This weeks top stories include how Canada Mortgage & Housing Corporation may leave the mortgage insurance business, how Canadian gross domestic product fell unexpectedly in the month of February, how February’s miss on expected GDP may cause a pause to the interest rate increases expecting later this year, how Toronto could learn a thing or two from Spain’s troubles, how many are stating that Canadian banks received a bailout during the financial crisis, how consumers with smaller downpayments are obtaining better rates, how monetary policy to control foreign housing investments will not necessarily control the housing bubble and I close out with my thoughts on this weeks news and the Canadian mortgage market.

CMHC could leave mortgage insurance business

There were heavy statements from Finance Minister Jim Flaherty this week as he stated that he is considering taking Canada Mortgage & Housing Corporation (CMHC) out of the business of providing mortgage default insurance according to the National Post’s editorial board.

He commented,  “Over time, I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada. I think what’s key is that mortgage insurance is available at a reasonable cost in Canada. I think there is a role to regulate but whether we, the Canadian people, have to be the owners and shareholders of a financial institution to do this is a question. I don’t think it’s essential in the long run.”

I agree with this as there are independent mortgage default insurance providers in the industry but most lenders lean towards using CMHC knowing that the government will not go out of business in the event of a housing market downturn, unlike the others.  Mr. Flaherty also stated that he has no plans to increase CMHC’s current $600 billion cap, which will tighten lending across Canada on it’s own merit.  CMHC currently holds 75% of the mortgage default insurance business in Canada and is in a risky position if there were to be a housing correction.

The finance minister went further by commenting, “For some time now I’ve had concerns about the large commercial role that CMHC now plays. CMHC has become a significant Canadian financial institution. As you know, historically it was created with a mandate post-war to advance housing in Canada. It’s become much more that.”  This news is on the heels of him stating that the Office of the Superintendent of Financial Institutions (OFSI) begin regulating CMHC, which was previously under the eye of the Department of Human Resources and Skills Development.  What do you think of the change?  Please comment below.

Read the full article here

Canadian GDP falls in February

Monday morning this week started with surprise news that the national economy contracted in February rather than expanding as most economists had expected. Statistics Canada reported that national gross domestic product (GDP) shrank 0.2% from the previous month.  The expectation was that GDP would grow by 0.2% in the month of February and shocked many.

CIBC World Markets chief economist Avery Shenfeld commented, “The result leaves the economy tracking well below the Bank of Canada’s 2.5 per cent growth rate for the quarter.  Even with a likely rebound in March, the first quarter growth rate looks likely to be no better than two per cent or less.”  Statistics Canada stated that temporary closures in mining and other goods producing industries were the main factors in the decline.  What do you think of the surprise news?  Please comment below.

Read the full article here

GDP miss to hinder interest rate hikes

Economists were stating on Monday that the unexpected drop in Canadian gross domestic product (GDP) will cause a pause to the Bank of Canada’s (BoC) rate hike expectations.  Derek Holt economist with Scotia Capital commented, “There go market bets that the Bank of Canada would shift to summertime interest rate hikes.  This report is more in keeping with our view that the BoC would not be shifting toward rate hikes this year.”

Canada’s GDP fell 0.2% in the month of February when compared to January as markets were shocked with analysts previously expecting it to grow by 0.2%.  Statistics Canada attributed the decline to weakness in the mining and manufacturing sectors noting that weak demand for commodities and temporary mine closures were the main source of the decline.  The data now points to economic growth in the first quarter (Q1) to be 2.5% or less.

Mr. Shenfeld, economist with CIBC Word Markets commented, “Even with a likely rebound in March, the first quarter growth rate looks likely to be no better than 2% or less, implying that the output gap was not narrowing in the quarter as a whole, and taking us one step back from the precipice of renewed interest rate hikes.”  The BoC stated in it’s April interest rate announcement that an interest rate hike was possible this year as economic growth gained steam.  This no longer seems to be the case.  We will have to wait to see what happens next.  What do you think?  Please comment below.

Read the full article here

What Toronto can learn from Spain

It seems that an enormous housing bubble took effect in Spain and caused economic disaster for the country.  Domestic buyers and foreign buyers caused the pace of return to be better than any other asset class.  This lead to everyone buying homes to rent and flip for large gains.  This leads many to believe that the Toronto condo boom could be the next Spain.

The housing bubble in Spain was 2.5 times greater than that of the U.S. and unemployment is at 50%.  Yes, 50%!  But America has no recourse loans unlike Spain.  This means, that in Spain, there are no strategic foreclosures where homeowners can walk away from their homes but keep the rest of their assets.  Spain and Canada are similar in this aspect as losing your home means losing everything.

We as Canadians can learn from Spain’s troubles.  We should not rely on housing appreciation for wealth accumulation or retirement security.  Too much household debt is extremely dangerous.  We need to stop wondering where our future income will come from as it won’t be from Old Age Security or Canada Pension Plan.  We need to start seriously investing in our RRSP’s on not rely on home equity as a future asset to ensure financial security.  It is time to step up the savings and look at debt reduction now to ensure that your future is financially sound.  If you need help, call me.

Read the full article here

Did banks receive bailouts during crisis?

This week was one for the books as David Macdonald of the Canadian Centre for Policy Alternatives released a report this week stating that the Bank of Canada (BoC) and the federal government provided billions in support to Canada’s largest banks during the financial crisis of 2008/2009.

Mr. Macdonald commented, “While these funds were repaid in full, it is clear that the banks benefited enormously from public financing when private funds were unavailable.  In addition, had the rapid and enormous deployment of public funds not been available, most, if not all, Canadian banks would have encountered serious difficulty.” The estimate is that the largest banks borrowed roughly $75 billion in short term collateralized loans, not only from the BoC but from the U.S. Federal Reserve.

The report went on to state, “A healthy financial system cannot be based on massive government support for which the details remain secret.  It is only through an honest and transparent examination of what occurred and how it can avoided in the future that a stronger financial system can be built, which is in everyone’s best interest.”  The BoC program did make the borrowing of money easier utilizing CMHC’s insured mortgage purchase program to raise cash.

This is definitely a one sided view of things.  As a mortgage broker, I saw first hand what the credit crunch did to Canada as lenders started being picky with who they lent to as they had less funds to provide.  It was a headache as almost no one was getting approved for personal loans, business loans, lines of credit or mortgages.  The government did announce a purchase program to free up cash so that the banks could proceed with day to day operations and keep the economy going.  Many are putting down what took place but looking from the inside out, it was necessary and had the intended effect that it was suppose to.  Don’t forget that the government made more than $2 billion by doing this. What do you think?  Please comment below.

Read the full article here

Smaller down payments get better rates

Although it may not make sense to you, a smaller downpayment on a new home purchase may obtain a better rate for you today than a larger downpayment in today’s mortgage market.  This is due to the fact that mortgage default insurance through Canada Mortgage & Housing Corporation (CMHC) is required with anyone putting less than 20% down on a new purchase or leaving more than 20% equity in a refinance.

The insurance provides a guarantee on the loan in the event of default and actually makes someone with 5% downpayment less risky than someone with a 20% downpayment.  This leads the mortgage companies to provide better mortgage rates on insured mortgages.  The cost of the insurance can be as high as 2.75% of the mortgage amount utilizing 25 years amortization.  Mortgage companies are currently offering a rate that is 0.10% to 0.15% above the rates provided to those that are putting down less than a 20% downpayment on a closed five year mortgage term.

Finance Minister Jim Flaherty added new rules on bulk portfolio insurance stating that low ratio mortgages can no longer be insured through CMHC as the banks have been doing for the past while to securitize them and keep them off their books as a negative asset.  This will lead to an increase in mortgage rates in the near future.  The competition between the major banks has managed to keep low mortgage interest rates in the interim.  What do you think?  Please comment below.

Read the full article here

Monetary policy should not control housing bubble

Due to low carrying costs for housing in Canada, the high home prices do not seem to be posing too much of a problem, excluding Toronto and Vancouver of course.  House prices in those area have sky rocketed in the past few years and are noted to be mainly attributed to foreign investors.

Former Bank of Canada (BoC) governor David Dodge commented, “Because foreign investment is a much bigger factor in these cities, something we know much less about and we know much less about how stable that is likely to be.”  The most expensive real estate in Canada is located in Toronto and Vancouver and both cities have taken advantage of overseas investors but there is limited data on the affects or total amounts that foreign investors have brought to Canada.

Inflated home prices in those regions are part of a larger issue around how high household debt to income levels are effecting Canadians.  Many are stating that Toronto and Vancouver have an issue where foreign buying of property has increased the values of homes in the area and not over indulgence in consumer borrowing, which is why the need to address it with monetary policy may not be the best approach.

Mr. Dodge has stated that the next few years will be a bumpy road as Canada works to recover, with the rest of the world, from the financial crisis.  Canada is still better positioned than the rest of the world as we have an abundance of natural resources and a solid banking system that managed to make it through the financial crisis unscathed.  What do you think?  Should Canada impose additional policies for foreign investors?  Please comment below.

Read the full article here

My thoughts on the mortgage market

Finance Minister Jim Flaherty is responsible for bringing government insured 0% down mortgages to Canada.  He is also responsible for bringing 40 year amortizations to Canada.  This is something that he does not want to take responsibility for, knowing that the housing market is on borrowed time.  So what does he do, he puts Canada Mortgage & Housing Corporation (CMHC) under the watchful eye of the OSFI to lay blame on them when stuff hits the fan.

Mr. Flaherty removes the government backed insurance for mortgages that the banks use to back their covered bonds.  This means increases in borrowing costs and mortgage interest rates.  This was also a move to increase lending costs and slow down the housing market without raising interest rates, a move that could cause a large blow to the economy.  The move will make it harder for people without money, the self employed and first time buyers to obtain financing.  It’s odd that Flaherty invented the products that created this mess and now that detached homes cost a million, while incomes trail inflation, he is the same guy lecturing us on household debt.

Flaherty also wants the government to get out of the mortgage insurance business.  This will cause interest rates to rise as new regulations take effect later this year.  This will be the end of cash back mortgages as well as cause many lenders to pick and choose who they will lend to.  The damage has already been done as many have bought homes without savings and were given cheap money because the loans were insured and backed by the taxpayers of Canada.  Banks don’t worry as they insure the mortgage against default, sell them off as security for a bond, which gives them more money for loans.

Housing makes up 8% of the Canadian economy including real estate, financing, insuring and selling.  It is twice as large as the manufacturing sector, which means we need to put an end to it now.  This is being done on debt, not wage gains or economic growth.  With the government stating that they will not raise CMHC’s debt ceiling, mortgage default insurance will be harder to obtain and will likely cost more.  Ottawa may even privatize it or eliminate CMHC .  What will happened then?

Currently, we need to be looking at ways to ensure our future as seven out of ten of us have no corporate pensions.  Half of us have no savings and 40% of families can’t meet their monthly obligations.  The average RRSP is only enough to last two years and no one can get by on CPP or OAS alone.  CMHC has already been stress tested and notes that it cannot handle a default of more than 3% of homeowners before becoming insolvent itself.  Home prices are set to correct and wipe out the savings of millions.  Toronto alone, has 23,000 new condo’s hitting the market this year and twice that amount in the pipeline.  80% of those will be sold to flippers, speckers and first time home buyers.  These are the same numbers witnessed before the U.S. real estate crash.  What do you think?  Please comment below.

Post from: paulsidhu.com

Weekly Mortgage News for May 4, 2012

Post from: paulsidhu.com

Weekly Mortgage News for May 4, 2012

This weeks top stories include how Canadian wholesale sales increased in the month of February, how the Bank of Canada may have to raise interest rates sooner than expected, how banks are fleeing from sub prime loans and leaving others to pick up the volume, how oil prices are hurting Canadians, how Canadians are more worried today about their finances and their jobs as consumer confidence declines, how the U.S. economic meltdown could take down a generation, how Canada will be one of few countries that will keep their AAA credit rating, how Toronto’s virtual concierge service is making waves, how home prices are outstripping income and I close out with my personal thoughts on the Canadian mortgage market.

Wholesale sales increase

Statistics Canada released a report on Monday of this week stating that wholesale sales increased by 1.6% in the month of February this year to $48.5 billion.  This was after witnessing a drop in the month of January of 1.1%.

Majority of sub sectors reported higher sales in the month of February with four sectors accounting for 90% of the national growth.  When looking at volume, wholesale sales increased 2.2% in the month of February.  The biggest increase in dollar terms was noted to be in the motor vehicles and parts sub sector.  Sales were up 2.7% to $7.7 billion as motor vehicle sales lead the way for the increase.

