Summary of Report Highlights

• Residents in provinces who have felt the greatest impact due to the economic downturn are surprisingly the most positive about the current housing market. Sixty three per cent of Ontarians, 62 per cent of Albertans and 64 per cent of British Columbians believe that now is a good time to purchase a home.

• While one-third of Canadians expect prices to fall, Saskatchewan residents are most optimistic about house pricing with 26 per cent believing values will go up.

• Of those who financed or renewed their mortgage during the past 12 months, over a third (36 per cent) obtained variable rate terms, up from 24 per cent of those surveyed in CAAMP’s fall 2008 report.

• Of all Canadian mortgage holders, 68 per cent have fixed rate mortgages, 28 per cent have variable and only five per cent hold combination mortgages. Fixed rate mortgages are most common among those aged 18-34 years (71 per cent), while Canadians aged 55 years or older are most likely to secure adjustable rates (35 per cent).

• The majority of mortgages (83 per cent) have amortization periods of up to 25 years and a minority of mortgages (17 per cent) have amortization periods of more than 25 years.

• Roughly 9.1 million homes are owned in Canada. The estimated value of these homes is $2.67 trillion and the total outstanding mortgage principal on these homes is estimated at $739 billion. This means that Canadian homeowners have about $1.93 trillion in home equity, which amounts to 72.3 per cent of the total value of their homes.

• Home equity positions in the Canadian market are about 67 per cent greater than in the United States. The US Federal Reserve reports that of the more than 75 million American home owners, the average equity holding is 43 per cent which is in contrast to Canada’s average of 72 per cent equity in their homes.

A full copy of the report is available at http://www.caamp.org/download_docs/Spring-Consumer-Report_Apr09.pdf.

What does this all mean for the Canadian home owner?

To put it in persepctive, consider these factors:

1) Mortgage loan rates are at absolute record lows. In the April 21, 2009 Key Interest Rate Announcement issued by Mark Carney, Governer of the Bank of Canada lowered its target for the overnight rate by one-quarter of a percentage point to 1/4 per cent. The Bank Rate is correspondingly lowered to 1/2 per cent. as a result. Read another way: Money is cheap to get a hold of right now.

2) Real estate values, especially in historically strong markets, are turning positive. There remains a backlog of real estate inventory in most markets, keeping prices stable for the coming months. Most Canadian markets are heading into the natural summer upswing that occurs as spring gets us all out of the house, and active in the housing markets.

3) Stock market performance has been poor, and many Canadians are looking to their assets and equity in real estate to bring them back into the green (more on this in a future article- stay tuned!)

All things considered, what a truly remarkable time to invest in real estate- money is cheap, real estate inventory is high, and banks and mortgage companies are becoming highly competitive for your mortgage business. All of these factors combine to make the right property, in the right city, a brilliant idea- right now.

New challenges, such as budgeting for mortgage payments, are emerging, yet housing affordability has dramatically improved due to lower interest rates and price reductions. The report is authored by CAAMP Chief Economist Will Dunning and based on information gathered by Maritz Research in an online survey conducted in March 2009.

Over 40 per cent of all mortgage holders have at least 50 per cent of the value of their homes in equity, and of all Canadian home owners, which includes those without mortgages, 65 per cent hold at least half the value of their properties. Only two per cent of mortgage holders have negative home equity, meaning the value of the mortgage exceeds the value of the home.

During the past year, 15 per cent of mortgage holders took equity out of their homes, representing a national total of $34 billion. Over half (57 per cent) used these funds for debt repayment or consolidation amounting to $12.5 billion.

“CAAMP’s report demonstrates that home owners have solid equity positions and although facing financial uncertainties, most Canadians have the ability to deal with temporary market fluctuations and reductions in personal income,” said Jim Murphy, AMP, President and CEO of CAAMP. “With only a very small number at risk of not being able to pay or refinance their mortgages, our overall market is very strong.”

There is no doubt that the current economic backdrop means increased financial challenges for Canadians. Job loss is a major risk factor for home owners and 18 per cent of those surveyed indicated an individual in their household had lost a job in the past six months. The economy looms large when people consider buying a home. Despite the fact that 55 per cent say now is a good time to buy, up almost 20 percentage points from fall 2008, only four per cent of homeowners and six per cent of non-owners actually say they anticipate buying – about the same number as last fall.

