Friday, August 30, 2013

No more tightening needed after measures averted housing bubble

Finance Minister Jim Flaherty said he isn’t planning new measures to restrain the country’s housing market because his past four rounds of action have already worked to avoid a bubble.

"So far, I’m satisfied that we have a balance in the real estate sector,” Flaherty told reporters in Wakefield, Quebec, at the start of a policy retreat with business leaders. “There are some bumps along the road in Toronto and Vancouver, in particular in the condo markets, but overall, I’m satisfied,”
Flaherty has warned consumers to avoid mortgages that could become unaffordable when borrowing costs rise, after Canadians took on record household debts relative to disposable income.

Flaherty said that “we have been watching the condo market and the housing market very closely for at least five years.” He also said that he does have “contingency plans” he can use if the need arises.

The Bank of Canada has identified household finances as the biggest risk to the domestic economy, while Governor Stephen Poloz has said there are recent signs of a “constructive evolution” in that area.
Flaherty today also reiterated his own commitment to pare the federal budget deficit and spoke out against the extraordinary monetary stimulus seen in the U.S. and Europe.

“We are going to balance the budget without doubt in 2015,” Flaherty said, adding that this will “put Canada in a position of strength” to react to any future global weakness.

Feel free to click here to read more about what Flaherty has to say about the budget.

Wednesday, August 28, 2013

Canada’s housing market: The one that no one can predict

Another month of housing data is guaranteed to produce one thing: more arguments about where the market is going.

Statistics from the Ottawa-based Canadian Real Estate Association show actual July sales were up 9.4% from a year ago while average sale price nationwide rose 8.4% to $382,373 during the same period.

Given the housing market seemed to be sliding just a few months ago, the question is where is it headed next? At stake is further federal government intervention, something Ottawa seemed to do this month as Canada Mortgage and Housing Corp. tightened some mortgage lending rules.

On one side of the divide you’ve got the real estate community with people like Phil Soper, chief executive of Royal LePage Real Estate Services, saying improved results for sales and prices in July are not all that dramatic by historical standards.

Their opponents are the housing naysayers like David Madani of Capital Economics who has been calling for a housing pullback since February 2011 and portrays the recent bump in sales as a last gasp before the market cools for the rest of 2013.

Mr. Soper said people have been predicting the market was going to fall going back to 2008. “It is as believable as the prediction from Capital Economics that home prices are going to fall by 25%. They just keep rolling out the same forecast year after year,” he said. “They try desperately to come up with a new reason [for the market to fail] — and now it’s because interest rates are going up.”

Click here to read more about the Canadian Housing Market ...

Monday, August 26, 2013

Stricter Debt Ratio Standards on the Way

If you’re a typical borrower, your debt ratios will largely determine if you’re approved for a mortgage.
For applicants who push the limits of qualification, those approvals have been tougher to come by. That’s a direct result of last year’s mortgage rule tightening, which imposed stricter debt ratio calculations (among other things).

And by year-end, those calculations will get even more conservative. On June 27, CMHC issued new guidelines for calculating debt ratios and confirming income documents. “Under current practice, CMHC stipulates standard formulas for calculation of debt service ratios but has not been specific as to how each key input is to be treated,” says CMHC spokesman Charles Sauriol.