Sales of machinery, equipment and supplies were also up 1.7% and are holding on to the upwards trend that started in early 2010.  Wholesale sales were up in all provinces except Quebec and Prince Edward Island.  Ontario lead the way for the increase with a 1.7% jump.

Read the full article here

BoC may have to raise interest rates

The Bank of Canada (BoC) Governor Mark Carney has stated again this week that the BoC may have to raise interest rates in order to keep inflation in line with it’s target as Canada’s economic recovery continues to gain steam.  This is something that has been stated again and again in the past few weeks as Canada’s economic expansion continues to take shape.

Mr. Carney stated on Friday of last week, “Given the smaller output gap, given the slightly firmer underlying inflation, the possibility of withdrawal of some degree of the considerable monetary stimulus that is currently in place may become necessary, consistent with achieving the Bank of Canada’s 2% inflation target.  As the expansion progresses, the possibility of some withdrawal becomes more likely, but number one, that’s always going to be guided by achieving the inflation target, and number two, this is happening in an environment of considerable global economic risk, and so it depends importantly on the evolution not just of domestic but global economic developments. So we will certainly weigh any such decision carefully.”

He has not stated when the time will come for interest rates to increase but did note that Canada is well into an expansion.  Mr. Carney went further by saying, “The bank’s most recent estimate of the output gap is about half a percent. That puts us in very unusual company.  The economy in our view is growing above trend and will do so over the balance of this year. So the Canadian economy is, relative to the major advanced economies, performing well by any measure.”

Mr. Carney stated that he is aware of the global risks and feels that there are also domestic risks that must be taken into account.  He noted that Canada’s inflation expectations are extremely well anchored.  The BoC had left its key overnight lending rate unchanged at the ultra low 1% as it has for many past meetings but did signal that interest rates have to rise and that this may be sooner than later.  What do you think of Mr. Carney’s statements?  Please comment below.

Read the full article here

Banks flee from risky loans

Home Capital Group Inc., also known as Home Trust in the mortgage industry, stated that it is capturing even more mortgage business from Canadian lenders including TD Bank and CIBC as they continue to pull back from the non-prime mortgage market with further signs of a housing downturn.

Home Capital Group President Martin Reid stated, “The big banks are sort of juggling around their mortgage strategy and as part of that, they’re tightening up in certain areas.  We’re seeing some of the fallout.”  Canadian banks have been scrutinizing mortgages and exercising more caution on high risk mortgages after the Bank of Canada (BoC) Governor Mark Carney warned recently of record household debt in Canada as the largest domestic risk to the Canadian economy.  Carney also noted this week that the potential for an interest rate rise is in the works and that it may cool off the overheated housing market.

Paul Sidhu President of Safe Money Mortgages & Financial Products Inc. commented, “While interest rates have been at ultra low historical lows for quite some time, the raise in the overnight lending rate is around the corner and could hit home as early as the fourth quarter of this year or as late as the first quarter of next year.  Either way, the inflation target by the Bank of Canada will need to be met and this will include an interest rate hike to keep inflation in check.”  What do you think?  Please comment below.

Read the full article here

Oil prices will hurt Canadians

The Bank of Canada (BoC) did note that the Canadian economy is starting to gain steam on Wednesday of last week but did go on to warn that the country’s growth is being held down by high oil prices. The BoC also stated that there is an unfavourable distortion between Canadian oil prices and global oil prices.

Even though Canada is considered to be a major oil producer, prices for oil have dropped below that of the U.S. and Europe.  This is mainly due to the oil glut that developed early this year at U.S. refineries where most of Canada’s crude oil is pumped.  This means that Canada is getting paid less for its oil in global markets with provinces that rely on outsourced global oil paying more.

The BoC commented by stating, “The increase in the price of our oil imports raises production costs for Canadian firms and also puts upward pressure on gasoline prices, since about half of the gasoline purchased in Canada is produced using refined petroleum priced off Brent crude.”  Brent is known to be one of the two major global  oil benchmarks with the other being Western Texas Intermediate.  Massive production of oil from the Canadian oil sands mixed with a rise in production from the Bakken formation in North Dakota and Minnesota, has caused a surplus of oil that has backed up refineries in the U.S.  What do you think?  Please comment below.

Read the full article here

Canadians worried about jobs and finances

It seems that the month of April hit consumer confidence hard as Canadians continue to worry about jobs and personal finances according to the latest reports of a survey conducted by the Conference Board of Canada.  With three consecutive months of increase to the consumer confidence index, April saw a decline of 4.5 points from the month of March falling to 75 points.  This is the lowest index on record in more than two years.

The decline was lead by strong negative responses on future job prospects and lower expectations on making large purchases.  Those that believed that there would be less jobs in the next six months rose 5.3 points to 27.8% and offset the 20% that feel that there will be more jobs in the up and coming months.  Attitudes of Canadians toward their financial situations raised a touch but was still considered to be minimal when compared to the 2008/2009 recession as consumer confidence weened in the month.

The number of Canadians that expect their family finances to get better over the next six months has decreased 0.6% to 23.4% from the previous month while those that expected their finances to get worse had increased 1.4% to 18.7%.  The survey was noted to have a margin of error of plus or minus 2.2%.  What do you think of this data?  How will you fare in the next six months?  Please comment below.

Read the full article here

U.S. economy could take down a generation

The U.S. market will continue to remain weak for a long period of time and may take a generation or more before witnessing a rebound according to Yale economics professor Robert Shiller.  Mr. Shiller is known as the co-creator of the Standard & Poor’s/Case-Shiller home price index.

He stated that a weak labour market mixed with high gas prices and low consumer confidence continues to outweigh low mortgage interest rates and will hold down prices for the foreseeable future.  He commented, “I worry that we might not see a really major turnaround in our lifetimes.” The S&P/Case-Shiller composite index of 20 metropolitan area’s increased 0.2% in the month of February on a seasonally adjusted basis.

This was the first rise in the last 10 months but Mr. Shiller feels that it is a “very mixed bag” as nine of the 20 cities did report flat or falling prices in the month.  He also went on to say that suburban areas, in particular, may endure further price reductions as high gas prices continue to increase demand for “walkable cities” such as Toronto.  What do you think?  Please comment below.

Read the full article here

Canada to keep AAA rating

The ratings agencies are getting set to downgrade many countries from AAA credit ratings very soon.  It seems that Canada will not be cut from the list and will continue to keep its illustrious AAA credit rating in the up and coming years.  Citigroup economists praised Canada last week Thursday for its economic and political stability, which will continue to keep our rating at AAA.

Canada is only one of 12 countries that currently maintain a AAA rating from all three major credit agencies.  The U.S. was part of that group until August of last year when it was downgraded a notch to AA.  Economists are stating that the recent Federal budget was proof about how serious the Canadian government is about fiscal responsibility.  Michael Gregory, senior economist for BMO Capital Markets commented,  “When you think about Canada maintaining its AAA, well, we will have surpluses, we will have balanced budgets across the board, even in Ontario, in the years ahead.  Investors are also interested in the question of whether there is a political desire to keep budgets balanced over time. For Canada, I think the answer is yes.”

Based on the new budget tabled last month, the Conservative government expects to return to a budget surplus by the 2015/2016 fiscal year.  This will be done through cost cutting measures such as increasing the eligibility for Old Age Security from 65 to 67 starting in 2023.  The government will also cut 4.8% of the federal workforce, which will lead to 19,200 jobs being cut.  This has put Canada in the good books of the rating agencies.  What do you think about our AAA rating?  Please comment below.

Read the full article here

Virtual concierge makes waves

It seems that the newest trend being set by the Tridel Corporation is a virtual concierge.  Tridel’s newest Toronto condo, the Reve, is the first to implement the new system and it is being noticed.  The concierge is actually located at a desk in Mississauga 30 kilometres away but can see everything that happens at the King St. W. condo from her seat.

Tridel is looking to implement the service at all their new condo’s utilizing 50 security cameras, cutting edge motion sensors and voice technology to get the same job done without an actual on site concierge.  The concierge can watch as deliveries are placed in a secure cupboard that she can lock and unlock remotely from her desk.  This is definitely more cost effective and allows to oversee a larger area than one guard can cover alone.

The software is called UCIT and is pronounced You See It.  It can tell who broke something in the lobby, who’s car dented the garage doors as well as let the pizza man in for a delivery.  The goal will be to have the same concierge monitor numerous buildings at one time, which will cut more than $180,000 in on site staffing costs.  This is a savings of 40% – 50% which will then be passed on to the condo owners through savings in maintenance fee’s.  What do you think of this technology?  Please comment below.

Read the full article here

Home prices out strip income

The Bank of Canada (BoC) governor Mark Carney stated on Tuesday of this week to use prudence and caution because borrowing costs can only go up from here.  These words were directed toward heavily indebted households as home prices to income levels continue to rise and are currently at 35% above the historic norms.

Carney went on to state that mortgage interest rates are extremely attractive and that it may be the culprit behind the increase in housing valuations.  He did add that consumers can not rely on low lending costs staying forever and should prepare for interest rate hikes in the near future.  The average home price in Canada is currently at 4.75 times the average Canadian income.  Historically, this average is usually closer to 3.5 times the average Canadian income.

Household debt to disposable income is currently at 152.9% and is the highest on record.  Carney commented, “Household spending is expected to remain high relative to gross domestic product (GDP) as households add to their debt burden, which remains the biggest domestic risk.  Despite recent improvements to the outlook for the global and Canadian economies, risks remain elevated.  The three main upside risks to inflation in Canada relate to the possibility of higher-than-expected oil prices, stronger-than-expected growth in the U.S. economy and stronger momentum in Canadian household spending.”

He did note again that “reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the two percent inflation target over the medium term.”  This means that interest rates could rise a lot sooner than expected as the Canadian economy continues to gain strength.  What do you think?  How soon will interest rates rise?  Please comment below.

Read the full article here

My personal thoughts on the Canadian mortgage market

The Canadian mortgage market is going through a lot of changes right now. For the first time ever in history, the average home price in Toronto has topped $512,000. It just surpassed half a million last month. The average single detached home in the greater Toronto area (GTA) is now $798,892, which is down a touch from a month ago. But a cooling market for high end housing has not yet begun.

Yes, interest rates are cheap and borrowing money is cheap. You can currently borrow $1,000,000 with a variable rate of 3.2% and 30 years amortization for only $4,300 a month and only require an income of $150,000 to qualify. The longer emergency stimulus interest rates remain, the more people are expecting them to remain. This pushes consumers to over borrow thinking money will stay cheap forever, which is the main problem that the Bank of Canada continues to warn us about.

Bank of Canada governor Mark Carney has warned again and again that interest rates will be going higher. Canadians should begin steps now to ensure that they can continue to manage their debt loads for when interest rates do rise. He commented, “We’re warning of an issue at a time that we can still do something about it. Interest rate hikes will lead to tighter lending conditions and will curb growth in household debt. Interest rates are expected to rise the same time that the Office of the Superintendent of Financial Institutions Canada (OSFI) moves for tighter mortgage regulations at the end of this year. This means that we are headed for a housing correction later this year or early in 2013. Currently 81% of condo buyers in Toronto say that they worry about being able to afford their mortgage payments.

For the past half century, real estate has amounted to an average of 5.8% of the national economy. It’s currently above 7%. You may say so what. So every time the 7% mark has been passed the housing market has taken a nose dive two to three years later. The downturn would take out the most vulnerable consumers first. This will bring a flood of properties onto the market and create deep losses as some panic to sell. Again, 40% of borrowers currently state that they could not repay their loans if interest rates were to rise slightly.

If you want to get by in today’s housing market, follow my tips below.

– Better to sell now, than buy.
– Don’t put all your net worth in a house and expect a good outcome.
– Lock in to mortgage rates that simply cannot last.
– Get the hell out of the rental housing business.
– Don’t even think about specking or flipping.
– Avoid bidding wars.
– Need equity out of your house for retirement? Do it now.
– Never buy with 5% down and 95% leverage.
– And don’t get sucked in by hype.

Post from: paulsidhu.com

Weekly Mortgage News for April 27, 2012

Post from: paulsidhu.com

Weekly Mortgage News for April 27, 2012

This weeks top stories include how assumable mortgages are becoming the new fad, how there is a need to tame Toronto’s housing bubble, how home sales continue to increase across Canada even with prices declining, how interest rates were left unchanged this week by the Bank of Canada, how Toronto’s current real estate market is unsustainable, how U.S. housing starts declined as permits witnessed a sharp spike, how an interest rate hike will affect many Canadian consumers, how bidding wars are starting to backfire for many and how the average price of a Toronto condo has increased year over year.

