(Reuters) – Canadian home prices are set to rise a little over 5 percent this year and 2 percent in 2016 despite a slowdown in activity as the economy weakens, a Reuters poll found.

Canada’s economy shrank in the first three months of the year and quite possibly between April-June as well owing in part to slumping oil prices. House prices have defied this weakness so far and have kept climbing.

The Reuters survey of over 20 analysts predicted home prices would rise 5.2 percent this year, up sharply from a forecast of 3.4 percent in June’s survey.
The latest expectations for 2016 and 2017 have also been revised upwards, to 2.0 and 2.3 percent from 1.3 and 1.7 percent respectively. Canada’s Teranet–National Bank House Price Index was up 1.2 percent in July.

Calling the Canadian housing market “bullet-proof”, Mark Hopkins, senior economist at Moody’s Analytics said: “It seems to not only be defying the odds in terms of surviving the large downturn in the global economy, but even now with gross domestic product contracting, it seems as though existing home prices have accelerated which is a bit strange and counterintuitive.”

A majority of analysts predict a slowdown in home buying despite two rate reductions by the Bank of Canada this year.

“Even though the Bank of Canada is lowering rates, we are going to see a slowdown starting as people find that it is more expensive to buy stuff, and the home renovation activity will begin to slow down,” said David Watt, chief economist at HSBC.

In recent years, the housing market has been an important driver of the Canadian economy. It went in the opposite direction to the U.S. housing market crash and helped Canada brave the worst of the global financial crisis.

While home prices in the United States have begun to recover, in Canada they have been rising unabated ever since and several economists – although not a majority – have long warned of potential correction.

Average home prices have doubled over the past decade fueled by cheap debt, but 13 of 19 respondents said the housing market remained affordable – at least on a national basis, because low interest rates have kept debt service costs under control.

The Bank of Canada estimates the housing market is about 30 percent overvalued and has said it poses a significant risk to consumers overexposed to mortgage debt, especially in the oil-extraction part of the country where last year’s oil price shock and persistent weakness has hit the job market hard.

In July, the Bank brought its benchmark interest rates down to 0.50 percent to dull the sting of plummeting oil prices and prevent a housing market crash.
But that rate cut likely has fueled further house price rises in the already-stretched cities of Toronto and Vancouver.

Poll respondents said both these urban markets have surpassed affordability limits of the average Canadian homebuyer, outside of the condominium sector, where there are vast amounts of new supply still being built.

Some analysts fear a risk of correction, but particularly in these two urban markets, Toronto and Vancouver. Once the U.S. Federal Reserve begins to tighten policy this year, which may take Canadian mortgage rates higher.

“The (Fed) rate hike is clearly going to have an impact on the (Canadian) housing market. That’s guaranteed,” Moodys’ Hopkins said.
“But as long as the Fed continues to be the cautious agent that it is now in moving very slowly, I don’t think there will be any surprises.”
The Reuters poll also showed home building in Canada is expected to remain robust over the next year and average around 180,000 units.

by RICHARD MOXLEY Contributed to The Globe and Mail –

Excerpted with permission from The Nine Rules of Credit: What Everyone Needs to Know by Richard Moxley, Published by Self-Counsel Press.

Your mortgage payment doesn’t always show up on your credit report, but if you are late on multiple payments, it could affect the interest rate you’re offered from the bank when your mortgage comes up for renewal again.

If you miss three consecutive payments or more in a row, it will lead to foreclosure proceedings, which is when the bank or lender starts the process of legally taking ownership of your property due to the lack of payments. Banks or lenders don’t want to own your home, but if the lender isn’t getting paid, it will try and sell the property in order to reduce its losses. Foreclosure shows up under the public record portion of your credit report.

You may assume that bankruptcy is the worst thing you can do for your credit; however, if you are applying for mortgage financing, going through a foreclosure is the absolute worst thing you can do for your credit. Bad credit can be rebuilt fairly quickly, but very few lenders will look at providing financing for you if you have a previous foreclosure showing up on your credit report, regardless how strong your current credit is.

If you find yourself in a situation where you may not be able to make your mortgage payments, contact your mortgage lender or mortgage agent to find out what can be done. The same thing is true with any creditor.