Low and flexible interest rates plus longer terms are adding buoyancy to the mortgage market. Mortgage holders are extremely successful negotiating their interest rates, knocking off an average of 1.68 per cent from the posted rate. Three-quarters of those who renewed their mortgage in the past year had their interest rate reduced. On average, renewals resulted in interest rate reductions of almost one full per cent. Three-quarters of Canadian borrowers are also likely to see reductions in their interest rates at their next renewal.

“While many Canadians are experiencing mortgage-related challenges, these issues are much less significant than the problems in the American market,” said Will Dunning, CAAMP Chief Economist. “We are not seeing the dramatic mortgage rate resets or panic selling that occurred in the United States, and Canadian mortgage lenders and insurers are demonstrating a willingness to work with those who encounter financial difficulties. These are good signs for the health of the market.”

The popularity of mortgage brokers continues to grow with almost half (46 per cent) of new mortgages taken out in the past year secured through brokers. Over one-half (61 per cent) of mortgage renewals occurred with the major banks.

“With increased choice and negotiation power in today’s market, informed mortgage consumers have an opportunity to leverage lower overall rates,” said Murphy. “CAAMP members are committed to educating consumers and increasing professional standards in the industry.”

Based on current housing market forecasts, the outstanding volume of residential mortgage credit is forecast to expand by close to $70 billion in both 2009 and 2010, growing at a rate of 7.6 per cent in 2009 and 7.0 per cent in 2010, although the growth rate has decreased from 10.4 per cent in 2008. Mortgage credit is expected to surpass $1 trillion about mid-2010. The volume of annual approvals may fall to about $150 billion in 2009 and $160 billion in 2010, downfrom totals that exceeded $200 billon per year in 2007 and 2008.

“The Canadian Residential Mortgage Market During Challenging Times” report contains a wealth of industry data, including consumers’ expectations of the housing market, profiles of mortgage holders, regional breakdowns of survey responses, and additional insight into challenges for mortgage holders in Canada. For a copy of the report, please visit: www.caamp.org

Roughly four million U.S. homeowners were behind on their mortgage payments or in foreclosure in June, according to data from the Mortgage Bankers Association. 

To qualify, homeowners will have to be at least three months behind on their payments, and owe more than 90 per cent of the value of their house.  Anyone who does not occupy their home would not qualify for the aid, nor would borrowers who have gone into bankruptcy.

The government’s plan would see interest rates cut so that borrowers would wind up not spending more than 38 per cent of their income on house payments. Another option is for loans to be extended from 30 years to 40 years, or for some of the loan principal to be deferred.

“Foreclosures hurt families, their neighbours, whole communities and the overall housing market,” said James Lockhart, director of the U.S. Federal Housing Finance Agency. “We need to stop this downward spiral.”

Lockhart’s agency seized control of two mortgage finance companies, Fannie Mae and Freddie Mac, in September. Together, Fannie Mae and Freddie Mac own or guarantee almost 31 million U.S. mortgages, or about 60 per cent of all outstanding mortgages.  The new plan is hoped to be in place by Dec. 15.

So How does the US Mortgage Market compare with the Canadian Market?

Despite this past month’s financial sector turbulence and the heightened concerns over the US economy, Harper said the Canadian Financial Institution remains in “very good shape.”  All information provided to Harper’s government has indicated that while there are banks that have had significant write-downs, none near the extremity of AIG, the balance sheets of the financial sector remain strong.

Harper is further supporting Economists’ suggestions that the troubles in the US should not “spill over into Canada.” Canada has strong economic fundamentals and a government that has been prudent and pro-active.  The Canadian government anticipated the US bubble would burst over a year ago and the crisis this week was not surprising, nor unexpected.  It is however, not expected to affect Canada to anywhere near the extent it has affected the US. 

There is no direct tie between the US housing market and the Canadian housing market and Canada’s strong economy and dearth of high-risk mortgage lending should help the real estate sector withstand the volatility that has been buffering the equity markets.   Ultimately, the Canadian market should be relatively unscathed by the turbulence experienced in the US.