These new guidelines will clarify that, and they become effective on CMHC-insured mortgages on December 31, 2013. (In practice, many lenders already apply them.) These standards will apply to all insured 1-4 unit residential mortgages, regardless of the loan-to-value ratio. Uninsured (conventional) mortgages are allowed different policies, but most lenders will use the same rules for all their approvals. Here are some of CMHC's newly minted insured mortgage “clarifications”:
  • For variable income: Lenders must use “an amount not exceeding the average income of the past two years.” Variable refers to things like bonuses, tips, seasonal employment and investment income.
  • For rental income:  If a borrower owns other non-owner occupied rental properties, the principal, interest, property taxes and heat (P.I.T.H.) on those properties must either be:
    • deducted from gross rent revenue to establish net rental income; or
    • included in ‘other debt obligations’ when the Total Debt Service (TDS) ratio is being calculated.
  • For guarantor income:  A guarantor’s income must not be used in GDS/TDS ratios “unless the guarantor…occupies the home and is the spouse or common-law partner of the borrower.”
  • Unsecured credit lines & credit cards: For these debts, “No less than 3% of the outstanding balance” must be included in monthly debt payments. Interest-only payments are no longer considered on credit lines. Furthermore, lenders must assess the borrower’s credit history and borrowing behaviour when determining the amount of revolving credit that should be accounted for in debt ratios.
  • Secured lines of credit:  Lenders must factor in “the equivalent” of a payment that's based on “the outstanding balance amortized over 25 years.” That payment must use the contract rate (of the LOC) or the 5-year Benchmark rate (V121764) published by Bank of Canada (if the contract rate is unknown). Again, interest-only payments are no longer allowed for debt ratio calculation purposes.
  • Heating costs:  Lenders must now obtain the “actual heating cost records” of a property. When no such history is available, the heat expense used in debt ratio calculations “must be a reasonable estimate taking into consideration factors such as property size, location and/or type of heating system.” That’s why some lenders have now moved to a set heating cost formula, like:

           (square footage x $0.75) / 12 months
Compared to past methods (which entailed flat heating costs, like $100/month), the new guidelines can double or triple the heating cost that must be factored into debt ratios on larger properties, and reduce it on smaller ones.
It’s important to repeat that most of these policies are already being followed by most lenders. But there are exceptions.

Those exception-case lenders are commonly viewed as go-to sources when borrowers have tight debt ratios. These new guidelines are designed to minimize those “loopholes.”

All of this has come about, in part, because of Ottawa’s rule changes last July. At that time, the government fixed the maximum Gross Debt Service and Total Debt Service ratios for insured mortgages at 39% and 44% respectively.

Sauriol says that change “reinforces the importance for CMHC to ensure that debt service ratios provide the same measure of a specific borrower’s ability to service the mortgage debt, regardless of the lender submitting the application to CMHC for insurance.” Source: CanadianMortgageTrends

Wednesday, August 21, 2013

Stable is the Word in the Canadian Housing Market

TORONTO, June 25, 2013 /CNW/ - After three years of varied periods of growth and decline across the country, the Canadian housing market is starting to stabilize, according to the latest housing report released by Genworth Canada.  While the economy continues to strengthen, modest growth in the housing market is the trend for the next five years.

"The Canadian housing market is transitioning to a balanced level of supply and demand," said Brian Hurley, Chairman and CEO of Genworth Canada. "While lower demand has cooled the housing market, this latest research shows moderate growth over the next few years which points towards a more stable market for both buyers and sellers."

The current condition is due in part to the tightening of regulations, but also continued warnings to consumers on their debt levels.  Consumers appear to be heeding the advice and stabilizing their financial position before the Bank of Canada begins to raise its rate. The Spring 2013 Metropolitan Housing Outlook notes that healthy employment gains since the end of the recession have helped move mortgage payments in arrears and bankruptcies to a downward trend, except in British Columbia where payments in arrears have flattened after an upward trend from 2008 to 2010.  Despite the low interest rates, price growth for both new and existing homes has been decelerating.  The report also notes that while total mortgage approvals are falling, this decline is entirely fuelled by resale homes, as mortgage approvals for new homes increased by 3.4 per cent.

To read more about the Canadian Housing Market - click here!

Tuesday, August 13, 2013

Don't leave money on the table: RESPs and government grants

(NC)—One of Canada's best-kept secrets for parents wanting to save for their children's future education needs has been around since 1998. That's when the federal government began offering the Canada Education Savings Grant (CESG) as an incentive for parents and relatives to set up RESPs (Registered Education Savings Plans), with their children as beneficiaries. 

CESGs will match 20 per cent of your annual RESP contribution – up to an annual maximum of $500 per eligible beneficiary until your child reaches age of 18, or a potential total of $7,200 over the life of the plan. 