If you don’t think you’ll be able to make a payment to any one of your creditors, it is a good rule of thumb to contact them to see if something can be worked out, especially if you contact them before the due date. I’ve never seen the attitude of pretending it will all go away actually work for anyone.

I understand that despite your best efforts, an emergency may come up, preventing you from being able to make a payment. However, the banks still feel that it is your responsibility to keep track of your accounts and pay your bills on time. Get your head around this rule and you will have a great foundation to always have amazing credit.

article by ROBERT MCLISTER Special to The Globe and Mail –

Anyone with a mortgage wants the lowest possible rate. But there’s an array of requirements for snagging the best all-around deal, and some of them are counter-intuitive.

Once people have chosen the term and rate type for their mortgage, they often find that rates for that same term can vary by a percentage point or more. Countless factors can keep borrowers from getting a rock-star deal. Here are 10 of them:

1. Rates vary by province

Ontario usually has the most competitive rates in Canada, partly because it has the greatest number of competitors. People living in the Prairies or the East Coast, for example, often pay one-tenth to two-tenths of a percentage point more than folks in Ontario. Other examples: Home owners in Alberta sometimes have to put down more equity to get the lowest available rates (thanks to larger default risks in that province); borrowers in Manitoba have the cheapest six-month rates; borrowers in Quebec have some of the best 10-year rates.

2. A long rate hold

The further into the future your closing date, the longer the rate guarantee you’ll need. In turn, the higher a lender’s rate hedging costs and the higher your interest rate. The cheapest rates in the market are generally for “quick closes.” That typically means you must complete the mortgage in 30 to 45 days from applying. Applying one month from closing can shave off one-tenth to two-tenths of a percentage point from your rate, but the risk is that rates jump even more while you’re waiting.

3. You’re refinancing

Lenders love to finance purchases. So mortgages for new buyers sometimes have lower rates than mortgages for refinances. What’s more, refinances, which essentially require a whole new mortgage, often have lower rates than mortgage transfers, where you’re switching lenders but the key mortgage terms stay the same.

4. You’ve got an apartment condo or atypical property

Some lenders charge more for high-rise condos, especially in cities where condo markets are arguably overextended. The same goes for cottages, co-ops, hotel condos, former grow-ops, larger multiunit residences and other non-standard structures, which lenders view as higher risk.

5. The property isn’t your full-time dwelling

The cheapest rates in the country rarely apply to income-generating properties that the owner doesn’t live in. These deals are statistically a higher risk for lenders and investors, so expect a higher interest rate.

6. Your credit score isn’t high enough

The magic number is 680. That’s the most common minimum credit score to qualify for the best rates, especially if you have a higher debt ratio or a smaller down payment. But one number isn’t everything. To qualify for the best pricing you also need a two-year track record of managing your credit with no serious delinquencies.

7. You want flexibility

Some of the nation’s lowest rates come with strings attached, such as below-average prepayment privileges. This limits your ability to save interest by making lump-sum extra payments. Instead of prepaying 15 per cent to 30 per cent annually (which few people do anyway) a “no frills” rate might limit you to prepaying 5 per cent or 10 per cent. Restricted mortgages can also impose painful penalties, prohibit you from refinancing elsewhere before your term is up and prevent you from increasing your mortgage without penalty – useful if you buy a new house.

8. Your mortgage is not insured

In many cases, people with smaller down payments – less than 20 per cent – get better rates. That’s because their mortgage must generally be insured. Lenders like insured mortgages because someone else shares the risk of the borrower defaulting.

9. Your mortgage is too big

For lenders, bigger mortgages mean potentially bigger losses on default. This added risk results in rate premiums and stricter lending limits, especially on million-dollar mortgages without at least 25-per-cent to 35-per-cent down payments.

10. Your income is too low

If you’ve just become self-employed, are on probation or you can’t prove one to two years’ worth of stable salaried income, it can cost you. You may also need a bigger down payment. Lenders want less than 40 per cent to 44 per cent of your provable income to go toward debt.

In looking at this list, you may surmise you’ll get the best deal if you have pristine credit, don’t care about mortgage restrictions and are buying a detached urban home in Ontario that’s closing in 30 days.