MBN Mortgage

CBCNews.ca

November 11, 2008

The president of Lawrence Asset Management Inc. made a name for himself running the firm’s flagship hedge fund with stellar returns such as his 75-per-cent gain in 2007.  But the stock market crash has dealt a blow to Lawrence Partners Fund, which suspended redemptions this week after plunging 65 per cent for the first 10 months of this year.

The investment firm “believes it is in the best interests of all shareholders to suspend redemptions for 60 days,” the 32-year-old manager told investors in letter on Monday. “We are reviewing the situation and expect in the upcoming weeks to present to LPF shareholders a number of alternatives.”

Mr. Sood is the latest victim among Canadian hedge funds caught in the market turmoil.  Falling stock markets are forcing many hedge funds to wind down or undergo a makeover.  “Certainly we are going to see more hedge funds suspend redemptions to meet an orderly request of unitholders who want their money,” said fund analyst Peter Loach. “A lot of hedge funds focus on small-cap stocks, and they have been hit the hardest.”

Last month, Toronto-based Epic Capital Management Inc. said it was closing its flagship Epic Limited Partnership hedge fund after assets sank to $200-million from $300-million.

Lawrence Partners Fund’s options could include winding down. They could also include cutting the management fee for investors willing to stay, sources say, or allowing some investors to pull out if they agree to a further loss on their investment in return.

The past two months have been challenging for Mr. Sood, a precocious student who completed high school at age 16. He joined Toronto-based Lawrence & Co. after graduating with a math degree from the University of Waterloo.

This is the firm founded by legendary Bay Street bond trader Jack Lawrence who built the former Burns Fry into a powerful investment dealer. It boasts blue-chip names such as John Crow, former governor of the Bank of Canada, and Paul Volcker, former chairman of the U.S. Federal Reserve Board, on its advisory board.  With his partners at Lawrence & Co., Mr. Sood founded Lawrence Asset Management as a subsidiary in 2001.

His hedge fund, which invests in smaller-capitalization Canadian stocks and has private equity holdings, saw its stellar track record unravel in September when it took a 48-per-cent haircut. The fund, which had about $217-million in assets in late March, lost more money last month.

Mr. Sood could not be reached for comment, but he told investors in his letter that the fund’s poor performance was also affected by the credit crisis. He “was forced to adjust on little notice to more restrictive credit terms in an already problematic market.”

Sources close to Lawrence Partners say the fund’s prime brokers at BMO Nesbitt Burns and CIBC World Markets cut back on their loans, and that forced the fund to sell holdings in takeover targets Fording Canadian Coal Trust and BCE Inc. at a loss.

The fund was also “negatively impacted” by the delay in closing and lowered pricing in the acquisition of PBS Coals – a major holding – by OAO Severstal, Mr. Sood wrote.

So with Hedge Funds drastically plummeting, where should you turn for safer, more secure investments?

The MBN (7-1) Bond Fund offers the security you are looking for, with the return you want.  It is an RSP eligible bond that provides a 7.0% annual fixed rate of return compounding over a 4 year period, which provides an annualized rate of return of 7.7%.  This fund, unlike most other funds, is Hard Asset Backed, meaning it is secured to real estate which is a tangible asset.  Hard Asset value offers an objective measure of value, based largely on supply and demand economics (market forces) and the law of substitution.  All of these factors, when combined, make for an extremely secure investment and create the asset backed investment, rather than stock backed investment, that most Canadian Financial Institutions are comfortable lending on.  Ask yourself this: What do most of the Major Banks lend on: Real Estate or Stocks?   The answer is Hard Asset Backed Mortgages, or Real Estate.

With the MBN Bond Fund the principal is backed by real estate and the interest is covered by a performance bond.  This gives you peace of mind with regards to the security of your investment.

By transferring your registered investments to the MBN Bond Fund there are no tax implications to be had as you are moving your investments from one Registered Fund to another; you are not relying on consumer confidence to increase the value of your stocks; and you are removing the market volatility that has caused the decrease in your investments.

