as high as 11 per cent.
Within a few years, this sort of lending started to explode and the new players quickly took hold of 5 per cent of the Canadian market.
But when the financial crisis struck last year, and "subprime" became a dirty word, the pension funds and investment banks that these companies relied upon to fund their mortgages, spurned them. Investors that previously had a ravenous appetite for securities backed by high-risk mortgages were now demanding their money back from companies like Xceed. These investment windows are closing at a time when thousands of mortgages, like Ms. Matthews' loan, are coming due.
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Seven Ways To Damage Your Credit Score ( part 2 )
- Run up high balances
If using too little credit sends up red flags to lenders, using too much credit sends up road
flares and fireworks.
Loading up on high-interest credit cards isn’t a good idea even if the
reward programs are attractive. Lenders want to see people use credit just right -- not too
much, not too little.
It can be damaging to cardholders who run up a high balance every month on one card and
then pay it off each month. Scoring systems do not take those payments into account.
Restrict the amount and sources of your credit. Remember, credit is about a convenient
payment method, so make sure it fits your needs. It should never be used as money you
don’t have.- Apply for new credit repeatedly
lower credit score -- at least in the short run. Multiple hard inquiries in a short period of
time can raise lenders' eyebrows and most banks or credit card companies try to avoid
consumers in these scenarios. Applying for too much credit over a short period of time can
affect your credit rating, so limit the number of credit applications.- Don't pay fines on non-credit-card bills
and bite you if you decide not to pay as agreed. A lot of service providers don't report
positive information. But the minute you do something wrong, they can outsource that debt
to a collection agency who will report it.
Even if you never go over the limit on your credit card, being one day late on a bill can
affect your credit rating. By the way, experts recommend not spending more than 35 per
cent of your allowable credit limit.- Ignore mistakes on your report
your credit report. In order to dispute something on a credit report, one must, of course,
check one's credit report. It's easier than it's ever been as consumers have unfettered
access to their own credit information.
Unlike other issues that affect credit scores, mistakes sometimes can be remedied easily
and quickly, so it's worthwhile to keep tabs on your report. By law, credit reporting agencies
must provide your Consumer Disclosure report, which differs from the credit report lenders
use, if ordered via mail or fax.- Make late payments or skip them entirely
altogether are stellar ways to ensure that your credit score will scrape the bottom of the
barrel.
If you experience cash flow problems or a downfall in your family economic situation for
some time, don’t hide, it’s the worst thing you can do. Instead, call organizations that have
loaned you money. Explain the situation and tell them you want to work out a repayment
plan. Remember, always pay something.
The further back in time the mistakes are, the less impact they have on your credit score.
Obviously, the fewer mistakes consumers make the better for their score.
We hope this information will prove helpful; should you have any further
questions, do not hesitate to call your Mortgage Specialist; he will be happy to
help you. And remember, you always play safer when you build savings; this is,
without a doubt, the best way to have a good night’s sleep.
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Seven Ways To Damage Your Credit Score
As mortgage professionals, we feel it is of the utmost importance to inform our customers
as to the significance of their credit standing and how it affects their capacity to obtain a
mortgage and, even worst, affects the cost of borrowing, especially in these uncertain
economic times. Making some of the following mistakes can ensure that lenders will put on
a hazmat suit to handle your credit report.
Remember the good old days, way back in 2007, when the streets were paved with Credit-
Gold as far as the eye could see and credit cards rained from the sky? Even the credit-
destitute were treated like kings by credit card companies and courted with lavish offers of
unlimited credit.
Here, in the future, the world has changed. And woe betides those who ask for loans with
glaring blemishes on their credit reports. An unpaid collection is apt to be regarded like a
cockroach in the consommé.
What affects your credit score and in what proportion?
35% - Your paying habit
30% - Amounts owed
15% - Lenght of credit history
10% - New credit
10% - Types of credit used
The Seven Pitfalls to Avoid
1. Close credit card accounts
2. Let credit cards collect dust
3. Run up high balances
4. Apply for new credit repeatedly
5. Don’t pay fine on non-credit-card bills
6. Ignore mistakes on your credit report
7. Make late payments or skip them all together
SO, WHAT TO DO?- Close credit card accounts
accounts should be considered for closing. Length of credit history is an important
component of the credit score; therefore, it’s not a good idea to cancel a source that has
been long-held since payment history can have positive implications for your credit rating.- Do not let credit cards collect dust
hoarding them in a shoebox in case of an emergency may also backfire. Consumers
encounter two pitfalls if a creditor closes an account for non-use: The available credit is
pared down and that account no longer contributes to their credit history.
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Housing Market Continue To Rise
New home construction rose by a seasonally adjusted annual rate of 157,300 units in October, up from 149,300 in the previous month, according to Canada Mortgage and Housing Corporation.Economists had expected housing startsto increase by between 155,000 and 158,800 units during the month.
"The improvement in housing starts in October is attributable to improvement in the multiple starts segment," Bob Dugan, CMHC's chief economist, said Monday. "Despite a small decline in single home starts in October, the level of single home starts remains at its second highest level since October 2008."
Urban housing starts rose 5.2% on an adjusted annual basis to 139,900 units last month, with multiple-unit construction jumping 13.8% to 72,600 units. However , urban single-unit starts fell 2.7% to 67,300 units in October.
Overall, urban starts rose by an annual rate of 15% in British Columbia, while they were up 14.8% in Ontario, 6.5% in the Prairies and 1.2% in the Atlantic region. Meanwhile, Quebec saw urban starts fall 11.6%.
Rural starts increased to 17,400 units in October, up from 16,300 the previous month.
