Why the Bank of Canada likely won’t change its ‘neutral’ stance despite improving economy

Early signs of an economy moving toward full economic health probably won’t be enough to prompt Bank of Canada Governor Stephen Poloz to alter the stance of monetary policy Wednesday.

The target for overnight loans between commercial banks will remain 1% for a 29th meeting in a decision at 10 a.m. New York time, according to all 18 economists surveyed by Bloomberg News. Poloz will speak to reporters from Toronto 30 minutes later.

Poloz has said he’s “neutral” about the next policy move and last week highlighted the risks posed by persistently slow inflation. Wednesday’s statement will maintain that message, even after stronger-than-expected data and price gains exceeded the bank’s last quarterly forecast, said CIBC World Markets economist Peter Buchanan.

 

“Lowflation” has been the bank’s major concern, Buchanan said. “Too candid a recognition that deflation is less of a threat could see unwanted upward pressure on the currency,” he said, which could crimp export growth.

Poloz sets interest rates aiming inflation at the 2% midpoint of a 1% to 3% target band. The annual inflation rate slowed to 1.1% in February from 1.5% the month before, Statistics Canada reported March 21. Data for March are scheduled to be published April 17, with economists surveyed by Bloomberg forecasting a 1.4% rate.

 

While price increases have been stronger than 0.9% the central bank forecast in January, “it’s unlikely the Bank of Canada will fully back off their inflation concerns,” said Benjamin Reitzes, a senior economist at BMO Capital Markets in Toronto.

Other Improvements

Other economic indicators have shown improvement in the world’s 11th-largest economy. Canadian employment surged in March, climbing almost twice as fast as economists forecast with 42,900 new jobs, and gross domestic product rebounded with a 0.5% gain in January. Factory sales in February jumped 1.4%, to reach the highest level since 2008 before the last recession.

The consumer-price index in the U.S. rose 1.5% in March from a year earlier, a Labor Department report showed yesterday in Washington, which may alleviate concerns about too- low inflation among Federal Reserve policy markers.

The Canadian dollar declined 5.4% in the last six months through Wednesday, the second-weakest performance after South Africa’s rand among the 16 major currencies tracked by Bloomberg, as Poloz shifted to a neutral policy stance. The weaker dollar may help boost inflation by making imports more expensive, as well as boosting exports, three-quarters of which are bound for the U.S.

Growth Rotation

Policy makers have been counting on a rotation of growth to exports and business spending from indebted consumers. The International Monetary Fund said last week that shift hasn’t yet emerged and said monetary policy should remain stimulative.

Canada may still benefit from demand for exported commodities and the weaker currency according to some executives.

“The drop in the Canadian dollar relative to the U.S. dollar fundamentally helps our business,” Don Althoff, Chief Executive Officer of Calgary-based pipeline operator Veresen Inc., said in an April 11 telephone interview.
Bloomberg.com

 

Bidding Wars.....An Easy Fix?

Article written by Boris Bozic on the 28 Mar 2014 in Mortgage

I wonder if purchasers who went through the bidding process would do it over again?   We’ve all made bad business decisions, it happens.  But if the purchaser feels like they were played, well, that’s not good for any of us.  The integrity of the real estate sales process is sacrosanct.

I assumed that real estate bidding wars was specific to pockets in the Vancouver and Toronto market place.  You know? Big home values, big incomes – the bigger-better syndrome.  Alas, my assumptions were incorrect.  I made a stop in Winnipeg a few weeks ago to meet with some of our broker supporters, and I was surprised to hear how prevalent bidding wars are in the Winnipeg market place.  I guess I shouldn’t be surprised, given the Globe ran article recently about what to do if you find yourself in a bidding war.  People on the front lines are talking about it, and Canada’s self-proclaimed National newspaper is providing advice on what to do if you find yourself in real estate auction.  I’ll assume that real estate bidding wars are no longer a one off or the exclusive domain of larger urban centers.