By doing your research and being a knowledgeable investor you can protect your investments; your lifestyle, your children’s college funds, and your retirement income.  Your investments are too important to leave to chance.  Contact your MBN Bond Fund Specialist at 1-877-212-8002 or www.mbnbondfund.com to learn about how you can transfer your Registered Investments and begin earning a fixed 7% rate of return.

In addition to the Bond Fund, MBN offers a financing team with Mortgage Associates specialized in first-time home buyer financing and investment property financing. 

To learn more about your mortgage options please contact your Calgary and Southern Alberta Mortgage Specialists at MBN Mortgage at 1-866-955-9662 or http://www.mbnmortgage.com

MBN Mortgage

Globe And Mail

Nov 11, 2008

So why did Ottawa agree to insure the money they routinely borrow from other banks, a practice that keeps their credit operations liquid? Ironically, the troubled non-Canadian institutions that received capital injections and loan guarantees in other countries now carry a government seal of approval that tilts the playing field in their favor when it comes to borrowing. That leaves Canada’s big banks, including Scotiabank, TD Bank Financial Group, RBC Royal Bank and CIBC, at a competitive disadvantage. So the government acted to level the field, not to aid troubled banks.

Why has Canada withstood the subprime tornado better than other countries, and should the Canadian banking system be a model for G-7 and G-20 leaders when they gather in Washington on Nov. 15? Consider that the Geneva-based World Economic Forum, an influential think tank whose annual conference attracts the likes of Bill Gates and Tony Blair, earlier this month ranked Canada’s banking system as the soundest in the world. The U.S. came in at No. 40, and Germany and Britain ranked 39 and 44, respectively. (Switzerland was No. 16, just ahead of Namibia.) “For Canadian banks, having higher capital ratios than anyone else in the world is a source of pride,” says analyst Mario Mendonca with Toronto-based investment bank Genuity Capital Markets.

The average capital reserves for Canada’s Big Six banks — defined as Tier 1 capital (common shares, retained earnings and non-cumulative preferred shares) to risk-adjusted assets — is 9.8%, several percentage points above the 7% required by Canada’s federal bank regulator. That’s a little better than major U.S. commercial banks like Bank of America, but significantly higher than an average capital ratio of about 4% for U.S. investment banks and 3.3% for European commercial banks.

Another factor that helped make Canada the new gold standard in banking was Ottawa’s decision in the late 1980s to allow commercials banks to acquire investment dealers on Toronto’s Bay Street, the country’s financial hub. As a result, these institutions are subject to the same strict rules as commercial banks, while U.S. investment dealers are subject to only light supervision from the Securities and Exchange Commission. Morgan Stanley and Goldman Sachs, of course, will now be under the U.S. Federal Reserve’s supervision since they have been chartered as bank-holding companies.

Canada’s banks make bad investments on occasion. When Toronto-based CIBC, Canada’s most aggressive big bank, took $3.5 billion in charges against the U.S. subprime debacle, federal regulators quickly arrived on the scene. But here’s the difference: CIBC ended up selling $2.94 billion worth of its own shares in the first quarter of this year to shore up capital reserves. “The relationship between government and banks is a positive one,” says Minister of Finance Jim Flaherty. “We have a lot of discussions and regular meetings. The common goal is a sound financial system.”

There is, of course, a flip side to Canada’s regulatory system. When the global economy was flying high, Canadian banks complained about not being allowed to merge to become more significant international players. “In hindsight, that decision may have saved Canada from having a Royal Bank of Scotland on its hands,” says Lawrence Booth, a finance specialist at the University of Toronto’s Rotman School of Management, referring to the overly ambitious bank’s bailout earlier this month by the British government.

Says FFlaherty: “The credit crisis we’re facing is the result of unbridled greed. We need to bridle greed.” Perhaps when world leaders sit down in Washington to forge a 21st-century New Deal for the global financial system, it may have more than a smattering of Canadian banking know-how.

MBN Mortgage

TIME

Monday November 10, 2008

Welcome to the “now” …

Last week, CIBC Senior Economist Benjamin Tal said “it will be a while before we see a variable rate discount again…the new normal will be Prime or Prime minus 0.25%”.  This is our reality.

What are rates going to look like in the future?  It’s a question we as Mortgage Specialists are being asked frequently.  All anyone can provide is an educated guess because the mortgage market is changing daily as is the consumer reaction to this news, and ultimately, the government’s reaction.