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Canadian Economy Rebounding
The stubbornly strong loonie is the major impediment to the Canadian economy rebounding more strongly from the recent deep recession, says Bank of Canada governor Mark Carney.
In a new warning about the currency that is approaching parity with the U.S. greenback, Carney says Canada would experience noticeably stronger recovery next year and in 2011 if the loonie had stayed at the 87-cent level the bank envisaged in the summer.Carney said Thursday that's why the bank made it clear this week that barring an unforeseen spike in inflation, it will keep interest rates at the historic low of 0.25 per cent until at least next July.
Carney said the central bank has several tools at its disposal, including intervention in the currency market, but didn't specify which would be put to use.
"Intervention is always an option," he said.
"Markets should take seriously our determination to set policy to achieve the inflation target. Markets sometimes lose their focus. We don't lose our focus."
The loonie closed 0.16 of a cent lower at 95.44 cents US on Thursday, but many expect it to hit parity with the greenback in the next few months, mainly because of weakness in the American dollar, which has dropped against most of the world's major currencies.
A high loonie makes it cheaper to take U.S. vacations and buy imported goods. But it also harms the Canadian manufacturing sector because it makes exports of everything from minerals and metals to newsprint, machinery and lumber more expensive for buyers in the United States, Canada's main export market.
Carney called the loonie's persistent rise since July "the major downside risk" to the economy, noting that although the loonie was higher two years ago, the difference now is that it comes during a period of severe economic weakness.
His comments came after the central bank issued a comprehensive 28-page quarterly review of the global economy, showing a sharp rebound is underway, fuelled by government stimulus and the need to restock depleted inventories.
But in Canada, the strong burst in activity will last at most a few months more before giving way to the slow and difficult climb back from the deep hole that the recession dug over the past year, the review adds.
The bank is more optimistic about the second half of this year than it was three months ago, noting modest employment gains in August and September.
In a supporting report, Statistics Canada announced that retail sales jumped 0.8 per cent in August to $34.5 billion, largely as a result of strong activity at new car dealerships and at gas stations.
"When the labour market fares well, good things tend to happen to the rest of the Canadian economy," said CIBC economist Krishen Rangasamy.
The domestic economy is now expected to record a two-per-cent gain in the third quarter - the July-September period - and 3.3 per cent during the last three months of this year. The Bank of Canada's July forecast called for growth of 1.3 per cent and three per cent, in the third and fourth quarters respectively.
A number of things have broken right for Canada to make this happen. Commodity prices, particularly oil, have firmed up, financial markets have stabilized faster than thought, and the global economy, particularly China, has rebounded quicker and stronger than expected.
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Variable-rate mortgages better deal
Fixed mortgage rates may help you feel secure in your budgeting, but the Bank of Montreal says the more volatile variable rate mortgages will save you money in the long run.
The bank put out a report Friday showing that, over the past 30 years, variable-rate mortgages have been more cost-effective about 82 per cent of the time.That may come as a surprise to some after studies have shown many Canadians prefer a fixed-rate mortgage.
A fixed rate locks the borrower into a set interest rate for a certain period of time.
That gives many borrowers peace of mind knowing how much money to set aside each month for their mortgage payment.
Variable rates change along with interest-rate moves.
BMO said the Bank of Canada's overnight lending rate is at its lowest possible point now, which could mean there are fewer benefits to a variable rate in the foreseeable future.
BMO highlighted two historical periods when fixed rates were considered beneficial - in the late 1970s and late 1980s - and both were just before interest rates started rising again.
The bank added that the current interest environment is similar to both of these periods.
"Short-term rates are at extreme lows and pressure is likely to build for higher rates in the year ahead," said deputy chief economist Doug Porter in the report.
"The question of whether to lock in to a longer-term fixed mortgage rate or stay in a variable rate has become an increasingly complex and important issue."
Canada has been in a long-term declining rate environment since the early 1980s, the bank suggested.
As a result, the spread between five-year fixed mortgages and variable mortgages has been pushed wider in recent years, and is now near an all-time high.
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Where Does Your Money Go? ( part 2 )
Step 2: Fixed expenses
Fixed expenses are recurring expenses. You must pay these amounts each month, no matter your income level or your mood.
Step 3: Variable costs
Variables expenses can vary from month to month as they are not necessarily recurrent. When due, you must pay these amounts, whether you expect to or not.
Estimate the costs as fairly as possible and try not to forget any. Some of these expenses are not payable on a monthly basis (taxes, registration, driver's license, etc...) while others are unpredictable (car repairs, illness, etc...).
Be as accurate as possible, based on your past years’ experience. Also, as it is better to save more than not enough, you'll appreciate having a cash surplus.
For those who really want the best way to assess monthly expenses, keep a financial journal for a few weeks. By registering everyday expenses, you might be surprised! These lattes purchased every morning at $3.45 costs $900 at the end of the year!
These small purchases add up! In addition, you will realize quickly that there are many expenses that you failed to include simply because you did not think of them when making a budget. You'll be surprised to see how fast these small amounts can accumulate, forming large amounts that can affect the balance of your budget.
You’ll have to decide what matters most in your life: a trip or a coffee every morning?
Step 4: The results
You have carefully compiled a list of your income and expenditure and, by completing the table, you now realize what your current situation is. Of course, you’ll make adjustments along the way to reflect your salary increases or add an expense account that you had forgotten.
Your budget completed, you have on hand an important tool to help you spend or save.
Once completed, you should print your budget and check it often during the first few months. Annotate it; this way, you’ll gain experience and make a better budget next month.