That all helps, but there’s plenty more that governs mortgage pricing. Step one is knowing how well qualified you are. The stronger you are as a borrower, the more likely you’ll find exceptions to the rate “rules” above.

The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent. This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada.

Inflation has remained close to the 2 per cent target in recent quarters. Core inflation has been temporarily boosted by sector-specific factors and the pass-through effects of the lower Canadian dollar, which are offsetting disinflationary pressures from slack in the economy and competition in the retail sector. Total CPI inflation is starting to reflect the fall in oil prices.

Oil’s sharp decline in the past six months is expected to boost global economic growth, especially in the United States, while widening the divergences among economies. Persistent headwinds from deleveraging and lingering uncertainty will influence the extent to which some oil-importing countries benefit from lower prices. The Bank’s base-case projection assumes oil prices around US$60 per barrel. Prices are currently lower but our belief is that prices over the medium term are likely to be higher.

The oil price shock is occurring against a backdrop of solid and more broadly-based growth in Canada in recent quarters. Outside the energy sector, we are beginning to see the anticipated sequence of increased foreign demand, stronger exports, improved business confidence and investment, and employment growth. However, there is considerable uncertainty about the speed with which this sequence will evolve and how it will be affected by the drop in oil prices. Business investment in the energy-producing sector will decline. Canada’s weaker terms of trade will have an adverse impact on incomes and wealth, reducing domestic demand growth.

Although there is considerable uncertainty around the outlook, the Bank is projecting real GDP growth will slow to about 1 1/2 per cent and the output gap to widen in the first half of 2015. The negative impact of lower oil prices will gradually be mitigated by a stronger U.S. economy, a weaker Canadian dollar, and the Bank’s monetary policy response. The Bank expects Canada’s economy to gradually strengthen in the second half of this year, with real GDP growth averaging 2.1 per cent in 2015 and 2.4 per cent in 2016. The economy is expected to return to full capacity around the end of 2016, a little later than was expected in October.

Weaker oil prices will pull down the inflation profile. Total CPI inflation is projected to be temporarily below the inflation-control range during 2015, moving back up to target the following year. Underlying inflation will ease in the near term but then return gradually to 2 per cent over the projection horizon.

The oil price shock increases both downside risks to the inflation profile and financial stability risks. The Bank’s policy action is intended to provide insurance against these risks, support the sectoral adjustment needed to strengthen investment and growth, and bring the Canadian economy back to full capacity and inflation to target within the projection horizon.

Leak in their unit could leave them paying strata’s deductible

Zoe McKnight, Vancouver Sun

Government must change the rules so the owner of an individual condo unit doesn’t have to pay the huge insurance deductible on the entire condo complex when something goes wrong in their individual unit, the Insurance Bureau of Canada says.

Those deductibles have risen sharply in recent years. Some Metro Vancouver residents have been shocked to find, after a leak in their unit causes water damage to other parts of the building, that they are required to pay the entire deductible on the strata council’s insurance policy, which can amount to $100,000 or more.

Many condo owners have their own unit policy that covers a portion of the deductible on the strata corporation policy. But some are finding out the hard way their insurance covers only a fraction of the larger deductible – usually about $10,000 – or in some cases, not at all.

“We’ve begun to speak to government officials at a variety of levels to say there’s a problem here,” said Lindsay Olson, vice-president of the Insurance Bureau of Canada for B.C., Alberta and Saskatchewan.

“This is becoming a real issue. There’s a shortfall, and I don’t know what a person can do … if it’s a common expense it should be dealt with as such.”

She said it is important to read the strata council’s bylaws to see who can be held financially responsible for damage to common assets.

In the past, accidental damage to common assets was the liability of the entire strata unless a single owner had been negligent.

But recently, strata councils have been changing their bylaws so they can designate an individual responsible if the damage occurred in their unit, even if that person had not been negligent.

Such a change is allowed under provincial law. “It’s been tested in court and it’s been permitted. It’s been occurring over the last few years,” Olson said.

Previously, deductibles for claims made by the strata were in the $10,000 range.