Most analysts believe that rates should be decreasing, for the short term, some of their commentary being:

“Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half of 2009.”  CMHC

“Some further monetary stimulus (i.e. rate cuts) will likely be required to achieve the 2% inflation target over the medium term.” Bank of Canada

“Credit market traders are pricing in a 100% chance of a 1/4% cut and a 53% chance of a 1/2% cut by year-end. “  CEP

Why are rates coming down?  One reason, according to TD economist Pascal Gauthier, is because the U.S. economy may “record its worst performance in decades, retreating by around 3% in Q4, with the Canadian economy mirroring this performance with a 2.5-3.0% decline, the worst since 1991.”  Moreover, the Bank of Canada’s worst enemy, inflation, is currently no longer a clear and present danger to our economy.

What does this mean for you as a home-buyer? 

If you currently have a variable rate mortgage at Prime Minus, then your monthly mortgage payment amounts should have decreased dramatically due to the large lowering of Prime Rate.  You are in great shape.

If you are a in the process of purchasing a home now, variable rates are typically at Prime Plus One, which is on the high side compared with what we have seen in the past 6 months or so.  Depending on your preference, a variable rate mortgage still offers a lower rate than the current fixed rates being offered.

If you’re in the market for a new mortgage, contact your Calgary and Southern Alberta MBN Mortgage Specialist and we can help you examine your options and arrive at a strategy best suited to your needs.  Good advice in markets like these is imperative when making a choice on rate, term, type of mortgage, and amortization.

MBN Mortgage

Mortgage Trends

“This morning, Statistics Canada reported that real gross domestic product was up slightly in the second quarter.  As expected, the pace of economic activity remains weak as a result of the U.S. slowdown and its impact on our export sector.  For 2008 as a whole, I expect real GDP to increase by about 1 per cent”. 

He went on to say that the expected “growth in income and employment in the second quarter should help support economic activity going forward” thereby putting Canada in a better position that most other countries to withstand the economic uncertainty that we are all affected by.  “Canada’s economic fundamentals remain solid:

·         Our unemployment rate remains near a 33-year low;

·         Our budget is balanced and in fact there was a budgetary surplus of $1.7 billion in the month of June;

·         In addition, real income has increased by more than 4 per cent at an annual rate over the first half of this year. This is income available to Canadians for consumption or investment;

·         Canada’s household, business and financial sectors are strong;

·         Canada’s housing market is sound and interest rates are low; and

·         Core inflation is low and stable.

In addition, the “Actions taken by our government since 2006 will provide $21 billion in incremental tax relief—equivalent to 1.4 per cent of GDP—to Canadians and Canadian businesses this year alone, when it is needed most. This is a permanent structural tax change, unlike the temporary measures in the United States.” 

Canada is well ahead of the game and has implemented strategies to circumvent the fallout of this global financial uncertainty, “in fact, federal personal income tax refunds this year were almost $200 or 14 per cent higher than last year thanks to our tax relief measures. In addition to the stimulus provided by the reductions in personal income tax and business taxes, we have other advantages with respect to the planned business tax reductions through 2012,” which again re-confirms Canada’s financial stability.

This is not to say that we are completely unaffected as “we are facing some significant economic challenges. Canadians understand that Canada is not an island. This is a global phenomenon. The global economy overall is slowing” and “we are feeling the impact of global economic factors—including a struggling U.S. economy, and of course the U.S. is our largest trading partner.”  In saying this, “we recognize that the key to a stronger economy is creating an environment that encourages investment and spurs further job creation” which is why “we have made permanent broad-based tax reductions” and is also why we are investing in priorities: in post-secondary education, infrastructure and worker retraining” and “creating centres of excellence in science and technology.” 

Canada is being responsible and is taking the necessary courses of action by implementing long term strategies to improve competitiveness and productivity and this will ultimately have a positive impact on Canadians and the Canadian economy.

MBN Mortgage

Mortgage Intelligence Inc.

The Canadian Real Estate Association Records show that the number of listings across Canada has increased since the beginning of the year, and peaked at 80,000 in July.  This has set a brand new record for the number of new listings in one month.