Remember, the primary purpose of a budget is to see where your money goes. This tool allows you to make adjustments in your financial behaviour and achieve goals you will set.
Generally, it is suggested to get rid of one’s debts as quickly as possible by first paying off the debt with the higher interest rate. A good trick is to tackle the debt with the smallest balance first and moving on to the next and so on, eliminating debts one by one.
In some cases, it is preferable to consolidate debts. This would achieve multiple objectives, reduce the monthly financial burden, reduce the cost of credit and reduce stress.
Do not hesitate to contact your Mortgage Financing Consultant at any time; he or she will be glad to guide you towards the best solutions.
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Where Does Your Money Go?
Your income is not increasing at the same speed as the cost of living, your grocery cart costs you more and more each week, as are taxes, back to school expenses (books, school supplies and clothing), registration for your car or your motorcycle, insurances, etc..
The list is long and the money flows away from you. If you're not in control of your finances, your debt will rapidly increase and you are likely to find yourself in an uncomfortable situation.
So, what to do, what are the necessary steps to gain control? You've tried to keep a budget, but you find it arduous and complicated. Nevertheless, it is necessary so, to help you, we offer a fairly simple and effective method to record your income and expenses.
To establish a budget, a first decision is required. You must choose the period covered by your budget. It may be a week, a month, a year or another period suitable to your situation.
A classic is to make a monthly budget. Indeed, revenues are easy to calculate for a month, as is spending. The rent or mortgage payment and utility bills, telephone, cable television - among others - are often monthly. For these reasons, we will set a monthly budget you can adapt to suit your needs (see Appendix at the end of this document).
Step 1: Income
Do not make the mistake of inflating your income; you will gain nothing counting an illusory or uncertain income. You must live with reality.
Be honest. Remember that the purpose of a budget is to grasp, at a glance, your financial situation. If you inflate your income and minimize your expenses, your budget will be useless.
Revenues are recorded. The time has now come to calculate your monthly expenses (spending).
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Questions And Answers About The Home Buying Program (HBP) ( part 2 )
13. I'm on the CSST permanently; would it be advantageous to take advantage of an RRSP loan
under the HBP? No, because CSST income is not taxable, it would be impossible to have a
tax return if you did not pay any.
14. I earn $22,000 per year and have two children in my charge, would it be advantageous for me
to make an RRSP loan in order to get a considerable tax return? No, because with the two
children to your office, the tax previously paid will be reimbursed almost in full by year-end,
there would be no other tax saving.
15. I buy a new property, can I use the HBP? Yes
16. I live in Canada; can I buy a property in the United States and use the HBP for my down
payment? No, the property must be located in Canada.
17. I do not intend to go live in the property that I am about to buy, can I use the HBP?
No, there must be intent to move to the property to be eligible for the HBP.
18. I am a tenant, can I buy the building where I live using my RRSP? Yes
19. I take my RRSP under the HBP to buy my first home, do I have to take that money specifically
as down payment on the purchase? No, the withdrawal of money from the RRSP can be used
to pay other expenses related to the purchase of the new house. (Legal fees, furniture, etc)
20. I made a RRSP loan on the 1st
of February, what is the earliest date that I can notarized?
60 days after the date of purchase: March 4th 2009
21. After notarized, what is the deadline to withdraw my RRSP under the HBP? 30 days after the
date of signing of the sale
22. I make a withdrawal from my RRSP under the HBP, what is the maximum date to notarize?
October 1st of the following year
23. Can I defer my RRSP deduction on my later years? Yes
24. How much do I have to repay yrarly to my RRSP if I make a withdrawal from my RRSP under
the HBP? A fifteenth (1 / 15) of the amount withdrawn.
25. If I sell my property, do I have to reimburse my RRSP immediately? No
26. I took advantage of the HBP to purchase my property. Sold it 5 years ago. And I have not
owned a home; I lived in, for 5 years. Can I purchase a principal residence and use the HBP?
Yes, but you need refund all the withdrawn to your RRSP under the first HBP before the 1st
of January of the year when the 2nd HBP will be done.
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Questions And Answers About The Home Buying Program (HBP)
The HBP permits an individual and spouse, if any, to use his RRSP to buy a house and pay the related expenses without income tax withholding; provided they return the money obtained in his RRSP over a period of 15 years.
1. I own my home and I buy another property: do I qualify for the program? No
2. I own my home and my new partner lives with me for 1 year: can I use the HBP if we decide to buy a new property? Theoretically not, against, if separated for more than 3 months (change
of address) on non-owner spouse could.
3. I own two rental properties and I do not live there: I can use the HBP if I buy a home now, to go live in? Yes
4. What is the maximum date of purchase RRSP in the current year, to deduct the tax year just
ended? 1st of March
5. I have my RRSP with the Quebec Workers Fund (FTQ): Can I withdraw under the HBP? Yes, but you must prove that the FTQ RRSP are the last to be removed and there is no other
RRSP placed elsewhere.
6. Buying a mobile home on leased land, can I qualify? Yes
7. I have $30000 in RRSPs, can withdraw all of it under the HBP? No, because the maximum
per taxpayer withdrawal under the HBP is $25000
8. My notice of assessment indicates that I have the right to contribute to my RRSP for $7,000, can I contribute $8,500 without penalty? Yes, a surplus contribution of $ 2,000 can be done, but the deduction of the surplus must be applied to the following year.
9. What is the maximum we can withdraw our RRSP under the HBP with no tax penalty? $25,000
10. Can I use my tax return as the only cash for the down payment for the property I want to buy, if the RRSP were bought with borrowed money? Yes, but the customer must qualify in the
CMHC Multi-Source Program and pay the required premium for the CMHC mortgage
insurance.