“Over the last number of years what we have seen happening is strata corporations having higher and higher deductibles on the building insurance policy,” Olson said. Often insurers insist on higher deductibles because of multiple claims, especially water damage, in a complex. Some strata corporations have opted for higher deductibles to lower their premiums.

Under the provincial Strata Property Act, the strata corporation is required to review their insurance policy annually and provide a summary to unit owners at the annual general meeting. According to the Insurance Brokers Association of B.C., it’s the unit owner’s responsibility to make sure their own insurance policy dovetails with their building’s policy and strata bylaws.

If a building is well-maintained, the deductible can be small.

“In the old days, deductibles could be $1,000, $2,500 generally, which was well within the strata council’s ability to pay,” said Alan Rees, a longtime insurance broker at KRG. He said water damage is becoming a huge problem in the Lower Mainland due to aging infrastructure.

There are big variations in strata council bylaws and condo owners can’t be forced to take out individual insurance policies.

“It boils down to: read the rules,” Rees said.

The solution is to make sure your own unit insurance covers the strata deductible. Rees said he pays $20 a month for such coverage, which is worth $100,000.

But not all companies will provide that kind of coverage, said Lindsay de Craene of the InsureBC Group.

For example, she said, only two insurers provide such coverage in downtown Vancouver, where there are seven condo complexes carrying a deductible of $100,000, 19 with a $50,000 deductible and one with a $150,000 deductible.

The B.C. Ministry of Housing said it has no plans to revisit the Strata Property Act.

– from October 1, 2012 Vancouver Sun

Most landlords unaware they lack proper coverage

Tara Carman, Vancouver Sun

When Raj Bhangu put a secondary suite into his Kitsilano house, he spent the extra $20,000 to do it legally and get the right permits. But he was surprised to find that even though he had home insurance, it would have been null and void had the unthinkable happened – a flood, fire, earthquake or any other unforeseen catastrophe.

That’s because insurance companies will not pay out if homeowners don’t inform them when they put in a secondary suite, something Bhangu found out when his insurance came up for renewal several months after his first tenants moved in.

Almost one quarter of B.C. residents rent out a secondary suite in their home to help with the mortgage – and that’s likely a conservative estimate – but most are unaware they are not covered if their insurance company doesn’t know about it, according to Square One Insurance.

Many people are reluctant to tell their insurer they have a secondary suite because they may not have followed all the rules, said Square One CEO Daniel Mirkovic. It is a widespread misconception that insurance companies pass on information about illegal suites to municipal governments, he said.

“For insurance purposes, it really doesn’t matter whether it’s a permitted or a legal suite,” he said. “In most cases, coverage is available. It might cost you a little bit more, but in the long term it’s well worth it.”

Insurers are only concerned about properly assessing the risk and making sure the customer is being charged at the correct rate, Mirkovic said.

An insurance company would only communicate such information to a government authority under a court order or with the homeowner’s explicit permission, given in writing, Mirkovic said.

Failing to tell the insurance company about a secondary suite is “the absolute worst thing that could happen because they’ll say that you didn’t disclose all of the necessary and pertinent information on the home which would have affected their decision as to whether they would insure the risk or not,” Mirkovic said.

In Kitsilano, Bhangu said many of his neighbours who rent out basement suites don’t know what the rules are.

“If you have an illegal suite, you’re not necessarily going to go and tell your insurance company that … so they just avoid it altogether,” said Bhangu, noting that his insurance went up by about $100 a year when he informed the company of the suite.

Many people tend to think of insurance as something they pay every month and don’t necessarily think to ask the pertinent questions, he added.

“It’s a recurring thing that you hope you’re covered [for the] worst-case scenario.”

Other changes to homes that may affect insurance rates are going from a one-to two-family residence and conversions of garages to coach houses, according to Square One.

Another thing most landlords don’t know is that they can purchase insurance to cover a loss of rental income stemming from damage that requires repairs, Mirkovic said.

– from June 5, 2012 Vancouver Sun

Garry Marr, Financial Post

It was a bit of a shock to Brenda Harfield when she tried to order something on her Sears card and was told to get her husband, if she wanted to complete the transaction.

“I cut that card up and told them that everything that comes from them goes into the garbage,” says the Sydney, B.C., resident.