Assumable mortgages

Assumable mortgages are becoming the new craze in Canada as they can be used as leverage when selling your home in the future.  If you were to obtain a 10 year fixed rate mortgage today at 3.99% and that rate rises to 7% in five years, you could sell your home with an interest rate of 3.99% with a remaining term of five years.

The person purchasing your property can assume the mortgage as long as they can qualify under the lenders guidelines.  This means that the client can afford to pay more for your home knowing that they will have additional savings on the interest rate they are taking.  These are called mortgage assumptions and have come to standstill as interest rates continued to decrease in the past few years.  

Now, with interest rates set to rise, they are starting to make a heavy comeback.  There was a point where two similar properties that were next door to each other were for sale and both had assumable mortgages.  If one was at a 9% interest rate and the other was at a 13% interest rate, there would be a larger turnout to the one with the lower interest rate.  This lead to more showings and a quicker sale overall with a larger purchase price.

There is also a portability factor to take into account.  Nothing states that you have to sell the home and have the new owners assume the mortgage.  There should be an option to port your mortgage to your next property.  This means that you can take the mortgage with you to your next home and keep the great interest rate that you had previously secured.  A good broker will be able to set you up with both options under the same mortgage agreement.  If you would like to know more about porting your mortgage or an assumability clause, contact me to discuss.

Read the full article here

Taming Toronto’s housing bubble

Bloomberg news released an interesting statistic that there are nearly three times more condo buildings being built in Toronto than are currently being build in New York.  They also stated that there are seven times more condo’s being built in Toronto than are being build in Chicago.

It seems like we are in a housing boom but that is not the case.  This boom was structured by the government of Canada’s open ended mortgage insurance policies that had a lack of supervision and control.  Some say that foreign investors are the cause of the boom and have created an artificial bubble but this is not the case.  The government has continued to urge restraint but that is not a viable solution in today’s low interest rate environment.  Some are saying that a ban on foreign buying of residences may be the only solution but I feel that this may also not achieve the results that we are looking for.

Australia decided to impose rules to prevent foreign buying stating that only a person with a work permit can buy a new or used unit but cannot rent it to anyone and must sell it when their residency comes to an end.  Temporary residents cannot buy at all.  All non residents are banned from purchasing housing or investment properties unless they are doing business in Australia and the housing is for its Australian staff.

There are signs that Canada is vulnerable to mortgage defaults as Canada Mortgage and Housing Corporation (CMHC) doesn’t have enough money to cover everyone that has taken insurance.  The International Monetary Fund (IMF) has also advised Canada to review their current housing situation as well as the way mortgage default insurance is issued.  The Office of the Superintendent of the Financial Institutions (OSFI) is reviewing the policies and is looking to make changes or take over regulating the mortgage default insurance sector.  What do you think?  Is it too late for the changes?  Please comment below.

Read the full article here

Sales rise as prices decline

Existing home sales in Canada were up 2.5% in the month of March when compared to February of this year.  At the same time, prices were down 0.5% from February to March according to the Canadian Real Estate Association (CREA).

On a seasonally unadjusted basis, sales had increased by 1.6% from March of 2011.  This was the smallest increase on record since April of last year.  Newly listed homes had decreased 0.3% in the month of March from February of this year.  CREA commented by stating, “Activity in March was up from the previous month in two-thirds of all local markets, with Toronto, Calgary, and Edmonton contributing most to the national increase.”

The national average home price had dropped 0.5% in March from the same time in 2011 to $369 677.  CREA chief economist Gregory Klump commented, “The slight decline in the national average price points to a tug of war between Toronto and Vancouver from the standpoint of their sales mix compared to last year.  Average prices are up from year-ago levels in most large urban centers.”  What do you think about the price decline?  Please comment below.

Interest rates left unchanged

The Bank of Canada (BoC) left it’s overnight lending rate unchanged yet again.  The BoC did note that the Canadian economy is gaining traction but stated that it could be hindered by high oil prices.

BoC governor Mark Carney commented by saying, “Overall, economic momentum in Canada is slightly firmer than the Bank had expected in January.  The “headwinds” from overseas that have been holding back Canada’s economy have somewhat abated as the U.S. recovery has shown some staying power.  As a result, business and household confidence are improving faster than forecast in January.”

This statement pushes towards the BoC gradually beginning to raise interest rates but no definite date was announced for the increases.  The BoC also noted that Canada could reach 2.4% growth this year, which is a significant increase from the previous estimate of 2% growth given just a few months back.  The statement was also made that growth in 2013 would only be 2.4% as well, which is substantially below the 2.8% previously forecasted.

Mr. Carney did note that the Canadian economy is expected to be at full capacity by early 2013, which leads us to believe that interest rates will rise sooner than expected.  Interest rates have been at historical lows since September of 2010 as the BoC pushed to keep the Canadian economy alive.  This lead to a high level of household and mortgage debt as consumers took advantage of cheap money.  This high level of household debt is still the number one threat to our economy.  What do you think?  Please comment below.

Read the full article here

Toronto’s real estate market unsustainable

Although the Canadian real estate market is beginning to stabilize, it seems that Toronto is the exception to the rule as home prices and sales continue to rise.  Prices continue to cool in major urban centers across Canada, including Vancouver, while Toronto continues to see rises in sales and demand.

New figures released by the Canadian Real Estate Association (CREA) show prices have increased by 10.5% in Toronto over the last 12 months and is noted to be the only major city in Canada with a double digit gain.  Montreal was up 3.7% while Vancouver witnessed a 3.1% decline in home prices.  National home prices in the month of March, on average, were down 0.5% from the same time last year.  This is mainly due to the major declines in the Vancouver market.

Sonya Gulati of the TD Bank stated that the new trend will be a flat market for this year with national prices increasing by 2.1% while sales come to a standstill.  She feels that the average national price is 10% – 15% above a sustainable level but doesn’t foresee a market crash in the works.  She feels that prices will gradually decrease once interest rates begin to rise in mid 2013.  She then see’s a decline of 3.6% in 2013 followed by a 4.3% decline in 2014.

Toronto currently accounts for one fifth of Canada’s housing market and has continued to mystify most analysts, as well as myself, with strong sales regardless of the increased prices.   Maybe it’s the lack of listings on the market or the fact that single family homes are in limited supply within easy commuting distance of downtown.  Whoever cannot buy a home is making their way into the condo market but this is a boom that is becoming worrisome.  Either way, with 143 highrise condo projects currently under construction, there is a huge amount of supply about to hit the market.  What do you think of this condo boom?  Please comment below.

Read the full article here

U.S. housing starts down as permits rise

U.S. housing starts took an unexpected decline in the month of March but permits for future construction were up to the highest level in 3.5 years according to the newest data released on Tuesday by the Commerce Department.  Housing starts were down 5.8% to a seasonally adjusted annual rate of 654,000 units.

February’s starts were also revised downwards to a 694,000 unit pace from a previously reported 698,000 unit rate.  Analysts had previously expected housing starts to remain close to unchanged at a 705,000 unit rate but were shocked when the news came in.  March’s drop in housing starts was the largest percentage decline since April of last year.  Most of the decline was in the multi-unit category, which was down 16.9%.  Starts from single family homes were also down but only 0.2%.

New permits were the only highlight of the report as permits were up 4.5% to a 747,000 unit pace last month and was noted to be the highest on record since September of 2008.  This surpassed previous economist predictions of a 710,000 unit pace.  The U.S. housing sector has shown signs of a slow recover in the recent months and an increase in home building will definitely add to economic growth for the first time since 2005.  The only hurdle is an oversupply of unsold homes that continue to hold prices down.  What do you think about the surprise data?  Please comment below.

Read the full article here

Interest rate hike to affect consumers

The low interest rate environment that we are currently in will be coming to an end in the near future as Bank of Canada (BoC) governor Mark Carney signalled this week on Tuesday that interest rates could rise sooner than expected.  He also noted that people in debt that have been getting by with minimal payments are in for a shock.

Laurie Campbell, executive director of Credit Canada is predicting that bankruptcies will rise the moment interest rates increase.  She commented, “I think this is going to be frightening. It’s not just mortgages, it’s lines of credit where people have dumped all their credit card debts. It’s home equity lines of credit that are sitting at variable rates.”  Most mortgage consumers across Canada have begin to lock in their interest rates to avoid a rate shock but 31% of all mortgages are still in a variable rate product.

The current prime lending rate at most major institutions is still at 3% but this figure is usually tied directly to the BoC’s overnight lending rate.  This means that the minute the BoC increases the overnight lending rate, the variable rate will increase as well overnight.  Consumers that have home equity lines of credit (HELOC’s) will also be heavily affected as HELOC’s are tied to a variable rate.

Credit agency Equifax Inc. released the results of a survey this month that pointed to a rise in non mortgage debt across Canada.  It also pointed to the fact that many Canadians were paying off their credit cards by moving the debt over to their line of credit (LOC) or HELOC’s.  The BoC is ready to increase before the U.S. Federal Reserve does but this will be in small increments.  They will raise the overnight lending rate, see how the economy reacts and go from there.  If the raise causes our economy to fight for footing, it will affect market sentiment as well as business and consumer confidence, which leads to less spending.  This may cause the BoC to stop at the first increase.  Only time will tell.  What do you think?  Please comment below.

Read the full article here

Bidding wars backfire

Bidding wars on homes have caused major headaches when it comes down to financing.  We are finding that most banks and mortgage lenders are not agreeing upon the price that the home was purchased for.  This means that when the home is appraised, it is being appraised at a value less than the actual purchase price.

If a home is purchased for $500,000 but it is only worth $450,000, then the bank will only lend against the $450,000.  This means that the client not only has to come up with the downpayment and closing costs, but has to make up the $50,000 difference out of their own pocket.  Paul Sidhu, President at Safe Money Mortgages & Financial Products Inc. commented, “This is becoming a common occurrence in today’s market.  I have clients being asked to come up with more cash or find a means of additional financing but my biggest concern is that these clients are buying homes and beginning with a negative net worth on the property.  Where does this leave the clients at the time of renewal?  No one is going to provide a mortgage for $500,000 if the property is only worth $450,000.”

Some mortgage brokers are asking if the appraisal companies are being more conservative to anticipate the up and coming market correction.  I don’t think this is the case as many of these appraisals are completed by the Canada Mortgage & Housing Corporation (CMHC), which is a government owned company.  I think that the lenders are becoming more nervous as well and are staying conservative with who they lend to.

If you were to purchase a home for $500,000 and the appraisal were to come in at $450,000, even with 5% down ($22,500) you will only be provided a loan of $427, 500.  This means that instead of $22,500 down, you will need the added $50,000 to make the bank agree to the mortgage or a downpayment of $72,500.  Who has money like that floating around if you were originally looking to purchase with 5% down?  My suggestion is not go in firm on any offer these days and please do not get caught up in the emotions of a bidding war.  Take the 10 business day financing clause along with a clause for the appraisal to come in at value to make sure that you are fully covered.  What do you think?  Please comment below.

Read the full article here

Toronto condo average prices up

It seems that last year’s pace of record condo construction is making its mark in the Greater Toronto Area (GTA) as listings in the GTA are up 14% during the first quarter of this year.  Sales are not up by as much, only increasing by 2% over the same period.

Condo buyers are now watching and waiting to see if the up and coming supply will push down prices.  It’s only inevitable that it will.  The average selling price of a condo in Toronto has increased by 3.7% in the first quarter of this year moving to $334,952 from $322,857 from the same time last year according to the latest statistics released by the Toronto Real Estate Board (TREB).

Prices in the downtown core edged even higher, reaching $360,892 during the first three months of this year and were up from a year ago when prices were at $348,799.  It’s not quite as high as the 10% increase witnessed in the housing sector during the same period but that increase is mainly due to a lack of home inventory that has been the root of bidding wars that are continuing to drive up prices across the GTA.

There aren’t a lot of bidding wars in the condo sector today as more supply is meeting the demands of many.  In fact, investors trying to sell new units in the higher priced condo developments are struggling to sell since January of this year.  Realtor Andrew Le Fleur commented, “I think the greatest fear underlying this whole condo boom is affordability. If units get too expensive, people will just stop buying them, no matter how beautiful they are or what an investor paid for them three years ago.”  What do you think of the Toronto condo market?  Please comment below.