11. I have $5,000 in RRSPs that I will use as cash down for the purchase of my residence. If my
notice of assessment indicates that I have the right to contribute up to $22,000 in my RRSP, can I make an RRSP loan of $22,000? No, because the total withdrawal would be $ 27,000 and a
taxpayer has the right to withdraw only $25,000 in its RRSP.
12. I have $ 10,000 invested in RRSPs, I want to use these RRSP as down payment for the
purchase of my residence. I signed an offer to purchase with my real estate agent on December
1st, 99. The date of signature at the notary is scheduled for April 1st, 2009.
On the 22nd ofDecember 2008, I withdraw from my RRSP an amount of $2,000. On February 20th, I withdraw the balance of my RRSP, or $8,000. Are these withdrawals will be treated as withdrawn under HBP?
Only the first withdrawal will be considered as HBP, the second $ 8,000 will be taxed. Why?
RRSP withdrawals under the HBP must be made in the same calendar year.
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THE TESTAMENT
A will is a vital element of estate planning, but many people do not know why. A will is a document that speaks in your name after your death.
It transmits your last wishes and allows you – you, and not the State - to identify the persons to whom you will leave the assets you have accumulated during your lifetime and, more importantly, the person(s) who will take care of your underage children if both parents die.
A will facilitates the administration of your estate; you could save income taxes and avoid the serious consequences of dying without a will. Yet, despite the importance of wills, it is estimated that only half of Canadians have one.
This is alarming when one considers the benefits that a will provides and the relatively low cost of its preparation. We work very hard to accumulate wealth, so why not ensure it will not be wasted?
Protection for your family or your business
A will is the basis of an estate plan. A will properly prepared means that your assets will be distributed as per your wishes and that loved ones will benefit, unburdened by taxes. You can avoid unnecessary costs, endless payment settlements and the consequences of a State will.
You can also choose your estate executor and the guardian of your children. Given that the preparation of a will costs a few hundred dollars and knowing the potential consequences of the absence of such a document, it is obvious that everyone should have a Will.
What to do after having written a will?
Once your will is drafted, you must regularly review and change it whenever an event occurs in your life or the life of your heirs: marriage, divorce, birth, death, disability, new career or other major event. Note also that in most provinces, but not in Quebec, marriage annuls an earlier will unless specified otherwise.
A will must also be reviewed as soon as changes occur in laws governing income, family or inheritance taxes. Ideally, to ensure that it still reflects your intentions, a will should be reviewed annually or every two years, even if no major change has occurred.
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Housing Activity
Canada's national housing agency predicts home construction to make a comeback in the second half of this year and into 2010, however economists say it could be a long time before we see the same building frenzy that has dominated this decade.
Canada Mortgage and Housing Corp. said Thursday it believes housing starts will hit 141,900, of which 68,400 will be single-family detached homes and 73,500 multiple-housing units, such as condos.
CMHC chief economist Bob Dugan said economic uncertainty and lower employment tempered new-housing construction in the first half of this year.
"In the second half of 2009 and in 2010, we expect housing markets across Canada to strengthen," he said in releasing the agency's third-quarter outlook.
CMHC says improving activity on the resale market and lower inventory levels in both the new-and existing-home markets should prompt builders to increase residential construction.
CMHC predicts overall starts to reach 150,300 in 2010.
That compares to 211,056 housing starts recorded in 2008, of which 93,202 were single-family and 117,854 were multiple-housing units.
Annual housing starts have surpassed the 200,000 mark every year since 2002.
However, CIBC World Markets economist Benjamin Tal believes the recovery in housing starts will be much slower.
"I think those number are a bit on the high side," he said, predicting a "not very weak, but not very strong" recovery of about 140,000 units in 2010.
Tall also believes housing starts won't surpass 200,000 annually again for quite some time.
"We simply can't justify it. We don't have the demand," Tal said.
The new normal will be about 170,000 to 180,000 starts annually, which we could hit by 2011, Tal said.
Slower population growth and higher costs for new homes after provincial sales taxes are harmonized with the GST in provinces such as Ontario and B.C. next year will soften near-term growth in new home construction, Tal said.
Scotiabank economist Adrienne Warren also sees a slow recovery in new home building due to oversupply in some major markets, particularly in the condominium sector.
But Warren said the CMHC forecast is yet another sign Canada's real estate market is on the rebound, and performing better than previously thought.
"It reaffirms that the market is far exceeding expectations across the board," Warren said.
CMHC also said Thursday it expects total sales on the Multiple Listing Service (MLS) to hit 420,700 in 2009 compared with 433,990 in 2008.
That forecast is slightly higher than the Canadian Real Estate Association's recently revised 2009 resale forecast of 432,000 units.
CREA boosted its outlook last week, saying it expects resale activity to drop by 0.4 per cent in 2009 versus 2008. That's better than its previous forecast of a 14.7 per cent drop year-over-year.
CHMC said the average price of a home across Canada last year was $303,607 and is expected to fall slightly to $301,400 in 2009, before climbing to $306,300 in 2010.
Warren predicts 2009 sales and prices will be on par with last year's levels.
"By and large we are looking at matching last year's levels, and holding steady on average, which is far from what anyone expected a few months ago," she said.
She expects a "modest pickup" in sales in 2010.
"We will be looking at more of a balanced market."
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Canada Home Prices Seen Rising
Canadian resale home prices are likely to rise, not fall, and sales will nearly match those of last year, the Canadian Real Estate Association said in a revised forecast on Thursday.