Should we care? I think we should.
Some would describe real estate bidding wars as the free market economy at work- a willing seller and a willing buyer.  The flip side of the definition is; the manipulation of the real estate process, predicated on an unsuspecting and uniformed buyer.  An argument can be made for both definitions.  Here’s where I stand -

 

I think it’s an unseemly practice, and should be stopped or at the very least an attempt should be made to curtail it.  Here’s how it works, the real estate agent convinces the vendor to list their property for slightly less than market value.  The listing states that no offers will be entertained for a period of time, somewhere between five to seven days.  Enough time is given to view the property, and hope that perspective purchasers, especially those who are frustrated and disillusioned because they’ve done this a number of times and have no home to show for it, will submit an offer on the prescribed date.  The hope is the offer will be based on emotion, excuse me…market reality, and over pay.  And that’s what’s happening with greater frequency today.  I often wonder if purchasers who went through this process could do it over again, would they?  We’ve all made bad business decisions, it happens.  But if the purchaser feels like they were played, well, that’s not good for any of us.  The integrity of the real estate sales process is sacrosanct.

 

The best way to ensure that the integrity of the real estate sales process is not questioned is by way of transparency.  The Competition Bureau’s attempt to have CREA (Canadian Real Estate Association) publish the historical sale price for the listed property, is a step in the right direction.  CREA is fighting this because of “privacy” legislation. I find that interesting given that the information is already public, and one can find it if they have the time, and know where to look.  Finding historical sales data shouldn’t be laborious or treated as tradecraft.  We live in an age of instant information, and there’s no conceivable reason not provide this information to purchasers, and existing home owners.  If you want an example of how this can work, go to Zillow.com.  On this website is the listing of every property there is for sale in the U.S. It also provides estimated property evaluation, and historical sales activity for all properties.  It would be a valuable tool for anyone finding themselves in a bidding war.  If a realtor councils perspective purchasers to go in at “x” dollars, the council can be judged and validated as quickly as the purchaser can tap his/her tablet.  Transparency and information assists the purchaser to make a better decision.  A home is shelter, it’s also the biggest single investment decision that most people will make in their lifetime. 

There’s a self-serving reason why I would like to see theses bidding wars come to an end.  If the purchase price of the home is over market value, the appraisal is not going to come in.  That’s the point when everyone who was party to the over inflated purchase price runs for the hills, and start blaming those who are left to try and fix it, the mortgage broker and lender.  Rather unjust.

Oh yeah, my quick-fix solution is this, the mortgage amount is based on the purchase price or appraised value, whichever is lower.  We should add the listing to that as well.  That would pretty much end the gaming of perspective purchasers.

Condo Buyers Feel the Pinch!

Tightened lending guidelines are particularly affecting one type of homebuyer in major cities, according to one broker.

“In my marketplace … we are surrounded by so many condos, and a lot of our clients trying to purchase with bad credit are having a tough time,” Phil Edwards, a Toronto-based broker with MorCan Direct told MortgageBrokerNews.ca. “They put their deposit down four or five years ago and then they’re ready to register the unit and get a mortgage and they’re walking into tough times because over those four or five years something may have happened with their credit and they can’t now get approved for a CMHC insured mortgage.”

It’s an issue homebuyers – who may have been pre-approved in a less strict environment a few years ago – are having as they try to get their finances in order to officially move in upon completion.

According to Edwards, the problem can be avoided if clients approach a broker early on in the buying process, as opposed to merely getting pre-approved with the lender’s bank affiliate.

“If the client comes to us (beforehand) we let them know that obviously we can’t hold rates for that amount of time but if they can be pre-approved we usually tell them to keep their credit up because it’s obviously based on credit being in good standing,” he said. “Pay your bills on time; simple things like that will keep credit where it needs to be and for the most part they follow along with that.”

Issues arise, however, when clients are late in approaching brokers; though there are some creative workarounds Edwards has figured out to help clients secure financing.

“The problem is when a client hasn’t met us and their building comes up for registration,” Edwards said. “There are some lenders that will do a boost credit score with the insurer just because they have a little more relaxed guidelines, like a Bridgewater, for example. But it’s still pretty stringent on how bad the credit is.

“(In) most cases you’re still looking at first and second mortgages, trying to help them repair their credit and then afterwards trying to refinance them out of that mortgage because the property has appreciated in value so we may be able to finance at 80 per cent loan-to-value and get them out of that product.”

Though he admits it can be difficult and it requires a number of puzzle pieces to fall perfectly in place.

“It’s kind of tricky because they have to have certain things like other properties or equity in the property, appreciation in value on the existing property,” Edwards said. “So things have to kind of align in order for that to happen.”

Consumer debt swells to $1.4-trillion, but Canadians able to pay it!

LINDA NGUYEN

TORONTO — The Canadian Press

Published Monday, Feb. 10 2014, 4:42 AM EST

 

The love affair Canadians have with debt is still going strong, according to a new report by credit monitoring agency Equifax Canada.