Read the full article here

Post from: paulsidhu.com

Weekly Mortgage News for April 20, 2012

Post from: paulsidhu.com

Weekly Mortgage News for April 20, 2012

This weeks top stories include how the listing prices of homes today are meaningless, whether to go with a five year fixed rate mortgage or a ten year fixed rate mortgage, how the United States needs to see faster growth to help offset unemployment, how bidding wars are leading to numerous complaints with the Real Estate Council of Ontario, how interest rates rose at major banks this week, how a mortgage stress test shows that some Canadians might be in peril if mortgage interest rates rise by 2%, how home prices increased but the increases are now moving at a slower pace, how Ottawa is looking to shorten amortization periods and I will close out with my personal thoughts on the Canadian mortgage market.

Listing prices of home meaningless

These days it seems like putting up an asking price for a home has become pointless.  Some people are thinking that realtors no longer know what the fair market price of a home is but most of us know better.  Realtors are now underpricing homes by roughly 20% to create a bidding war and in essence, end up selling the home for more than fair market value.

This is one of the most common selling and marketing strategies being used today.  They attract more buyers by marking down the price to one that the seller will never accept.  Lawerence Dale, a local lawyer stated,  “It’s not considered an offer, it’s an expression of interest.  There is nothing formal to say you will sell it for that price.”  The trend emerged during this real estate cycle as part of the package of schemes along with listing a home for sale and not accepting any offers until a specific date and time.

This is the latest ploy to drum up interest in properties and letting the value of the property, to an individual, determine the price.  The concern is that people end up spending more on a home than originally intended once they get caught up in a bidding war.  This basically turns the home into an auction rather than a real estate sale.  They also lead the buyer into a position of having to come with their most aggressive offer, even if it is $50K – $100K more than they wanted to spend because you don’t know what other people are bidding.

Craig Alexander, chief economist at TD commented, “You generally get a higher price from a closed bidding process. The reason is in an open bidding concept, let’s say I am bidding against you and I’m prepared to go to $500,000. We start the process at, say, $380,000 and the most you will go to is $450,000, then I can get it for $451,000.” Most of the bidding wars are tied to a lack of inventory on the market today where there isn’t enough supply to meet the demand of buyers.  This will change by the end of the year but for now the bidding wars continue.  What do you think?  Please comment below.

Read the full article here

10 year fixed or 5 year fixed mortgage

Most mortgage debates were about whether to take a fixed or variable rate mortgage but today’s discussions are based, not on whether to lock in, but on how long to lock into a fixed rate mortgage for.  Variable rates are now at par with most 3 year and 4 year fixed rates.  With most consumers focused on a 5 year fixed rate mortgage, the new debates are around 10 year fixed rate mortgages.

The 10 year fixed rate mortgage is now at the lowest it has ever been.  With interest rates around 3.84% to 3.99%, it may only make sense to take a 10 year fixed rate rather than a 5 year fixed rate mortgage.  The real concern around the 10 year fixed is whether or not you will stay in the home for at least 10 years.  With interest rates poised for a rise, moving forward the penalty in most cases will only be 3 months interest penalty.  The other rule under Canadian law is that ANY mortgage can be broken, after the fifth year, with 3 months interest penalty.

The other item that would be noteworthy would be whether or not the mortgage is portable, assumable or transferable.  Allowing you to either sell the home with the mortgage for more than it’s worth, take the mortgage with you to a new home or allow you to transfer the mortgage into someone else’s name in the event that you cannot manage to keep it in your name.  Either way, the 10 year fixed may be a good bet.  If you require clarification on which one best suits your needs, give me a call.  In the meantime, which do you think is the better option?  10 year fixed or 5 year fixed?  Please comment below.

Read the full article here

U.S. needs growth to offset unemployment

The Federal Reserve Chairman Ben Bernanke stated on Monday of this week that the U.S. economy needs to expand at a quicker pace if it wants to produce enough jobs to bring down the unemployment rate.  He stated that the recent drop in the jobless rate seems to be out of sync with the modest pace of economic growth.

The jobless rate dropped 0.8% from 9.1% in January to 8.3% in the month of February.  U.S. gross domestic product grew at 3% in the fourth quarter (Q4) of 2011 but slowed to just below 2% in the first three months of 2012.  The Federal Reserve Chairman feels that the recent decline in the jobless rate may be due to an effort by businesses to recalibrate their payrolls after unusually heavy job cuts during the recession.  If this statement stands true, progress may come to standstill.

Mr. Bernanke commented,  “To the extent that this reversal has been complete, further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.  The continued weakness in aggregate demand is likely the predominant factor. Consequently, the Federal Reserve’s accommodative monetary policies, by providing support for demand and for the recovery, should help, over time, to reduce long-term unemployment as well.”  What do you think?  Please comment below.

Read the full article here

Bidding wars lead to complaints

There is pressure on the Real Estate Council of Ontario (RECO) to make changes to the way houses are listed.  RECO has had their phone lines ringing off the hook with complaint calls from potential home buyers about bidding wars.  Whether they lost or won, they are both complaining.

30% of the 15,000 calls that RECO has received in the past year were from home buyers that were taken aback by the multiple bids process.  The largest concern is that many buyers waive a home inspection in desperation to win the bid on a home and end up with a large repair and upgrade bill by the time they take possession.  It’s turned into a real nightmare for some people.  It seems that the council has heard the complaints and is launching a new education campaign this week in response.

The new ads will encourage home buyers to do their due diligence before making the largest purchase of their lives.  It will advise them to look past the fact that the home may be in the best neighbourhood or in the best school district and focus on the property itself.  Bruce Matthews, deputy registrar in charge of complaints for RECO commented by saying,  “We’ve had numerous circumstances brought to our attention where a buyer, even against the advice of their realtor, has waived home inspections or conditions around financing when they found out there were other offers on the property.  Unfortunately in bidding wars, reason and rational thought are often replaced by emotion and haste. We can’t legislate human behaviour, but we’re trying to put more of the emphasis on information and knowledge in advance (of going to open houses and putting in offers) to prevent these kind of situations.”

RECO has seen many home buyers walk away from their initial deposits and end up in expensive court cases due to the buyers waiving home inspections or financing conditions in order to win the bidding process.  RECO has even seen cases where the banks refused to finance the full amount of the loan because the purchase price was much higher than the value of the home.  Since we are currently in a low housing inventory supply environment, the power is with the seller.  What do you think of the bidding wars?  Please comment below.

Read the full article here

Interest rates rise

It seems that the mortgage wars have come to an end as the spread on the bond rates continue to shrink.  RBC and TD moved to raise mortgage interest rates as of yesterday.  The rate increase comes less than three weeks after BMO re-launched the 2.99% 5 year limited fixed rate mortgage.

Housing market analyst Will Dunning stated that the banks appear to be reacting to changes in the bond market.  He went further by stating, “The cost of funding has probably increased for them because bond yields have gone up quite a lot in the last month or so, because there’s more optimism in the U.S.  The question might become whether this is the turning point.  Is it the end of low mortgage interest rates, and are rates going to start rising a lot?”

Rising interest rates mean banks are now paying more for the money they raise to lend as mortgages to home buyers.  Rates will rise but I don’t think that this is the real shift that we are expecting.  When the shift comes, it will likely be slow and steady.  Both banks are set to raise their 5 year fixed rate mortgages by 0.2% to 5.44% and their 4 year fixed rates are expected to rise by 0.5% to 3.49%.  With the variable rate having such a small spread, fixed rate mortgages still tend to be the mortgage of choice today.  What do you think?  Please comment below.

Read the full article here

The mortgage stress test

A recent survey from BMO shows that 20% of Canadian households would be under extreme pressure to meet their daily obligations if interest rates were to rise by as little as 2%.  The BMO stress test showed that more than half of Canadian households would be able to manage a 2% increase in interest rates with 20% stating that they could not and 23% stating that they were unsure of what a 2% increase would do to their finances.

A 2% increase over the next few years is quite reasonable.  If you were to take a $400,000 mortgage, amortized over 25 years at an interest rate of 3%, the monthly mortgage payments would be $1892.98.  If you were to increase the interest rate to 5%, or a 2% increase, the monthly mortgage payment would swell to $2326.42.  Based on recent numbers from the Canadian Association of Accredited Mortgage Professionals (CAAMP), 31% of Canadians, that currently have mortgages, have decided to go with a variable rate mortgage.  This exposes them to fluctuations in the Prime rate and additional risk down the road.

With the 5 year fixed mortgage rates almost on par with the Prime rate, now is a great time to consider locking in your mortgage.  On a province by province standpoint, Alberta households fared the strongest in the stress test with 73% of mortgage holders stating that they could afford a 2% increase in mortgage interest rates.  Saskatchewan and Manitoba was close behind with 69%, while British Columbia came in last with only 48% of households stating that they were still capable of meeting their monthly mortgage obligations after a 2% interest rate increase.  What do you think?  How would you personally fare if interest rates rose by 2%?  Please comment below.

Read the full article here

Home prices increase at slower pace

The Teranet National Bank house price index rose year over year by 6.5% in the month of January but was down from the month of December by 0.3%.  Year over year gains have continued but seem to be gaining at a slower pace this year.  The rise in prices was quite substantial but the slowdown may be of concern to the federal government.

National Bank senior economist Marc Pinsonneault commented,  “If such increases were repeated over the next months, the federal government might react with stricter mortgage rules.”   This is something that has constantly been put in the face of the government prior to the budget release yesterday.  The index is a composite of prices from six different metropolitan areas including Toronto, Ottawa, Vancouver, Calgary, Halifax and Montreal.  The index tracks home prices on the land registries network that have been sold at least twice.

This is a different method than most when gauging real estate prices as it does not use an average of listed sale prices that are normally skewed by high or low value sales that occurred in the area during the same time period.  Local price indexes were also up in January with Toronto leading the bunch showing a 9.9% increase.  Vancouver was behind with a 7% increase, followed by Montreal with a 5.6% increase, Ottawa with a 5.4% increase then Halifax and Calgary with a 1.8% and 1.6% increase respectively.  What do you think of the gains?  Will this last?  Please comment below.

Read the full article here

Ottawa looking to shorten amortization periods

Three years ago Canadians were offered the opportunity to extend amortization periods out to as much as 40 years.  This costs tens of thousands of dollars in more interest to the home owner but tends to lower your monthly mortgage payments in the short term.  The government decided that this was too much risk and decided to cut back amortization periods to 35 years before clawing back amortization periods again to 30 years during 2011.

Ottawa is now pondering another cut to amortization schedules as previously discussed in my posts under my personal thoughts about the Canadian mortgage market.  The budget should outline whether or not this will occur but it could also be announced after the budget.  Interestingly enough, the last housing boom seemed to be driven when the change to 40 year amortizations were implemented.  The problem with extended amortization periods is that everyone looks at the bottom line, which is payment today.  Although Canadians should be looking at options to pay off their mortgages as quick as possible, most look for the convenience of the lowest payment possible, which is obtained by extending the amortization period.

40 year amortization periods were taken with a grain of salt when they were introduced with many Canadians going for the product over all other products.  If the government didn’t step up and make changes, majority of Canadians may be on the 40 year amortization period today.  The percentage of mortgages with amortization lengths of 36% or more reached 9% during the 2006 – 2011 period.  The percentage of mortgages with amortization lengths between 31 to 35 years increased 12% during the same period.  The new ban has caused the number of mortgages with amortization periods greater than 35 years to only 6% as the number continues to decline with mortgages renewing over time and no availability to renew the amortization periods.  How do you feel about the extended amortization periods?  Please comment below.

Read the full article here

My personal thoughts on the Canadian mortgage market

I’ve spent the last few weeks being bombarded with people about my stance on the Canadian mortgage market but I believe that we are living on borrowed time.  Yes, a market crash would be a political and economic bomb so the bank regulators are now rushing rules to try and prevent this but I think it may be a little to late.  Some of the changes that they have discussed is no more cash back mortgages and no more automatic mortgage renewals.

The banks now have to double check home values and the borrowers finances before providing any financing.  The banks are also looking to make home equity lines of credit (HELOC’s) more expensive and less easily available than they are now.  The goal is to make money more difficult to obtain and this should slow the use of home equity against further real estate speculation.  The reassessment of home values could pose a problem if home prices were to decrease.  It could leave consumers in negative equity at the time of renewal and the home owner would have to come up with the difference before they can refinance.  Imagine that you had to come up with an additional $50,000 just so that the bank will refinance your home.  It’s not a good scenario.