A much stronger showing in the second quarter, and a solid start to the third quarter, prompted CREA to predict a dramatically smaller decline in sales of previously owned homes for 2009, and for prices to edge up.It said the current resale market was like "night and day" compared with the beginning of the year.
The group said its new forecast for a 1.5 percent rise to C$309,500 ($283,945) for the average home price contrasts with a call for a 5.2 percent drop to C$287,700 in its May outlook.
CREA also revised its forecast for 2009 sales to 432,600 units, a 0.4 percent decline from 2008 when 434,477 units changed hands.
That is a much smaller retreat than the May forecast, when the association expected sales would drop 14.7 percent from 2008 -- itself a revision from a previous prediction of a 16.9 percent drop in sales.
"The recovery in Canadian housing I think was beyond the imagination of even the most strident optimist. It truly is remarkable and I think that revision just reflects it," said Doug Porter, deputy chief economist at BMO Capital Markets.
The Canadian residential property market was hit hard in the final quarter of 2008 as the recession choked off demand, and accounted for more than half of the decline in transactions from 2007, the record high year. Sales tumbled 17.1 percent in 2008 from 2007.
The data from the last six months has increasingly shown that people are venturing back into the market. Low mortgage rates and signs that the worst of the economic slump is over are stimulating demand.
There has also been a turnaround in consumer sentiment, underscored by Thursday's report from the Conference Board of Canada that showed confidence rose in August for the sixth straight month.
British Columbia and Ontario are now expected to see an annual increase in sales activity, while CREA cut its forecast declines for several provinces, including Alberta, Saskatchewan and Quebec.
Nearly all provinces are expected to see a higher average price this year, except Alberta, where the average is seen falling 4.4 percent. British Columbia is expected to be relatively stable with a 0.1 percent dip.
For 2010, the average price nationally is expected to rise 2.1 percent to C$315,900, while sales activity is seen gaining 5.3 percent to 455,400 units.
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Bank Of Canada Unlikely To Raise Rates
The Bank of Canada is unlikely to hike interest rates until 2011 because the lingering effects of the global economic meltdown will continue to mute both growth and inflation, according to a report issued Tuesday by CIBC World Markets.
"While the 2009 recession may already be over, the slack it created is both large and likely to persist," said CIBC chief economist Avery Shenfeld."Unlike the Bank of Canada, we don't expect growth to average above the non-inflationary potential until 2011," Shenfeld added.
"But even under (Bank of Canada) Governor (Mark) Carney's more optimistic trajectory, inflation will still be feeling the downward pressure of a sizable output gap next year, one as large as we saw in the early 1980s and 1990s downturns."
He predicted both headline and core prices would cross paths in the second quarter of 2010, at a level well under the Bank of Canada's two per cent target.
"As a result, Canada's inflation rate will be no threat to the bank easily fulfilling its pledge to keep interest rates at a slim quarter point through mid-2010," he said. "In fact, market expectations for rate hikes in the first half of 2010 could be a full year too premature."
While the core inflation rate did not decelerate as much as the Bank of Canada predicted earlier this year, there are reasons to expect a further easing in core inflation ahead, Shenfeld said, including "what economists call the income effect."
Shenfeld notes that by stripping out volatile items from the CPI, the Bank of Canada's core measure now excludes most of the items that have been deflating.
With the volatile measures included, headline CPI is negative, largely driven by the dive in gasoline prices from a year ago. Lower gas prices have pulled down costs for intercity transportation fares as well, which the Bank of Canada also excludes from core inflation. Other non-core items such as natural gas, fuel oil and mortgage interest costs have also eased off.
"The deep dive in non-core items has left those Canadians still working with some spending power," Shenfeld said in explaining the income effect.
"While nominal wages have begun to decelerate in a slack labour market, a negative year-on-year inflation rate has meant that in real terms, the buying power of the average wage has escalated."
"So after filling their gas tank and paying their new, lower, mortgage bills, Canadians simply have more money in their pockets when they go shopping for other items, keeping those prices aloft."
Shenfeld notes that economic slack usually takes time to exert its disinflationary force and believes the upward pressure on prices will ease in the coming months.
Meanwhile, less benign headline inflation expected next year "implies diminished buying power for other goods, contributing to a cooling in core CPI."
"With a lag, a strong Canadian dollar will also provide a dampening impact on retail prices for imported goods and services."
Meanwhile, unlike the central bank's outlook, the CIBC report does not see the Canadian economy gaining much benefit from a forecasted U.S. recovery.
CIBC's analysis finds that protectionist trade barriers and a tilt in U.S. stimulus spending towards industries that have less-than-average propensities to import from Canada, will dampen the benefits that this country typically sees from economic growth south of the border.
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Lower Your Monthly Mortgage Payments
When you decide to buy a home, getting the best possible loan is important. It can save you thousands of dollars.
How you can keep your monthly mortgage payments down? These are the different components of the loan that can affect your monthly mortgage payments.
1. Down Payment:
The down payment is how much cash you will put down up front. The rest of the price is how much you will finance with the lender. For example, if the purchase price is $300,000, and you are putting 20% down, that means you will be putting down $60,000, and the loan amount will then be $240,000.
The more money you can put down, the lower your monthly payment will be. Basically, the less you finance, the less will be amortized over the life of your loan. Also, you usually get a better interest rate when you put down at least 20%, so that helps out as well.
2. Loan Life:
The number of years the loan will be amortized over affects the monthly payments. The longer the life of the loan, the less you pay each month because it is spread out over a longer term. Typically, the longest term is 30 years. Of course, the longer the term, the more total interest you will pay, so be sure to weigh that in as well.