“Parents in Canada who aren't taking full advantage of these government grants are leaving a good deal of money on the table,” advises David Birkbeck, the head of registered products strategy at RBC. “With post-secondary education costs continuing to rise, it's important to be aware of this additional funding as it can help your plan grow well beyond your own contributions.” 

The other “secret weapon” to help grow your plan is the way you choose to invest your RESP funds. As a low- to no-risk investment, you can place your RESP savings into a standard savings account. You can also opt for GICs (Guaranteed Income Certificates), for higher returns than a standard savings account. Or, for the potential to earn a higher rate of return than most GICs over the long term, you could consider mutual funds.

Thursday, August 8, 2013

Secure your home with the most advanced devices

(NC)—The latest in electronics is giving our households improved security, better options for our budget, is quickly making keys a thing of the past – and is now letting us control our premises from a smart phone. Instead of hiring a security service, for example, install deadbolts with a built-in alarm. The first of its kind, this keyed-entry lock lets you hear instantly when someone goes in or out, tampers with it, or tries to force their way in, says the innovator, Schlage. Details are at While on the website take a look at the other options for a keypad entry. This latest deadbolt technology, for instance, lets you add controls for lights, heating, cooling and more. If security management is important while you're away, connect your mobile device to an optional subscription-based service called Nexia Home Intelligence. It gives you camera surveillance, plus the ability to lock and unlock your doors, to pre-schedule the security monitoring for specific times every day, and to receive text alerts when the alarm is triggered.

Tuesday, August 6, 2013

Protect your home against flooding

(NC)—Many homeowners are surprised to hear that water damage is the most common insurance claim. Water damage—often in the form of a flooded basement—can come out of nowhere and cause extensive damage to the house. 

“Once homeowners understand the most common types of insurance claims, they can take steps to guard against them,” says John Jenner, vice-president of marketing and communications at Western Financial Group. “Measures might include making sure their home insurance policy covers sewer backup, installing a sump pump, having properly installed drainage systems, or making sure that downspouts are sending water away from their home.”

According to the Insurance Bureau of Canada, there are many circumstances that can cause a flooded basement, including tree roots growing through cracks in the waterline, overloaded stormwater and sanitary sewer infrastructure, frozen pipes, vandals blocking lines and more. 

To keep your home safe, practice the following guidelines:

Have someone check on your house when you're away
When you leave home for more than three days, make sure you have someone come and check the premises. A flooded basement, leaky pipe, or a broken window can be devastating if it is not discovered immediately. 

Keep drains clear
It may seem simple, but many homeowners need to be reminded to keep their basement drains clear of obstructions. That means moving large objects such as furniture and making sure the drain is not sitting under a layer of dirt or debris. In older houses, drains may need to be snaked to ensure they can do their job properly.

Install a sump pump and backflow valves
This will greatly reduce the frequency and severity of basement flooding. Backflow valves or plugs can be installed on drains, toilets and other sewer connections to prevent water from entering the home. 

Move items that are in flooding prone areas
The 10 minutes spent on inspecting your home for items that are in flooding prone areas could save hours later. Make sure you store important documents and irreplaceable personal items where they will not be damaged. 

“It is important for homeowners to go over their insurance policy yearly with a representative,” adds Jenner. “This will make sure you have the coverage you need.”

Thursday, August 1, 2013

In the Canadian Housing Market, Stable is the Word

TORONTO, June 25, 2013 /CNW/ - After three years of varied periods of growth and decline across the country, the Canadian housing market is starting to stabilize, according to the latest housing report released by Genworth Canada.  While the economy continues to strengthen, modest growth in the housing market is the trend for the next five years.

"The Canadian housing market is transitioning to a balanced level of supply and demand," said Brian Hurley, Chairman and CEO of Genworth Canada. "While lower demand has cooled the housing market, this latest research shows moderate growth over the next few years which points towards a more stable market for both buyers and sellers."

Click here to read the full report....