The consequences of these actions will be substantial as we could end up in the same situation as our U.S. counterparts.  Finance minister Jim Flaherty stated,  “I would like to see the (housing) market correct itself.  We have bank executives in Canada saying ’You know, really the rules on insured mortgages should be tightened up’. They must forget that they are actually the ones that issue the mortgages — it’s their market, it’s not my market.”  Dammit Jim, do something!!  I know that the banks are the ones creating the risk to earn profits but they will not be the ones that bear the consequences of those risks.

Allowing this to happened is what the U.S. did and it was the collapse of Fannie and Freddie.  This lead to a $1 trillion cost that wiped out the middle class even though the agencies guaranteed on 25% of all the mortgages in the U.S.  In Canada, Canada Mortgage & Housing Corporation (CMHC) guarantees all our loans and they guarantee 90%.  Fannie failed because it had roughly $1 for every $50 in mortgage insurance guarantee’s but CMHC only has $1 for every $100.  If Canadian housing takes a downturn, CMHC will be wiped out within seconds.  So what does CMHC do?  They cut back on the insurance they provide.  They normally have an average rate of growth at 13.5% in the past 5 years but now they will only grow at 1.5% moving forward.  This means that only the best of the best loans will be insured.

The banks are also looking to stop condo growth where supply is about to overwhelm demand.  This will lead to failed projects, plunging condo values and an end to overbuilding.  The major banks are now refusing to hand over construction funds unless developers show more advance sales and deposits.  Certain banks are asking developers to put up more of their own money before they will put in a penny.  This is due to the fact that roughly 80% of all condo purchases are done by flippers and speculators.  There may be a point where many will walk away from their 20% downpayment rather than close on a unit because they will realize that there is no chance it will be cash flow positive or that they will be taking a capital loss on the sale.

There are signs to watch.  Sales in Vancouver are down 40%.  New build condo sales in Toronto are down 59% with sales in the greater Toronto area (GTA) down 24% so far this year.  Even the Canadian Real Estate Association (CREA) commented last week that they feel housing prices have reached their peak.  Times are changing and they are changing fast.  Without mortgage insurance, you can expect to pay a premium on your interest rate based on your risk assessment.  Without HELOC’s readily available, you can bet that there will be less purchases.  And what will we do with no more automatic renewal offers?  Well, we’ll default on our loans when we can prove the value or the income to support the loan.  What do you think?  Please comment below.

Please note that I will be away the next two weeks on business and will be returning with the latest Canadian & Toronto mortgage related news on April 20, 2012

Post from: paulsidhu.com

Weekly Mortgage News for March 30, 2012

Post from: paulsidhu.com

Weekly Mortgage News for March 30, 2012

This weeks top stories include how the government is setting out new guideline changes to the way mortgages are provided, how ultra low interest rates are confusing people into thinking that they have more than they actually do, how Canadians should take advantage of low interest rates and pay off their debts now, how Canada is expecting to see growth this year and the next, how high rise condo sales are down 59% from last year, how U.S. housing starts have declined while permits reached a three year high and I will close out, as usual, with my personal thoughts on the Canadian mortgage market.

New guidelines for mortgages

It seems that the government is finally making the changes to mortgage underwriting that I have been speaking about for the past month.  The Office of the Superintendent of Financial Institutions is currently reaching out to industry specialists (such as myself) on what their next step should be towards changing their guidelines pertaining to mortgages.

Yes, Canada avoided a housing market collapse, like the one witnessed in the States, mainly due to tighter lending guidelines but as time passes, there are signs that the current mortgage guidelines may have not been enough.  They are now on the fence about raising interest rates or tightening regulations.  It’s simple, a raise in interest rates will lead to a housing market correction.  A change towards tightening mortgage guidelines will only lead to less people buying homes.  The largest concern with not raising interest rates are that consumers will continue to borrow and household debt to income may increase past the record high’s it is already at.

The proposed guideline changes are currently quite simple.  Financial institutions must verify the income of a client to support the loan in question.  The days of equity borrowing are coming to an end.  If you cannot afford to pay the loan, you will not be granted a mortgage, no matter how much you put as a downpayment.  There are also talks of creating standard underwriting guidelines to help mitigate risk.  The downfall with this is that mortgages may just come down to rate rather than the product which is best suited for the client.  What do you think of the suggested changes?  Please comment below.

Read the full article here

Low interest rates skew financial senses

It seems that historically low interest rates are confusing the spending habits of many Canadians.  Although this is the cheapest we have ever seen interest rates and money is the cheapest to borrow in history, you must make sure that you are prepared for the future.  Many consumers are spending and borrowing cheap money and are forgetting that it won’t stay cheap forever. An increase in interest rates at renewal time could be the difference between you keeping your home or listing it for sale at renewal time.

Some of the main things to consider when taking on mortgage debt or even loans is that interest rates will eventually rise from today’s lows and their could be rate shock that you were not prepared for.  Many people are refinancing mortgages but taking on the new payment without thinking twice of what they are doing.  If you are planning on refinancing your mortgage, think about making the payments that you were previously making on the lower interest rate.  This will help you save money through interest payment savings.

If you are looking at purchasing a home and have a great interest rate today, you should think about increasing your payment to what is affordable to you today.  Even if your mortgage payment is only $300 a month, you should consider paying it with any extra money you have on hand.  By extra money, I mean a portion of what you normally put in savings.  You’d be surprised at how quick you can pay your mortgage off early and how much money you will save in the process. Another thing to note is that mortgage interest rates will be higher at renewal time.  Will you be able to meet your obligations if you had a 2% or 3% increase in your mortgage rate?  If you feel that this may be you, call me today to see what your rate shock will look like and let me help you prepare for the future.

Read the full article here

Pay off debts now

Consumers have been taking advantage of ultra low interest rates around the world.  Canada is similar with the Bank of Canada (BoC) keeping it’s overnight lending rate as close to zero as possible.  This has lead to a spree of cheap money and it is expected to come to an end soon.  The question is not if interest rates will rise but when they will rise.

It seems that now even the banks are starting to get concerned as TD’s chief economist Craig Alexander has joined Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney in warning Canadians that debts have risen to unsustainable levels as of recently.  He has advised that without new mortgage regulations to curb borrowing, a correction in house prices or an interest rate increase we would have major trouble with the Canadian economy. 

Mr. Alexander went further by stating, “Make no mistake, such a combination of forces would likely cause a recession.  We need to acknowledge that a significant imbalance has developed and it poses a clear and present danger to Canada’s medium-term economic outlook. If the overvaluation was fully unwound rapidly, it would be three times the correction in the early 1990s.”  Mr. Alexander feels that the overheated Canadian real estate market is overvalued nationally by as much as 10% or 15%.

Right now an increase of even 2% can render some Canadian mortgages unaffordable to consumers.  But this is what’s expected to happened when interest rates increase.  The rate increase is now expected to come a lot sooner than later.  The BoC had stated that interest rates will increase in 2014 but they are no longer in a position to keep that promise.  Some Canadians have realized that there could be problems and 66% of them are now locking in to fixed rate mortgages to have some certainty moving forward.  The main concern is for young home owners, who have never seen interest rates in the 20% range.  Although, I don’t feel that interest rates will reach that high, there is always the possibility that they could.  Are you prepared for interest rate increases?  What have you done to prepare yourself?  Please comment below.

Read the full article here

Canada expecting growth

The Canadian economy expanded at a moderate pace in the fourth quarter (Q4) of last year and is expected to gain some traction this year according to the latest forecast from RBC.  RBC released it’s Economic Outlook this week and is predicting that Canada’s real gross domestic product (GDP) will increase by 2.6% next year and in 2013.

RBC stated that low interest rates mixed with signs of strength in the U.S. economy, along with solid corporate balance sheets and elevated commodity prices are paving the way for continued expansion in Canada.  Western Canada is poised to witnessed the largest growth this year as Alberta and Saskatchewan will lead all provinces with Manitoba not far behind. 

RBC senior vice president and chief economist Craig Wright commented, “Canada’s economic growth clocked in at 2.5 per cent in 2011, shaking off a few speed bumps in the middle of the year and ending the fourth quarter with only moderate real gross domestic product growth of 1.8 per cent.  The country’s main engines of economic activity from the early days of the recovery — consumer spending and residential investment — are likely to play supplementary roles as the economy shifts into slightly higher gear on the road ahead.”  What do you think?  Will Canada expand at the predicted pace expected by RBC?  Please comment below.

Read the full article here

Condo sales down 59% from last year

Call it what you will but Toronto’s high rise market saw a 59% decline in sales from the same time last year.  After a record breaking sales year last year, the greater Toronto area (GTA) seems to be easing back into a more stable environment.

January and February witnessed 1,633 high rise sales this year while there were 3,348 sales last year during the same period.  Low rise sales seem to be doing better this year with 2,818 sales in January and February of this year and only 2,571 sales during the same period last year.  Overall, housing sales were down 29.5% in the month of February when compared to February of last year and down 24.8% when compared to January and February of last year.

The numbers are now more in line with historical norms and Building, Industry and Land Development (BILD) president Joe Vaccaro commented, “Following a slow period in late-2011, the low-rise sector has once again stabilized and we are seeing steady activity, particularly in the 905 markets.  On the high-rise side, while it may appear that sales are down from last year, it actually reflects the typical February lag as existing units are purchased while new condominium projects prepare to launch in the City of Toronto later this year.”

Prices are noted to be more stabilized this year in the condo sector with the price per square foot rising by only 2% in the month of February when compared to the same time last year.  Low rise price per square foot rose by 10% when compared to the same time last year.  BILD is blaming government regulatory issues and charges to the increase in the low rise sector.  Regardless, there is definitely a shift happening.  What do you think?  How will the condo fare this year and next?  Please comment below.

Read the full article here

U.S. housing starts down as permits rise

February witnessed U.S. housing starts decline while permits for future construction reached their highest level since October of 2008.  The Commerce Department released a report on Tuesday of this week and stated that housing starts were down 1.1% to a seasonally adjusted annual rate of 698,000 units.  January starts were revised upwards to 706,000 units from 699,000 units.

Economists had predicted that housing starts would be flat at 700,000 units.  When compared to the same time last year, February’s residential construction rose 34.7% and was noted to be the largest year over year increase since April of 2010.  New building permits also rose 5.1% to a 717,000 unit pace in February and exceeded most analysts expectations.  They had forecasted an advance to 690,000 units from January’s 682,000 unit rate.

An recovery is starting to take place in the housing market but an extensive supply of unsold homes is continuing to keep prices depressed and is posing to be a major obstacle even though sales have picked up and job growth has accelerated in recent months.  Construction in the residential sector is expected to strengthen economic  growth this year for the first time since 2005.  Could this be the housing market rebound that the United States has been waiting for?  Please comment below.

Read the full article here

My thoughts on the Canadian mortgage market

This week was definitely one that was for the records.  We witnessed a university student purchase a Willowdale bungalow for $421,000 more than asking.  In the past five weeks this has become a regular occurrence as buyers buy with desperation rather than clear and concise thinking.  After all, a home purchase is more an emotional purchase than anything else.  The other problem fuelling these multiple offers is that many realtors are pricing units below comparable values in order to create a bidding war on properties that, in most cases, ends up getting their client more than asking.  The last thing fuelling these bidding wars is the lack of listings available in the Toronto market.  This creates more of a demand for the current available properties.

It seems that this would be the root of the problem but sadly it’s not.  Borrowed money has lost it’s value as the ultra low interest rate environment continues.  With 5 year fixed mortgages available at 2.99%, it means nothing to the purchaser to add on an extra $50,000 or $100,000 on to the borrowing debt as the increase in payment is almost nothing.  The temptation to overextend is put in your face with these low interest rates and so clients go ahead and do.  What they don’t understand is that when, not if, interest rates rise, there will be more interest added to the more money that must be repaid.

There is also a feeling that the window of opportunity is set to close.  Plenty of stories about a housing bubble and economists are speaking more freely about the change about to happened.  Don’t forget, we as humans fear change.  And changes are coming.  Lower amortization periods and larger downpayments for starters, are leading to people thinking that if they don’t buy now, they will never be able to buy.  Well, if you are squeaking by to purchase that $300,000 home at a 3% interest rate and 30 years amortization period, what will happened at renewal time when that interest rate is 5% with only a 25 year amortization period?

There will be a realization when money becomes more expensive and regulations tighten, housing prices drop and affordability falls.  You may be paying a premium today in a bidding war thinking you will be completely priced out of the market but you could also end up biting off more than you can chew with your real estate being worth less and a mortgage at more of a value than your home.  Home Equity Lines of Credit are next on the chopping block.  The government wants to axe them and have no more interest only payments and make them less easily available.  They will do this by raising interest rates against HELOC’s.