3. Interest Rate:
One major variable that will differ between lenders is the interest rate. This is the rate they are charging you for borrowing the money. The interest rate will change your mortgage interest payment each month. The higher the rate, the more your payment. For a $240,000 loan, the payment including just principal and interest at 6.5% would be $1,517. At 7.0%, it is $1,597. A $80 difference per month does not sound like a lot, but over 30 years, that is $28,800.
4. Property Taxes:
Property taxes are added into your monthly cost of owning a home either by escrowing it with the lender or by you saving to pay it at the end of the year. The area where your property is located will influence this more than anything. The higher the tax rate and higher the appraisal values, the more dollar amount you will pay each month.
5. Insurance Rate:
Similarly, the higher the insurance rate, the more you will pay per month. This is mostly affects houses that are in special insurance areas that need more coverage, like flood zones or hurricane areas.
6. Points:
Points are paid by the Borrower in order to buy down the interest rate. If you get some insanely low interest rate from one lender that seems completely out of whack from the other quotes, this might be because they are quoting you a rate with points.
A point is equal to 1% of the loan amount, and you pay this point as part of your closing costs. So for example, with a loan for $240,000, one point would be $2,400 and that point might buy your interest rate of 6.5% down to 6.25%. Buying down your rate will lower your monthly payment.
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Housing Recovery
Signs of recovery in the U.S. housing market and growing demand for wood as an energy source could herald a recovery in demand for forestry products, a United Nations agency said on Tuesday. Officials from the U.N. Economic Commission for Europe , which covers North America, Europe and the former Soviet Union, made the forecasts of recovery at the presentation of a report showing the forestry products industry had suffered one of its biggest ever drops in consumption last year.
"We have just seen the early indications of a turn-up in housing in the United States, and that is the new housing starts have ceased to go down, which is a positive sign to us that perhaps we have hit the bottom," Ed Pepke, one of the authors of the report, told a news conference.
He said U.S. new house building needed to return to about a million a year, from unsustainable levels of 2 million or more a few years ago.
ENERGY DEMAND
Despite the financial crisis, which was triggered by lax U.S. mortgage lending, demand for wood as an energy source had been growing, UNECE said.
World wood fuel pellet production grew by 20 percent in 2008 to nearly 10 million tonnes and is expected to approach 12 million this year, with capacity doubling to more than 20 million by 2012, it said.
Europe is the largest consumer and producer of wood fuel pellets, while Canada is the single largest exporter, mainly to Europe, UNECE said in a statement.
Asia could become an important consumer, too, as the first large-scale industrial projects to co-fire coal with wood biomass took place in Japan in 2008, it said.
The UNECE region accounts for 42 percent of the world's forests, and its 56 countries account for 60 percent of production and 57 percent of consumption of global wood and paper products.
The fall in consumption last year reflected primarily the collapse in housing construction in the United States and to a lesser extent in Europe.
Fewer than half a million houses are being built in the U.S. this year, 75 percent down from 2.2 million in 2006, Pepke said.
The U.S. housing collapse devastated Canada's forestry industry, which sends 90 percent of its production to its neighbour. The strong Canadian dollar also hurt, he said.
Consumption of forestry products fell 8.5 percent in 2008 to 1.26 million cubic metres equivalent. Within the UNECE region, consumption fell 17.7 percent in North America and 10.6 percent in Europe, but rose 6 percent in the former Soviet Union.
The wood energy sector is increasingly sourcing material directly from forests instead of using wood-processing waste as a by-product because of the fall in timber production.
UNECE officials say wood energy has good prospects as a sustainable and carbon-neutral energy form, as felling of trees in the region is less than growth, in contrast to deforestation seen in South America, Asia and Oceania.
"The forests in our region are accumulating more and more wood every year ... There is potential for using more wood for industry and for energy," Pepke said.
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New Home Sales
New single-family home sales recorded an uptick in June, increasing 11 percent compared with May, to an annualized rate of 384,000, the Commerce Department said. It looks like a little pent-up demand for new homes is being unleashed, especially since prices are still falling.
The Commerce Department also reported that the median price for a new house stood at $206,200 in June, down 12 percent from last June.
An uptick, but how serious an uptick? When compared with June 2008, new housing sales were still down 21.3 percent, so the housing market has a ways to go before recovery sets in. Still, investors seem to be looking around for reasons to be cheerful about housing, since news of the uptick moved the Dow Jones U.S. Home Construction Index up 4.5 percent on Monday.
First American CoreLogic, which tracks commercial mortgage data, had no such limited good news for the commercial real estate sector on Monday, reporting that roughly $165 billion in commercial real estate loans will mature by the end of 2009. That's a lot of cans that need to be kicked down the road, and soon, with the problem being especially tricky for the loans that were bundled with other loans in CMBS back in the heyday of that vehicle in the mid-2000s.
It might not be the best time to enter the retail world, but when you're an 800-pound gorilla, you can elbow your way in. In any case, Microsoft has confirmed that it indeed has detailed plans for retail stores, which has been the subject of speculation for some time now. Somehow or other last Friday, a tech web site got ahold of PowerPoint slides illustrating various aspects of the retail concept, created by New York-based consulting firm Lippicott for the software giant. Microsoft duely acknowledged its efforts to enter the tech retail realm so ably occupied by Apple at the moment.
But the company denied that the slides actually represented a final retail product. It also didn't comment on exactly what form its version of the Apple Genius Bar would take, which will possibly be called the "Answer Bar," "Guru Bar" or "Windows Bar," or whether there will be a special room in which customers can vent frustration by hitting punching bags with Bill Gates' mug on them.