While sellers are maintaining their share in the marketplace there is a definite power-shift towards buyers.  Calvin Lindberg, Association President, commented saying “the more listings there are on the market, the bigger the impact on the average price”, suggesting that prices will have to decrease due to the abundance of houses on the market.

Buyers are presented with increased options and are able to scrutinize their selection and sellers will have to react accordingly; their pricing expectations are required to change, as well, they must realize that their leniency with buyer’s conditions must also shift.

Prices across Canada are having varied reactions to the current US market and Alberta is no exception.  With prices softening out west the national average is declining and as a result, the average price decreased by approximately 2.4% from last year.  The resale housing market is much more balanced this year than last but while we are currently seeing a National Average decrease, house prices in Calgary will continue to increase in the latter half of 2008, but at a more modest pace than we saw in the previous year.  The Calgary decline has been a reflection of the entire Canadian market:

five of the major markets saw price declines. In Vancouver, prices dropped 5.2% in August from a year ago to an average of $557,114. Calgary prices were down 8% during the same period to $390,091.

In Toronto, home prices are no longer keeping pace with inflation with the average price of a home up 0.8% in August from a year ago.

The statistics show activity slowing rapidly with 22 out of the 25 markets down from a year ago. Sales declines were off more than 15% in almost half the markets with Vancouver activity off 53.9% from a year ago

The abundance of Financing Options available to consumers paired with the more modest home prices, has turned the Calgary Real Estate Market into a Buyer’s Market.  Those individuals who thought they “missed the boat” by not purchasing property before the boom hit a year and a half ago, are now seeing their second chance.

MBN Mortgage

Statistics pulled from CBCNews.ca

The bank of Canada cites three main factors in their decision to keep the overnight lending rate stable:

• Weakness in the US economy, expected to continue;
• Ongoing unpredictability in international financial markets; and
• Significant increases in many commodity prices.

Global financial markets and US economics are in line with analysts predictions in the April Monetary Policy Report, while commodity prices are outpacing many expectations.

According to the Bank of Canada press release from July 15, 2008:

“Although Canadian economic growth in the first quarter was weaker than expected, final domestic demand continues to expand at a solid pace. The economy is judged to have moved into slight excess supply in the second quarter of this year; excess supply is expected to increase over the balance of the year. High terms of trade, accommodating monetary policy, and a gradual recovery in the U.S. economy are expected to generate above-potential growth starting early next year, bringing the economy back to full capacity around mid-2010. Canadian GDP is projected to grow by 1.0 per cent in 2008, 2.3 per cent in 2009, and 3.3 per cent in 2010.”

The next key interest rate announcement will be on September 3, 2008.

Institutional lenders including ING, BMO and CIBC (including their mortgage broker channel, FirstLine) are first out of the gate with the cut-backs, much .  These lenders announced the end of 40-year amortizations effective immediately in preparation for the October 15th deadline when Canadian Government insured mortgages will not see amortizations longer than 35 years.

Not all lenders are created equal- lenders like Merix Financial indicated today in a news release to brokers that they will continue to offer 100% financing and 40-year amortizations for the time being.

What does this mean to consumers trying to squeeze the most they can into their mortgage? It means that if you would like, or need a 40 year amortized mortgage or would like to keep your down payment money in the bank and apply for 100% mortgage financing, you should act quickly!

Have we noticed a change in the way lenders look at mortgage applications? Absolutely. As mortgage underwriting guidelines continue to tighten, the true value of a trusted advisor soars exponentially. We had a client in our office just today who makes great income, has an excellent professional job, but was experiencing much frustration in obtaining mortgage financing on her own. We sat down with her, looked at her entire portfolio of cash, assets and her plan for the property she was about to purchase and in an hour and a half, had restructured some debt, extended her amortization and used her short time in her profession as an asset, rather than as a liability. At the end of our time together, she was pre-qualified for her new home, and would walk away with over $340.00 more cash flow in her pocket.

Is the mortgage marker getting tougher? Absolutely. Are there still some excellent products that fit most borrowers? 40-year amortizations aren’t the be all and end all in the financing game. Like anyone good at their craft, the loss of a simple tool does not change the art of putting Canadians in homes.