The last piece of information I can provide you with today is how the government is nixing automatic renewals.  In most cases, when it’s time for a mortgage renewal, the lender just sends a renewal letter without checking further into the renewal.  No proof that you still have a job or if you can meet the payments, just a renewal letter that needs to be signed and usually at a higher interest rate than what the market is offering.  Now, with an expected drop in prices, the government wants the whole mortgage to be done again with extra attention to the size of the loan in comparison to the value of the home.  If prices drop and you owe more than the house is worth, be prepared to pay the difference at renewal time or end up in a mess of trouble.  What do you think about my personal thoughts?  Please comment below.

Post from: paulsidhu.com

Weekly Mortgage News for March 23, 2012

Post from: paulsidhu.com

Weekly Mortgage News for March 23, 2012

This weeks top stories include how Canada is now trailing the U.S. in job growth, how the month of January is pointing to fewer home sales for this year and next year, how low interest rates are continuing to entice borrowers, how the next step for the Finance Minister is going to be regulations or an interest rate hike, how taking a low interest rate may not be worth it when breaking your mortgage and my personal thoughts on the Canadian mortgage market.

Canada trails U.S. in jobs

The U.S. job market seems to be gaining strength just as the Canadian job market seems to be slowing.  This is tied directly to consumer spending as Canadians hold on to their wallets while Americans are opening their change purses.  As you know, consumers tend to create jobs in labour intensive industries, such as retail and home construction.

Canada lost 2800 jobs last month according to Statistics Canada.  This is more than opposite to the estimated 15 000 jobs that were expected to be gained in Canada.  This is the fifth consecutive month where job numbers have not met expectations.  Canada’s unemployment rate came down to 7.4% last month but only due to the fact that 38 000 Canadians gave up looking for work.  Young people between the ages of 15 to 24 have it the hardest and mainly in Ontario.  At the same time the U.S. created 227 000 jobs in the month  of February marking the third straight month of employment growth with unemployment holding steady at 8.3%.

The rate of job creation in the U.S. is currently outpacing Canada but Canada is noted to have already regained the jobs lost during the recession while the U.S. is still working on catching up.  Canada is still 179 00 jobs ahead of where it was before the recession.  BMO Capital Markets chief economist Doug Porter stated that we are now in a structural shift in the way the two economies are recovering.  He went further by stating, “In a nutshell, we’re seeing a shift in the recovery (in Canada). The first couple of years saw a quick rebound in housing and consumer spending as well as fiscal stimulus. All those sectors are very good at generating lots of jobs. The public sector went on a bit of a hiring spree. The construction industry tends to be very labour intensive.”

He went further to state, “Now what we’re seeing is a transition away from those sectors and more towards exports to the U.S. supported by the manufacturing sector and the resources sector. Those sectors tend to be very productive. They don’t tend to generate a whole lot of jobs.  The U.S. economy is almost doing the exact opposite. They got off to a nice start on the productivity side and saw a pretty good bounce in industrial production and very weak consumer spending and housing. But now they’re starting to see the housing market bottom out and (U.S.) consumer spending is recovering.”  What do you think?  Please comment below.

Read the full article here

January points to fewer home sales

2011 was a record year for new condo sales in Toronto but 2012 seems to be starting at a slower pace.  It seems that the low rise condo market held steady through the month of January but condo sales were down drastically when compared to the same time last year, according to the Building Industry and Land Development Association.  

In total 666 new high rise units were sold in the Greater Toronto Area, down 40% from the 1122 sales in January last year.  Low rise sales were down less than 1% with 1128 units being sold in January when compared to 1137 units at the same time last year.  Low rise sales outpaced high rise sales in 2011 as well.  This was the lowest single month total of sales for high rises since the recession.  There was inventory in the market but not too many new projects were released this year in January.  New developments tend to sell better especially with investors.  There are many new projects set to be released this spring that may cause the numbers to see an upward shift in the up and coming months.

Canada Mortgage & Housing Corporation (CMHC) expects sales to moderate this year and next year, with an estimated 33 500 new homes sales in their forecast.  This would still be a decrease from the 45 926 homes sold last year but is expected to bring inventory back into line so that the supply continues to meet demand.  CMHC only expects to see 18 000 high rise sales this year.  What was witnessed last year is considered to be unsustainable in many economists eyes and now the January leading us to believe that things will be more normalized this year.

The dip in sales will cause speculative buyers to ween off of investment properties as more projects reach occupancy and registration.  Pre-sale buyers are also noting that the demand is starting to ween and that they are not getting the re-sale prices that they had expected.  It seems that pre-construction condo prices in Toronto have also increased as flippers were willing to pay more thinking that house prices would continue to increase but market conditions have changed and prices seem to have topped out.  What do you think?  Are condo prices too high?  Please comment below.

Read the full article here

Low interest rates entice borrowers

The rate wars are on again as BMO pushes out it’s no frills 2.99% 5 year fixed rate mortgage on to the world.  Let’s quickly dissect what this mortgage is about.  It’s only available on 25 years amortization.  It is a discounted rate, so when you break the mortgage early be prepared to pay a larger penalty than you’ve ever paid or seen before.  It also comes with limited pre-payment options at 10% and only on the anniversary date.

We have more flexible products, with the same rate offering but I don’t want this written piece to be about me selling you a better product or about rate.  This piece is to speak about why the rate was offered in a time when household debt to income is the highest it’s ever been.  BMO, along with the other major banks that have tried to follow suit, are stating that they can save clients money and bring overall household debt down by offering this rate because the lower amortization allows you to pay down your mortgage faster.  Now this statement is true but if you take a penalty for breaking early into the mix, there will be no savings whatsoever.

Effective debt management should be everyone’s focus right now.  Household debt levels are now where it was in the U.S. before the housing collapse.  Thanks to an extended period of this ultra low interest rate environment, many are able to meet their debt obligations but I feel that these special offer deals leave consumers thinking that they are missing out and is encouraging those consumers to take on more debt and borrow more.  Thus exacerbating the problem further.  Canadians currently have $1.1 trillion of mortgage debt according to the Bank of Canada.  Do you think that this is too much?  Please comment below.

Read the full article here

Rate hike or regulations

Economists are starting to wonder how long the Bank of Canada (BoC) can go before raising interest rates.  With the overnight lending rate sitting at 1% for so long, it has caused many to over borrow as money has stayed cheap for so long.  Household debt is now the largest domestic risk to our economy.  Many are speculating that the BoC governor Mark Carney will move up plans to raise interest rates in the near future.

Mark Chandler head of Canadian fixed income and currency research with RBC Capital Markets stated, “While quite subtle, the associated rate statement signalled a possible lack of patience with the status quo.  However, the real question is what Mr. Carney plans to do about the growing debt problem.  Over the past couple years, the presumption had been that household debt accumulation was largely a sector-specific problem tied to housing prices and associated mortgage credit growth.”

The Finance Minister did make some drastic changes to mortgage regulations in the past two years, including lowering the maximum amortization period to 30 years from 35 years and ensuring that borrowers taking less than a 5 year term qualify at the banks posted 5 year fixed rate.  This has kept many out of the market of buying a home but some have managed to squeeze by meeting the minimum criteria for a purchase even thought they may not be the best candidate to take on that debt.

We are at a point where the government has only two options to stop the borrowing.  The first is to raise interest rates.  This could cause many people on the verge of collapse to fall into a position where they can not meet their day to day obligations.  This could also cause havoc on the housing market and lead to a quick market correction or even a crash.  The second option is to tighten regulations.  This would be the best option as it was tested in the U.S. housing market between 2004 and 2006.  The tightening should include a shorter amortization period of 25 years, increased downpayment requirements to 10%+ as well as ensuring that all borrowers prove that they have the income to support the loan.  I have spoken about this in previous posts and feel that this is the right path.  What do you think?  Please comment below.

Read the full article here

Is breaking your mortgage worth it

Although I have touched on the topic of the 5 year fixed 2.99% rate, a new article came out this week that discusses the penalties in depth.  The meat of the article was based around whether or not it is worth it to break your mortgage and it came back down to the 2.99% rate.

With interest rates the lowest that they have ever been in history, 5 year and 4 year fixed rates at 2.99% and 10 year fixed rates at 3.99%, it’s worth it to take a moment to find out about the fine print.  The first step is to speak with your broker or financial institution and calculating whether or not it makes sense to break the mortgage for the anticipated savings from the lower interest rate. 

The truth is that the penalty for breaking the mortgage could be thousands of dollars and could offset any future savings you may have.  In fact it could even end up costing you more than what you’re paying now if you break your mortgage early in the term.  When you break your mortgage you are charged the greater of three months interest penalty or the Interest Rate Differential, which is more commonly referred to as IRD.  IRD is a formula that is predetermined by the lender and not all lenders use the same formula so speak with your broker or your financial institution about the penalty prior to signing anything.

Read the full article here

My Thoughts

So this week was one that was based around interest rates and news around interest rates.  The biggest news was around the re-release of the 5 year 2.99% mortgage.  Let’s just get to the fine print on this one.  The mortgage commitment on this product states, “During the term of the 5 year low-rate mortgage and in the first 5 years of the 10 year low-rate mortgage, full repayment before maturity can only occur if the property is sold to an unrelated purchaser at fair market value or if the mortgage is refinanced into another BMO mortgage product.” In other words, if you want to change lenders or hit a personal wall and have to sell cheap, it’s not an option.

The next news around interest rates were that the Bank of Canada signaled a rise in interest rates.  If you were paying attention to the wording, you would recognize that they are speaking about this happening this year.  Not next year.  Not 2014.  Even the prime minister stated this week while touring Toronto.  Even though the Canadian economy continues to shed more jobs, even more last month, and the U.S. continues to add jobs.  I find it odd that the major banks would reduce mortgage rates at a time when most of them are scrambling to get out of the high risk market.  CIBC is selling it’s high risk mortgage lending arm, FirstLine Mortgages, and TD is closing its high risk lending arm, TDFS.  Both companies have been open for years but they are now citing additional housing risk while lowering interest rates so consumers pile on more debt.

The news that no one is mentioning is that 2.6 million boomer houses will be coming on to the market within the next 15 years.  There are roughly 1000 boomers retiring on a daily basis.  What’s going to happened as these boomers downgrade to smaller, more affordable, properties and these houses come on to the market.  What do you think? If this happens with an already stagnant market, it could be trouble for Canadian housing. Please comment below.

Post from: paulsidhu.com

Weekly Mortgage News for March 16, 2012

Post from: paulsidhu.com

Weekly Mortgage News for March 16, 2012

This weeks top stories include how home sales are expected to increase this year when compared to last year, how we are being warned of an overheated housing market in Canada, how RBC says that housing is becoming more affordable, how Canadian building permits saw a drastic decline of 12%, how the Bank of Canada kept its overnight lending rate unchanged, how Toronto housing starts declined and I will close out again with my personal thoughts about the Canadian mortgage market.

Home sales expected to rise

The Canadian Real Estate Association (CREA) made a statement this week that the number homes sold across Canada this year will outpace the number of sales last year.  They even stated that home prices will hold steady in most parts of the country.

The association went on to note that the number of home sales will expand by 0.3% this year to 458 800 sales from 457 305 sales last year on the heels of lower mortgage interest rates.  The national average price is expected to fall by 1.1% this year to $359 100 as multimillion dollar sales of homes decrease and skew the national average downward.  Interest rates have remained low to offset the economic drag caused by the European debt crisis.

CREA’s chief economist Gregory Klump stated, “Risks to the Canadian economic outlook remain elevated owing to the European sovereign debt quagmire, but the continuation of low interest rates is the silver lining. So long as the European debt crisis is contained and a global economic recession avoided, low interest rates will support Canadian home sales and prices.”

CIBC economist Benjamin Tal feels that the new forecast released by CREA is more in line with his personal projections but is still a best case scenario.  He feels that there will be more substantial home price declines this year than what CREA is forecasting.  He stated, “This is basically a stagnating housing market. This is not a housing market that is going to be on fire. This is a housing market that you’ll see activity moderating and prices actually going down.”

Vancouver is already witnessing a decline as prices continue to drop dramatically from last years prices.  The condo market is seeing a huge decline and prices in other parts of the country are not rising enough to offset the large declines in Vancouver.  Oddly enough, the Toronto housing market keeps trudging ahead as sales and prices both continue to rise with sales up 16% from last year February and prices up 11% from the same time period.  We need to see a stagnating market in order to prevent a housing market crash in Canada.  What do you think will happened this year?  Please comment below.