Federal Reserve chairman Ben Bernanke, who seems to be out on a campaign tour these days, might still be preaching caution about the state of the U.S. economy, but the governor of the Bank of Canada, Mark Carney, is decidedly more optimistic about his country's economy. Late last week, Canada's central banker asserted that the nation's recession is virtually over.
Carney has, in fact, predicted that Canada's economy is going to start expanding during this quarter, earlier than previously anticipated. He forecast annualized growth of 1.3 percent in 3Q09.
On the other hand, he also said that the recovery is going to be "a long road," with no growth in jobs any time soon, adding that the bank plans to keep its benchmark interest rate at 0.25 percent, same as the Fed. Such statements may be part of an effort Carney has undertaking lately to talk down the Canadian dollar, since a too-strong loonie against the greenback is a recipe for poor exports to the United States, one of the linchpins of the Canadian economy that has already suffered because the U.S. recession.
Wall Street had a busy day on Monday, mostly in negative territory, but by the time the final bell rang, the Dow Jones Industrial Average was up 15.27 points, or 0.17 percent. Gains by the S&P 500 and the Nasdaq were likewise scant: 0.3 percent and 0.1 percent respectively.
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Canada's Highest Net Worth City
Vancouver has stolen Calgary's crown as the city with the highest net worth.In a soon-to-be-published database that looks at how Canadians handled their wealth during the rapid change of fortunes that marred 2008, Analytics exposes profound changes in the way people approach their wealth.
Canadians have seen their nest eggs shrivel, beefed up their savings, scaled back their borrowing, and embraced caution, an abrupt change in attitude that will likely persist, says Catherine Pearson, vice-president of Analytics in Toronto.
Generally, the research, which crunches and dissects numbers from 80 different sources and goes into deep local detail, found that the richer Canadians were, the harder they fell.
"The more money you have, the more you have to lose," Ms. Pearson said.
In Calgary, net worth fell as the value of household investments plunged and debt climbed.
In Vancouver, though, consumers saved more and real estate fared better last year.
Net worth, which measures someone's assets minus debts, dropped 6.2 per cent for Canadians as a whole last year. But Calgary residents saw their wealth plunge 12.3 per cent, while Vancouver's residents were able to hang on to much of their riches. There, net worth fell just 3.1 per cent between December, 2007, and December, 2008.
Now Vancouver's residents have taken first place for household net worth, while Calgary has fallen to second place.
Vancouverite Sebastian Albrecht rode that Pacific wave. He has a lot of his money tied up in real estate. And it's these investments - with prices down less than 10 per cent from their peak last year - that has made the city surrounded by mountains and ocean the richest in Canada, supplanting the country's energy capital Calgary.
Mr. Albrecht bought his first condo a decade ago, after university. He stretched himself - and slept in a sleeping bag on the floor for a couple months in the unfurnished home.
A decade later, he lives in a $600,000 home that he bought two years ago for $500,000 and also owns - and rents out - a $350,000 town home and a $300,000 condo. He has some money in stocks, but only about 10 per cent of his net worth.
Born in the city, an entrepreneur at heart, the 34-year-old worked in IT and then started a clothing import-export business and dabbled in real estate - until he became a realtor himself three years ago, a perch from which he sees a cross-section of Vancouver and the people who generate the city's wealth. From movie makers to junior mining players, it is a diffuse mix.
"The difference in Vancouver is it's more diverse than a lot of areas in Canada," Mr. Albrecht says. "Calgary has oil. Toronto is finance. Here, there's a lot of creativity. I'm amazed how some people make money here."
Vancouver's net worth per household is an average of $575,826, while Calgary's is $569,926, the research shows.
Compare that with Newfoundland, where household net worth is typically $140,706, or even to Ontario, where average household wealth is $354,968.
Most of Calgary's losses stemmed from a plunge in the value of investments held by households, such as stocks, bonds and mutual funds. At the same time, Calgarians took on large liabilities in the past year, and Calgary is now the home of the most heavily indebted people in Canada. Albertans in general have 30 per cent more consumer debt than the average Canadian, the research shows. And the mortgage debt of many young people has soared.
"Perhaps they simply haven't realized the fact that the heady boom days are now over," the researchers said in their analysis.
Vancouver residents, on the other hand, were able to mitigate their exposure to the ravages of the recession by increasing savings, and by benefiting from more stability in the housing market in 2008.
The survey doesn't cover 2009. In the first six months of this year, prices for existing homes were down 8.6 per cent in Vancouver from the same period of last year, and 9.8 per cent in Calgary, resale statistics show.
Perhaps because they're less wounded than the rest of the country, British Columbians are piling back into the stock market faster than elsewhere.
But people in Quebec and Ontario are gun-shy, and are stashing away any extra money they have in safe places. Quebec households in particular have low credit card debt, and boosted their holdings of sure-thing guaranteed investment certificates by 5 per cent over the course of the year. Deposits in banks and credit unions have risen 4.9 per cent.
People in Ontario, where the recession has hit hardest, increased their term deposits by 15.3 per cent and increased their debt loads by just 3.0 per cent - much less than the national average increase of 8.1 per cent.
"Hats off to Ontario households for being fiscally responsible," the researchers said.
Still, Ontarians were paying dearly for such debt. Residents were using 7.1 per cent of their disposable income to pay interest charges - 20-per-cent higher than the national average of 6.3 per cent. In Alberta, servicing non-mortgage debt ate up just 6.1 per cent of discretionary income, despite the rising debt loads.