 

Equifax said Monday that its figures show that consumer debt, excluding mortgages, rose to $518.3-billion through the end of November 2013. That was up 4.2 per cent from $497.4-billion a year earlier.

 

Despite the increase in debt, however, the overall delinquency rate — bills due past 90 days — declined to a record low of 1.12 per cent from 1.19 per cent in the same period of 2012.

 

“The real pattern that we’ve been observing is that Canadians are taking on more debt, but they can handle it well and are making those monthly payments,” said Regina Malina, director of analytics for Equifax.

 

Meanwhile, overall consumer debt, including mortgages, also continues to rise — up 9.1 per cent to $1.422-trillion from $1.303-trillion a year earlier.

 

Malina says the data shows that Canadians are willing to take on more debt — from car loans to credit card purchases — but are more aware of how important it is to keep their debt levels under control.

 

High debt levels are not a big concern in current conditions, which signal a stabilizing economy, improvement in the unemployment rate and an anticipated gradual increase in interest rates.

 

But Malina says if any or all of these conditions change, Canadians should reconsider how much debt they are piling on.

 

“That is the reason why we should remain vigilant,” she said. “It’s easy to get complacent. Even if the debt is up, and the delinquency is going down, it is no cause for alarm but as I said, we have to watch out for these other economic factors.”

 

Equifax uses data from 25 million files on consumer credit history, including national credit cards, loans and mortgages in compiling the report each quarter.

Buying a house? Here’s how to get a big tax refund!

The $25,000 Ottawa allows you take out of your retirement fund to buy your first home sure doesn’t go as far as it used to.

The Financial Post’s Melissa Leong explains why RRSPs are much like your beloved social media and as deserving of your attention.

Under the home buyers’ plan, Canadians can take $25,000 out of their registered retirement savings plan and pay it back over the next 15 years without incurring any penalty. For a couple that means $50,000.

But the dollar amount has been stuck at $25,000 since 1999 while house prices have continued to escalate. At $50,000, you’re barely making the  minimum downpayment if you are buying a home in Vancouver with a mortgage backed by the government.

The Canadian Real Estate Association says the average price of a home will climb to $391,000 next year, meaning that $50,000 is less than 13% and not enough to avoid costly mortgage default insurance.

“I don’t know how effective the plan is now, so I’m not sure what would happen, if you increase the amount,” says Don Lawby, chief executive of Century 21 Canada.

It’s not just the amount. The tax-free savings account is now just as an effective savings vehicle. As of 2014, Canadians were allowed to contribute $31,000 and the amount increases every year. You can also withdraw money from a TFSA and put it an equal amount back later.

“I think you almost need a combination of the two plans together to fund that kind of investment,” said Mr. Lawby, about buying a house. “It depends on where you live in Canada.”

The home buyers’ plan was launched with a $20,000 withdrawal limit and it jumped to $25,000 in 2009.

One of the arguments against increasing the limit is it will encourage young Canadians to rob their retirement savings to buy a first home. Paying the money back over 15 years — there are significant penalties if you don’t — means you might not have the money to make current contributions.

“Some people say the RRSP is not the most efficient way of saving for a house,” says Benjamin Tal, deputy chief economist with CIBC World Markets.

He says there hasn’t been an acceleration in the use of the home buyers’ plan because first-time buyers are being squeezed out of the market.

“Older people and people buying second properties don’t use their RRSPs to buy homes,” says Mr. Tal. “You would expect given rising prices there would be more use [of the plan.].”

This is the most popular time of the year to do it. They manipulate the system to deliver a tax return on the downpayment they will [already be] making on their purchase.

If you know you are buying your first home in the next 90 days, you make a $25,000 contribution or $50,000 for two people. That means a big refund in April. You then withdraw the $25,000 or $50,000 to pay for that initial home.

“Most people have the RRSP room. If you are buying a house by June and you have the downpayment in cash, you make the contribution to trigger the the refund,” said Mr. Gaetano, noting the $25,000 has to be in the plan for 90 days before you can take it out.

“You can garner $20,000 in refunds,” said Mr. Gaetano, pointing out it will depend on what your marginal tax rate is.

More from Garry Marr | @DustyWallet

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Low factory-built homes are shedding their ‘cheap’ label and exploding

Armina Ligaya | January 20, 2014 | Last Updated: Jan 20 6:36 PM ET
More from Armina Ligaya | @arminaligaya

After more than three decades in her Toronto bungalow amid growing mildew problems in the 1940s-era home, Ruth Wiens decided it was to start fresh.