Read the full article here

Warning of overheated housing market

Some of the country’s leading economists, along with the federal government, remain troubled about Canada’s housing market and rising household debt issues.  They are cautioning Canadians not to over borrow as an interest rate increase could leave them in a financial bind.  The good news is that they are more confident about the overall state of the economy than they were last year as the country is now projecting stronger than expected economic growth this year.

Finance Minister Jim Flaherty met with the some private sector economists on Monday for his usual pre-budget consultation to gather an assessment of the Canadian economy from their perspective before delivering the federal budget on March 29th.  Mr. Flaherty continues to be concerned about household debt levels in Canada and the overheated housing market with extra focus on condominiums.  He has noted that he will be cutting more than $4 billion in annual spending to reduce the deficit.

The big banks are just starting to note that there will be changes to mortgage regulations but this is something I made note of in last weeks news.  They are stating that the government should take measured actions such as reducing the maximum amortization period from 30 years to 25 years as well as increase the minimum downpayment requirements from  5% to 10%.  Although the minimum downpayment changes have not been confirmed to me quite yet, I wouldn’t be surprised to see it happened.  Stay tuned here to hear the latest news on that.

Read the full article here

Home ownership more affordable

According to a quarterly report released this week by RBC, housing affordability in Canada improved during the last three months of last year.  RBC stated that the financial burdens of owning a home in Canada had been reduced for the second straight quarter during the fourth quarter (Q4) of last year mainly due to weaker home prices and an increase in household incomes.

This result countered the lack of home affordability witnessed during the first half of 2011 that was mainly due to an increase in home prices across the Vancouver area as sales could not keep up with demand.  RBC chief economist Craig Wright stated, “As a result, the cost of owning a home at market price represented slightly less of a pinch on household budgets in the fourth quarter. Continued low interest rates in 2012 will help keep housing costs at bay in the near term.”
 
The average amount of pre-tax income required to own a standard two storey home had declined by 0.8% to 48.1% nationally during Q4.  Detached bungalows were also down 0.6% to 42.2% of household income while condominiums were down 0.5% to 28.5% of house hold income.  Is this the starting of more affordable housing across Canada?  Do you expect home prices to continue to decline?  Will you buy if home prices come down?  Please comment below or to find out your affordability level, give me call.

Read the full article here

Canadian building permits down 12%

It seems that construction plans by Canadian contractors seem to be on the decline more than analysts expected in the month of January as there has been a large drop in multi-family building permits in Ontario.  This will affect the residential sector with less listings on the market according to the latest report from Statistics Canada.

The value of permits were down 12.3% to just $6 billion in January after witnessing an increase of 10.5% in previous month of December.  Economists suggested that permit values would only decline between 3% and 4% during the month of January but no one would have expected to see a decline three or four times that amount.  Emanuella Enenjor, economist for CIBC World Markets stated, “Given the volatility associated with the monthly permits numbers, we expect little market reaction, although the weaker-than-expected print could weigh on sentiment ahead of Thursday’s housing starts report for February.”

The decline in January was witnessed in both residential and non-residential sectors.  Declines were noted to be in six provinces.  Ontario lead the pack with Alberta while British Columbia and Quebec saw increases during the month of January.  Commercial permits also declined 22.5% after increasing 34.6% in the previous month of December.  Institutional permits and industrial building intentions were both down 27.9% and 20.1% respectively.

Read the full article here

Interest rates stay put

The Bank of Canada (BoC) kept its overnight lending rate at 1% yesterday with concerns that high oil prices could undercut the current strength in global economic conditions. This leaves variable interest rates in place unless the banks choose to internally change them. BoC governor Mark Carney stated that there are positive signs that the United States and Europe are beginning to get past the problems that have been holding back the global recovery.

Mr. Carney commented by saying, “Commodity prices are higher than anticipated, supported by improved global economic conditions and a geo-political risk premium on oil.  If sustained, the latter could ultimately dampen the improvement in global economic momentum.  The heightened uncertainty around the global economic outlook has decreased, with tentative signs of stabilization in European bank funding and sovereign debt markets, conditions in global financial markets have improved and risk aversion has decreased.  The U.S. expansion is proceeding at a modest pace, reinforced by recent improvements in the labour market.”

Regardless, the global economy will grow more than expected this year with a slightly more positive outlook for Canada, which is expected to expand by a mediocre 2% this year.  The Bank of Canada went on to warn about household debt to income when interest rates do eventually rise.  He stated, “Canadian household spending is expected to remain high relative to economic output as households add to their debt burden, which remains the biggest domestic risk.”  What do you think?  Please comment below.

Read the full article here

Toronto housing starts decline

Housing starts across Canada were up a touch in the month of February as the Toronto region saw the opposite with condo builders taking a pause after last year’s record pace of new construction.  Construction of condo’s and single family homes in the Greater Toronto Area (GTA) declined 21% in February when compared to the same time last year.  When adjusted for seasonal fluctuations, starts were down almost 35% in February when compared to the month of January according to Canada Mortgage and Housing Corporation (CMHC).

Canadian starts, on the other hand, were up 1.5% in February over January with majority of the credit going to condo starts in Quebec.  Canada Mortgage and Housing Corporation’s senior market analyst for the GTA commented, “Given the record level of housing units already under construction in Toronto, the slowing in new starts will help support stability in the market, particularly in the case of condominium apartments.”  BMO economists feel that the slowdown will not last as condo construction is volatile and Toronto is coming out of an unusually strong period of construction in December and January.

Read the full article here

My personal thoughts

When real estate begins to see a downturn, like the 18% crash just witnessed in Vancouver, it goes down like this.  There are still buyers that cannot avoid a transaction or those who’s fortunes don’t depend on it.  The market begins to change and people become hesitant.  Then sales begin to slide.  Then doubts begin to rise at the same time that listings begin to swell.  Then deals start to fall apart and rupture.  With that comes price erosion and a market correction.
 
The process seems simple but takes years to pan out especially with a year of speculation and mass delusion.  Greedy owners will first refuse to accept that the purchaser is now the one in control, which will cause home prices to stay put for an extra few months but eventually prices will begin to retreat.  All of this starts with sales numbers, so keep watching the year over year sales numbers to see what’s happening.  Toronto seems to be going in the opposite direction but is only being held up by a shortage of available homes and new supply.

This week also saw changes to the way Interest Rate Differential payments are relayed to home buyers.  The government of Canada announced changes to the way disclosure is provided to the purchaser.  This makes it clear as to what penalty amount will be incurred when breaking your mortgage before the end of term.  This was long overdue as I have had many people call me, none being my own clients as I advise them at the time of signing, about the penalty they will incur for breaking their mortgage early.  There must be a cohesive way for everyone to understand how the penalties are calculated and now is the time.

I wouldn’t be a great mortgage broker if I didn’t take a moment to comment on BMO’s re-release of the 2.99% mortgage. I had many clients ask me for this rate when it was previously available and it was easy for me to explain the downfalls of the product and educate them that there are better products for them out there. A low interest rate is always a nice thing but not if it ties your hand behind your back. High penalties, minimal pre-payment options and being shoved into a product that doesn’t meet your needs is just the beginning. Why not spend the extra $10 a month for flexibility or just take a 4 year fixed rate at 2.99% with all the bells and whistles. If you want to find out more, call me. Product placement and meeting the needs of the client so that they can have freedom and flexibility to exit the mortgage with minimal hassle is worth more than any discounted rate. Don’t just be a rate shopper, find something tailored specifically to you and get educated in the process.

South of the border, people are again walking away from their mortgages.  Even in expensive Beverly Hills, where everyone is still employed, house prices have crashed enough that it’s just cheaper to walk away and get a new property than it is to keep paying the mortgage that is higher than the home value.  This is going on while U.S. begins its recover, based on job growth, and posts record corporate profits.  Then again, these are just my thoughts mixed with the facts.  If you think differently, please comment below.

Post from: paulsidhu.com

Weekly Mortgage News for March 9, 2012

Post from: paulsidhu.com

Weekly Mortgage News for March 9, 2012

This weeks top stories include how BMO feels that finance minister Jim Flaherty’s budget cuts are unwarranted, how Canadian home prices have declined for the second straight month, how Ben Bernanke of the U.S. Federal Reserve has vowed to keep interest rates at a record low for an extended period of time, a quick breakdown of the truths about credit scores, how U.S. jobless claims have reached their lowest point in almost four years and I will close out again with my personal opinion and insights on the Canadian mortgage market.

Flaherty’s cuts unwarranted?

BMO Nesbitt Burns has made a statement that there is no need for Canada’s finance minister, Jim Flaherty, to cut his upcoming budget aggressively.  Deputy chief economist for BMO Douglas Porter stated that Canadians finances are in better shape than expected in its current fiscal year.  He went on to state that the deficit has reduced $10 billion in the first nine months to $17.7 billion.

The fiscal year ends on March 31st and Mr. Flaherty is already preparing his next budget, which is expected to be public in roughly a month.  Mr. Porter commented by saying, “Even if we assume no further gains in the final three months of fiscal year 2011-2012, and allow for some slippage, the full-year deficit will still come in at around $25-billion, or less than 1.5 per cent of GDP. That compares with a $33.4-billion gap the prior year, the latest estimate of $31-billion for this year, and even below the forecast of $27.4-billion for next year. For all the talk about Ottawa preparing to cut more aggressively, it’s fair to again to ask … precisely why? The current plan seems to be working quite well all by itself.”

Many economists believe that there is no real pressure on Mr. Flaherty for deep cuts to the budget but think that Mr. Flaherty is looking to create a little wiggle room ahead of the budget’s release to the general public.  I also feel that the cuts may be a little late as debt to income is way out of control in Canada.  I also feel that there should be tighter regulations on the way that money is loaned to consumers as a whole.  What do you think?  Please comment below.

Read the full article here

Canadian home prices decline again

For the second straight month in a row Canadian housing prices have declined.  Home prices were flat or saw a minimal decline in the last quarter of 2011 according to the Teranet National Bank house price index that was released on Wednesday of this week.

The index stated that home prices were down in the month of December by 0.2% from the month of November.  This was the second consecutive decline after two months of flat pricing.  The index itself was up 6.8% from December of last year but has declined from the 7.1% gain in the month of November when looking at year over year statistics.  Prices were down in almost half of the 11 markets included in the survey including Toronto and Vancouver. 

Ottawa, Vancouver and Victoria had its third consecutive decline and Toronto witnessed its second consecutive decline. Year over year pricing gains in Toronto and Vancouver exceeded the national average.  The Canadian Real Estate Association (CREA) still states that market conditions are generally balanced across Canada with exceptions for Toronto, Winnipeg, Hamilton, Victoria and Vancouver.  What do you think?  Does CREA’s statement stand true?  Please comment below.

Read the full article here

U.S. Feds to keep interest rates low

It seems that Ben Bernanke, the current chairman of the U.S. Federal Reserve, has reiterated that he will continue to keep interest rates at a record low level until late 2014 even though the unemployment rate has lowered. In his economic report to Congress, which takes place twice a year, he stated again that the Feds have now pushed back an interest rate increase.

U.S. unemployment is now at 8.3% and has continually decreased faster than the Feds had predicted.  They do not feel that unemployment rate will fall as fast this year but if it does, the Feds will re-assess its economic outlook moving forward.  Mr. Bernanke commented by saying, “In light of somewhat different signals received recently from the labour market than from indicators of final demand and production … it will be especially important evaluate incoming information to assess the underlying pace of the economic recovery.”

Many economists are feeling what I’m feeling.  I’m concerned that by keeping low interest rates for such a long period, it could heighten the risk of inflation, especially if the overall economy continues to gain strength and companies continue to keep hiring.  The unemployment rate has declined for the last five months with 200 000 new jobs per month being added.  This is happening while Canadian unemployment is on the rise.  Do you see an new trend where Canadian unemployment will continue to rise?  Please comment below.

Read the full article here

Credit score truths

A credit score is a snapshot of your current financial position.  Mortgage lenders and banks use your credit score to figure out if you are credit worthy enough to provide a loan to.  Although many private lenders will provide loans with no regard for a credit rating, the credit score will help all lenders derive the interest rate to be charged on the mortgage loan.

It is important that you pull your own credit score, at least once or twice a year, to ensure that everything is on track and as it should be.  This will also prevent you from any surprises when you apply for a loan and enables you to take measures to increase your credit score in the event that it is not where it should be when you go to apply for a mortgage.

You never want to have any credit cards that are close to, or over, their limits.  The ideal debt to limit ratio should be between 12% – 14% of the allowable limit.  A bank worthy credit rating is usually 680 for a primary applicant and 650 for a co-applicant.  If your credit rating is below these numbers, contact me directly to assist you with your financing.