Indeed, Albertans' discretionary income was higher than anywhere else in the country, at $53,237 per household. That was 29-per-cent higher than second-place Ontario.
The oil-rich province may have been hammered by the global recession, but households still have plenty of wealth. "Alberta's got the spending power," the researchers conclude.
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June Home Sales Rise 8.7%
Canadian sales of existing homes rose for a fifth month in June, adding to evidence that record low borrowing costs are fueling housing demand.Sales rose 8.7 percent to 41,304 homes from the previous month on a seasonally adjusted basis, the Canadian Real Estate Association said today in a statement from Ottawa. Average home prices rose 3.6 percent from a year earlier and the inventory of unsold homes fell to its lowest since August 2007.
Recent data on Canada’s housing market suggest the Bank of Canada’s efforts to stimulate spending with interest rate cuts are helping fuel demand for homes and may be reversing a slump in home construction. The Bank of Canada, which forecast that housing will shed 1.1 percentage points from growth in 2009, has cut its benchmark lending rate to a record 0.25 percent.
“Obviously there is one segment of society that doesn’t believe this will be a lengthy downturn,” said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto.
New home sales jumped a record 32 percent during the second quarter to 114,173 units, the realtor group said. The number of months needed to sell current inventories fell to 4.2 in June, the lowest level in more than two years.
Agents and Brokers
Output of real estate agents and brokers was up 8.2 percent in April, Statistics Canada said June 30. Canada Mortgage and Housing Corp. said July 9 that new home construction rose for a second month in June, while the total value of permits issued by municipalities jumped 15 percent in May.
One explanation for the pick-up in the real estate market, Porter said, may be that the decline earlier this year was “extreme” and created pent-up demand for homes. Existing home sales fell in January to their lowest since 2000.
“I can’t help but wonder whether these gains are sustainable,” Porter said.
The country also may be benefiting from a financial system that has largely escaped bad-asset problems plaguing other countries.
“The positive impact of low interest rates on mortgage demand is clearly much more powerful in Canada than in the U.S.,” Derek Holt, an economist at Scotia Capital in Toronto, said in a note to investors.
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ONE of the most influential debt ratings agencies, Standard & Poor's, this week issued a paper on why Australia's big banks should retain their AA credit rating over the medium term.That the Australian banks have a stable ratings outlook is an unadulterated positive for investors, and should be a matter of national pride commensurate with the charms of the Great Barrier Reef and consecutive appearances in the World Cup.
Two years ago there were more than 50 banks around the globe with AA credit ratings, but now there are just nine:
ANZ (AA)
Commonwealth (AA)
National Australia Bank (AA)
Westpac (AA)
Bank of Nova Scotia (AA-)
DBS Bank (AA-)
Nordea Bank (AA-)
Royal Bank of Canada (AA-)
Toronto-Dominion Bank (AA-)
Overseas investors have questioned why the Australian banks have retained their strong ratings through the credit crisis while bigger global players have been downgraded.
The Australian banks' stable outlook has come about through a mixture of good management and regulation, and what the ratings agency refers to as a "less fiercely competitive environment" than in some overseas markets, which has meant less risky lending practices.
A rating of AA and a stable outlook for that rating means the big banks can raise money in overseas capital markets at relatively attractive rates and are among the first to raise funds without the help of the costly Government guarantee.
This is a good thing when, according to the Reserve Bank, they are reliant on offshore wholesale sources for about 80 per cent of their long-term funding, a disproportionate level when compared with most of their overseas peers.
These are no small numbers. In the first six months of this year, industry publication DCM Review estimates Australian banks raised about $64 billion in overseas capital markets, putting them well on the way to eclipsing last year's record offshore issuance.
If home prices hold up and our economy stays out of recession, it will be due to two key factors: the willingness of the Chinese to buy our natural resources and the credit intermediation powers of our Big Four banks.
But nothing can be taken for granted.
Standard & Poor's warns that it would have to review its position if bad debt charges increased materially or stress re-emerges in wholesale funding markets.
Indeed, a few weeks earlier it downgraded the prospects for more than 20 mostly small US banks but also including big mortgage bank Wells Fargo.
Many of the comments that accompanied the notice of the downgrade could be applied to the Australian banks if you shut one eye. For instance, the agency said that the downgrades reflected its belief that "operating conditions for the industry will become less favourable than they were in the past … and (incur) tighter regulatory supervision".
The other major ratings house, Moody's, already describes the outlook for the big Australian banks as negative, saying business asset quality is likely to be the most important near-term driver of ratings.
Crucially, the prospects of all the major banks holding their ratings are not homogeneous.
In other words, it is quite possible that one of the big banks could have a downgrade while the others hang on to their rating. Share investors need to be aware of this and seek advice about which bank is the most at risk over the longer term.
Having to operate under a single A credit rating could cost a major bank about $200 million in extra annual funding costs.
S&P says that while the Big Four banks are similar in many ways, the impact of market developments on individual banks will be assessed case by case. Ratings could be lowered in the event of mergers and acquisitions, a bank pursuing a riskier business model or adverse investor sentiment.
It also notes that some banks have been more prone to one-off events, suggesting potential differences in risk management and culture (it does not include examples).
The banks are working hard to ensure they are not delivered any nasty credit rating surprises. For instance, NAB in its May interim results presentation cited the maintenance of its AA credit rating as one of its eight priorities in navigating a recession.
In S&P's eyes, NAB's British exposure means that it has a moderately higher credit risk than its peers in the shorter term, but over the longer term this exposure should be a source of diversity and growth.
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