She still loved her East York neighbourhood, so the IT professional decided to demolish her existing house and build a two-storey, three-bedroom, 2,000-square-foot home from scratch.

But instead of hiring a builder to construct her new home, piece by piece, Ms. Wiens ordered one from a factory, based on a design she saw in a magazine. She didn’t want the harsh Canadian weather to pummel the shell of her home during construction, as her neighbours’ new homes had been over the years.

Ms. Wiens wanted a house that was constructed indoors, under controlled conditions.

“There would never be in an unexpected rainstorm that just soaked everything,” Ms. Wiens said. “And having watched my neighbourhood over the years, I just thought, there are alternatives. You don’t have to be the lucky one that has the two weeks of good weather.”

Most new homes are built stick by stick, brick by brick, by a construction crew on-site, but a growing number of Canadians are buying homes right off the factory floor to be assembled on the lot within days.

However, the stigma of the earlier, shoddy iterations of these prefabricated or modular homes still lingers and the Canadian construction industry is reluctant to change, industry insiders say.

http://business.financialpost.com/2014/01/20/how-factory-built-homes-are-shedding-their-cheap-label-and-exploding-in-popularity/

 

How To Make Your Home Ready for Retirement

The majority of seniors live in conventional housing, as opposed to a senior citizen facility, according to science writer Rachel Adelson, author of "Staying Power: Age-Proof Your Home for Comfort, Safety and Style". Some of the benefits of staying in your own home, or aging in place as it's sometimes called, are: It costs less, keeps you in familiar surroundings and offers greater independence.

The tough housing market of the past few years has led many older homeowners  to stay in their homes longer than they'd originally planned. As a result, many people are remodeling rather than moving, not to improve the market value of their home, but to individualize their home and make it more suitable to their own needs.

Many baby boomers are simply not interested in moving to a traditional continuing care retirement community. Boomers have redefined a number of lifestyle areas over the years, and the process of aging is no different. So many boomers won't want to live in the same community as their parents or grandparents did. They feel younger, they're working longer and they're considering other options.
The paradox is that in order for seniors to stay in the same home by aging in place, they must embrace change: their changing bodies, changing capabilities and the modifications to their environment necessary to accommodate those changes.

The time to think about aging in place is not after you retire , but before you retire. One preliminary step is to research the services available in your own community. Often there is more than meets the eye, including support for transportation, nutrition, fitness and entertainment. Then long before you need to, you should start age-proofing your home, like we baby-proof our homes when we're expecting a new child.

If you're moving or remodeling, consider living on one floor, so you won't have to negotiate stairs. Yes, running up and down stairs is good exercise when you're younger, but stairs can be a hazard for older people.

Some people plan ahead. My own parents moved to a one-story house when they were in their early 60s. Then they both lived comfortably through their 80s. Another couple I know remodeled their home and turned their second floor into the kids' bedrooms. They moved the master bedroom down to the first floor, complete with an oversized shower and wide doorways. The couple did this when they were in their 40s and in good health, and their plan is to use the upstairs for guestrooms as soon as the kids grow up and move out.

But if you do still find yourself going up and down stairs, be sure to improve lighting in the area to make the stairs more visible and less hazardous. Another idea: install traction tape along the front edge of each stair, in contrasting colors, to outline the stairs more clearly and prevent falls. While you're at it, improve the lighting in your bathroom and kitchen, outfit the kitchen with easy-to-use tools and utensils and get rid of scatter rugs throughout the house. Also consider installing grab bars in the bathroom, as well as a raised toilet seat to help people with bad knees or a bad back.

Again, there's no reason to wait to make your changes, as I found out recently myself. I took a nasty spill in my own shower. I slipped as I was stepping over the side of the tub, grabbed for the soap dish and pulled it right out of the wall. I tumbled over the side of the bathtub onto the floor and gave myself a big bruise. This was several weeks ago and I still have an ugly brownish splotch as big as a basketball from waist to armpit.

So you don't have to be old to start making your home a safer place to live. It's better to plan ahead than fall on your head. But one last point. Figuring out how and where to live in old age isn't necessarily a one-time decision. You can do a lot in your own home for a long time, even if it has stairs. Then, if and when things do change, you can reassess your options, and still go the way of your parents and grandparents if you want to.

By Tom Sightings | U.S.News & World Report LP – Wed, 19 Jun, 2013 3:04 PM EDT