Read the full article here

U.S. jobless claims down

Last week saw the the number of people seeking unemployment benefits fall to its lowest point in four years as the U.S. job market continues to gain strength.  The seasonally adjusted number reached 351 000 people and was down 2000 from the week before according to the Labor Department.

Numbers are pointing to the fact that fewer people are being laid off as of recently.  Applications for unemployment benefits have been on the decline since fall of last year and are down almost 15% overall since last October.  Economist are hoping that February will be another strong month and will show gains of 200 000 jobs following suit with the previous three months.

As job growth continues, so does economic growth with the U.S. economy expanding at an annual rate of 3% in the last three months of 2011.  Majority of economists felt that growth would slow this quarter with companies not needing to restock as much inventory as they did last year, which leads to less overall production of goods but the economy continues to expand at a healthy pace.  There is a long way to go until the economy fully recovers from the damage done by the recession as 13 million Americans remain out of work.  How long do you think this will take?  Please comment below.

Read the full article here

My personal thoughts on the mortgage market

I’ve been talking about changes coming to the mortgage regulations soon.  Whether it be the end of the cash back mortgage, a cut from 30 year amortizations to 25 years amortization or an increase to the minimum downpayment required to purchase a home.  I’ve had many people and industry professionals tell me that I don’t know what I’m talking about or that I’m over dramatizing the changes that will occur.

Well guess what everyone?  It’s put up or shut up time and I have a date for the changes.  March 29th is the date set for the release of the new parliamentary budget.  I expect to see layoffs in all government sectors, changes to old age security and of course, changes to the way mortgages are provided.  What has been confirmed to me from inside sources are that the 30 year amortization is gone for sure.  There will also be no more stated income programs for new immigrants or the self employed.

Changes will not just come to brokers but banks also.  Banks will be required to prove 100% of all income before they can qualify anyone for a loan or mortgage.  This means no equity based lending moving forward.  Currently you can put 30%+ down on a purchase and can obtain a mortgage without any additional documents.  Thus, providing a loan against the equity provided.  This is all to slow down borrowing without raising interest rates.  So if you are planning on purchasing or refinancing a home, do it now!  Call me at 416.890.5228.

Post from: paulsidhu.com

Weekly Mortgage News for March 2, 2012

Post from: paulsidhu.com

Weekly Mortgage News for March 2, 2012

This weeks top stories include how Canada Mortgage and Housing Corporation is expecting a stable housing market for the next two years, how Toronto condo’s are making local housing riskier than the bubble forming in New York, how mortgage brokers interest rates are lower than the banks interest rates, how Toronto home prices were up again despite a cooling in the home sales market, how Royal Bank of Canada has been added to the global risk list, how banks have continually taken advantage of Canada Mortgage and Housing Corporations mortgage default insurance program and I will close out again with some of my personal thoughts about the week in review.

CMHC seeing stable housing market

Canada Mortgage and Housing Corporation (CMHC) is expecting the Canadian housing market to remain stable for the next two years.   They have also stated that there will be little change in home prices from 2011  to this year as new home construction and sales of existing homes will remain in line with last years figures.

The first quarterly report for 2012 by CMHC states that the only risk to the Canadian housing market is an economy that is set to expand at a moderate pace over the next two years.  CMHC has stated that the Bank of Canada’s (BoC) overnight lending rate, which affects mortgages tied to prime rates, is likely to remain where it is until the middle of next year.  CMHC deputy economist Mathieu Laberge commented by saying, “With the Canadian economy set to expand at a moderate pace and mortgage rates expected to remain low, activity levels in 2012 in both new home construction and sales of existing homes will stay close to levels seen in 2011.”

High demand for housing, mixed with a shortage of listings and low mortgage rates, have continued to cause home prices in Toronto and Vancouver to increase, which is leading many economists to warn of a housing bubble that is set to burst when interest rates rise.  Even with these warnings, and the Finance Minister stating that Canadians are taking on too much debt, the housing market has continued to boom.  House price growth is starting to slow but not stopping all together.  What do you think?  Are we going into bubble territory?  Please comment below.

Read the full article here

Toronto riskier than New York’s housing bubble

Toronto is known now to be the condo capital of the world.   It has surpassed New York with almost three times as many condo developments currently under construction.   The concern has now become whether or not Toronto is headed for a U.S. style market correction as prices continue to rise and household borrowing reaches a record high. 

Some banks raised mortgage rates last week to try and cool off the heated housing market but Canadian consumers have continued to keep buying homes.  Sheryl King, an economist with Bank of America Merrill Lynch in Toronto commented by stating, “Condo construction has always been rather prone to boom and bust cycles, and this one seems particularly strong.  Builders seem to overestimate how much demand is going to be out there, and that’s when you tend to see some abrupt pull-back.”

Analysts believe that the Canadian housing market is overvalued by 10% and mainly in Toronto, Montreal and Vancouver.  The continuous increase in housing prices have led to a 53% increase in residential mortgage credit in the past five years, or an average rate of 8.9% per year.  Defaults continue to remain low at 0.42% but the country’s financial leaders and banks are becoming more vocal about the state of the housing market.  Regardless, even if builders stopped building today, there would be five year’s worth of supply about to be delivered to the market.  What do you think about all of this?  Please comment below.

Read the full article here

Broker rates beat bank rates

It’s seems that once again, mortgage brokers are undercutting bank rates and doing what it takes to retain customers and obtain a larger portion of market share.  With banks raising interest rates last week, it seems that mortgage brokers once again hold the lowest interest rates in the industry.

There are so many options outside of the banks to obtain lower interest rates on your mortgage.  This have given brokers the edge as bank pricing is now notably higher than what the broker channels have at their disposal.  This is on the heels that CIBC will be exiting the broker channel and sell its discount arm called FirstLine Mortgages.  Brokers have been facing competition from the banks with discounted rates in house, when normally brokers are offered more competitive rates from the same lender to obtain broker market share.

Banks used to have discretionary pricing when offering mortgage rates to clients but it’s seems that the mortgage specialists are now limited on that ability.  TD was offering a 2.99% four year fixed closed mortgage prior to the increase and now has the same product available for 3.39%, whereas brokers are still able to offer the 2.99% four year rate with abundant pre-payment privileges today.  This will only be available for so long before our lenders begin to follow suit so call me today to find out more.

Read the full article here

Despite cooling, Toronto home prices rise

Home sales across Canada have finally begun to cool.  Even the overheated Toronto housing market has seen a slow down in purchases but the average price of a home in the Greater Toronto Area (GTA) still increased and made it way closer to $500 000 in the month of January.

Sales activity is on the decline in more than half of Canada’s housing markets and Toronto led the way with roughly a 3% decline in sales when adjusted for seasonal fluctuations according to the Canadian Real Estate Association (CREA).  New listings also witnessed a decline and were down a  seasonally adjusted 4.3% in the GTA.  This continues to be a problem with home prices as a lack of inventory on the market keeps continually pushing home prices higher as consumers go into multiple offers on properties with not many options available to them.  This caused the average home price in the GTA to increase by 3.8% from December of 2011 to January of this year, and reach $486 654.

When looking at year over year numbers, Greater Toronto Area homes increased 8.5% from last year January according to the latest numbers.  Gary Morse president of the Canadian Real Estate Association stated, “The national housing market is stabilizing and remains well balanced.  That said, forecasts for economic and job growth going forward vary widely for different parts of the country, suggesting a possible continuation of a softening trend in some markets, as well as the potential that demand will pick up based on strong fundamentals in others.”

CREA did go further by warning that average price comparisons could become volatile and may turn negative in the up and coming months.  This is mainly due to high end sales in Toronto and Vancouver that have skewed the average home prices upwards to record levels.  What do you think?  Are home prices about to crash or will we see a slow and steady decline?  Please comment below.

Read the full article here

RBC on global risk list

The credit rating agency Moody’s Investors Service launched a review of 17 international banks that are facing increased challenges coming from changes in global financial markets and found that Canada’s own Royal Bank of Canada is part of the group.  The challenges range from fragile funding conditions to increased regulatory burdens.

Moody`s commented by saying, “These difficulties, together with inherent vulnerabilities such as confidence-sensitivity, interconnectedness, and opacity of risk, have diminished the longer term profitability and growth prospects of these firms.”  Markets were left unaffected by the news by the downgrade of long-term credit ratings of the banks will have repercussions for investors and senior operations managers alike.

The credit agency also stated that they will be cutting credit ratings of 114 financial institutions in Europe due to the ongoing debt crisis and a decline in creditworthiness of it’s governments.  This seems to be the new trend as Moody’s cut the ratings of six European nations last week including Italy, Portugal, Spain and warned it could cut the ratings of Britan, France and Austria.  It seems that even though the European Union leaders have continually been trying to put a financial firewall around the nations most afflicted by the debt crisis, it has spread and found it’s way to Canada now.  What do you think of this mess?  Please comment below.

Read the full article here

Banks take advantage of CMHC

At the end of 2011, Canada Mortgage and Housing Corporation (CMHC) had insured $494.4 billion of mortgages through the books of Canadian banks.  What’s even more mind boggling is that CMHC had guaranteed $541 billion of outstanding home loans at the end of September through all sources.  That number is almost equivalent to the Canadian federal debt and is almost at its government mandated cap of $600 billion.

There was a sudden rise in demand for bulk insurance on securitized home loans and took many, including CMHC by surprise.  CMHC stated last month that an unexpected level of requests caused them to review the allocation process for big lenders so that it can continue to provide insurance to average Canadians.  CMHC is now being pushed by government officials to slow down their bulk insurance to banks.  This is causing many to speculate that a change in legislation is around the corner that will prevent banks from using CMHC insured mortgages as collateral moving forward.

Whether or not the move will gain the results wanted by the government, there is hope that it will reign in on consumer borrowing without destabilizing a cooling housing market.  Housing has seen a drastic slowdown according to the newest report from the Canadian Real Estate Association (CREA), with the biggest monthly decline in home purchases in the last 18 months.  Many are hoping for a soft landing rather than a crash but it is still too early to say and their are many up and coming regulatory changes that could make this go one way or the other.

The current guidelines state that anyone in Canada that purchases a home without putting 20%+ down, is required by law to obtain CMHC mortgage default insurance.  What’s been happening is that the banks are insuring everyone, even with more than 20% downpayment.  By insuring through CMHC and insuring through their own insurers (double insurance) the loan is no longer a liability but rather an asset on their books.  This is leaving the people that require the insurance in a place of turmoil where it is more difficult for them to qualify for the insurance as there is little money left to be spread around.  In turn, lenders are tightening guidelines as CMHC tighten theirs.  What do you think of this?  Do you think the banks are taking advantage of our system?  Remember, CMHC is owned by the government and is funded by our tax dollars.  Please comment below.

Read the full article here

My personal thought

It has been a busy week in our industry.  The Canadian Real Estate Association released new numbers this week and slapped on a bunch of lipstick before going public with them.  They used the term “seasonally adjusted”, which is more like “enhanced”, when speaking of home sales and declines.  Home sales were down substantially in January from the month of December and had the sharpest decline in two years.  Prices are up 1.2%, which is half of the inflation rate.

Banks also seem to be in the headlines as FirstLine mortgages, owned and operated by CIBC, is set to leave the broker channel but has still to make a solid announcement.  FirstLine has a book of $47 billion and is one of the largest mortgage lenders in Canada.  Just months ago, they were the premier provider of funding to independent mortgage brokers.  This could be a play to funnel business directly through CIBC at better margins or it could be because brokers cater to more high ratio/ high risk lending and with CMHC on edge this could be an opportunity to negate risk.

Things in the housing market are moving faster and faster each day.  CMHC has hit their capacity and will begin to ration mortgage insurance.  The banks are now moving out of an ultra low interest rate environment as Finance Minister Jim Flaherty continues to push for a raise in rates and more attention to household debt to income ratio’s. 

It seems that Canadians are pigging out on debt when the rest of the world is deleveraging.  House prices are definitely inflated and Canadians continue to live beyond their means while everyone else if figuring out how to live small and embracing austerity.  What a mess.  House prices will contract but you only need to be concerned if you are planning on moving or selling your home in the next five years.  To everyone else, don’t worry, this is how history goes.  House prices go up and then they go down and then they go back up.  Welcome to the housing cycle.

Please note that I will be away next week and will be returning on March 2nd with the latest Toronto mortgage related news

Post from: paulsidhu.com

Weekly Mortgage News for February 17, 2012

Post from: paulsidhu.com

Weekly Mortgage News for February 17, 2012