Her wrath was wrongly directed at the retailer but you can’t blame her. She handles all the paperwork in the household but the credit cards were in her husband’s name. Or at least they used to be.

She discovered like many woman do that being an authorized user on a card has its limitations. It’s not just a lack of access to the account for certain transactions, the account also doesn’t exist in terms of your credit history.

“Since all this happened I am the primary card holder on all of them” says. Ms. Harfied.

Smart move. My wife found this out the hard way when she applied for a card and was turned down. She came home fuming and blaming me. She immediately switched about half our credit cards to her name as the primary card holder, in an attempt to improve her credit rating.

It worked. TransUnion LLC — one of two companies providing credit ratings in Canada, the other being Equifax Inc. — agreed to let her check her rating for free after doing the same for me last month and she scored 783 out of 900, just below the 786 I received.

She also discovered the credit issuer considers her hyphenated married name an alias, but that’s another column.

“If you are a secondary credit user, that doesn’t give any credit data. If you are contractual borrower or a co-signer then you could get a credit report in your own name,” says Tom Reid, director of consumer solutions for TransUnion.ca.

He says about half of the consumers that are checking on their credit report with the company are women. “You see more and more women trying to get access to credit and they want to understand more about it,” says Mr. Reid.

There are some serious risks for women who hand off responsibility for their credit to their husbands, says Robert McLister, editor of Canadian Mortgage Trends.

“If it’s a joint card, creditors will report that card’s repayment history to the credit bureaus for both co-applicants,” he says.

“Women who are joint cardholders sometimes relinquish payment responsibility to their husband, which can backfire if the husband doesn’t pay responsibly. We’ve seen cases where a wife separates from her husband but forgets to cancel her name off a joint account. The husband then racked up the card or missed payments, without the wife ever knowing. In those types of cases, the wife typically finds out after it’s too late and/or after the file has gone to collections.”

Certified financial planner Jeanette Brox said she recently met a client whose mother had never had a credit card until five years ago and then found herself in trouble when her husband landed in hospital.

“I think I heard about this in the dark ages but it’s hard to believe it exists,” says Mr. Brox.

She’s actually been dealing more with debt consolidation the last few years and one good thing about those spenders, they always make sure they have their own credit card in their own name.

“I have also seen a real determination of the woman to have her own card,” says Ms. Brox, adding she still has her share of clients where the man is listed as a primary card holder or the only person on the mortgage.

The ultimate irony might be where the woman is running the financial household but in her husband’s name. “The wives are usually the generals running things,” the financial planner says.

Ms. Brox adds, however, that’s not good enough when you consider the percentage of marriages that end in divorce. It really makes sense for women to establish their credit.

“I like to have the woman have her own name on things,” she says.

So do the credit rating agencies.

– from February 11, 2011 Financial Post

Derek Abma, Postmedia News

Most Canadian mortgage holders are on solid financial ground and could withstand the extra expenses that might come with higher interest rates somewhere down the road, according to survey results released Monday.

The Canadian Association of Accredited Mortgage Professionals said 84 per cent of those with mortgages could withstand paying an extra $300 or more on their monthly mortgage payments. In B.C., 33 per cent have made additional payments or increased payments, according to the study.

This leeway comes with most homeowners being in a good position in relation to the value of their home versus what they owe on their mortgage, and in their ability to negotiate reasonable terms on their mortgages, the survey showed.

It was found that the average Canadian mortgage holder has home equity — the value of their home minus their owed mortgage debt — of $146,000, or 50 per cent of the value of their home. In B.C., the average mortgage is $183,000 and for those with mortgages, the average equity is 58 per cent.

It was also found that people who have arranged a mortgage in the last year had attained an average rate of 4.23 per cent on five-year, fixed mortgages, which is 1.42 points less than the normal posted rates over this time. As well, the study found that 72 per cent of Canadians who have renegotiated a mortgage in the last year have been able to get a lower rate — 1.09 percentage points, on average.

“Canadians are being smart and responsible with their mortgages,” Jim Murphy, president and CEO of CAAMP, said in a statement.

The results were based on web polls with more than 2,000 Canadians this fall, more than half being homeowners with mortgages. No margin of error was provided.

– from November 9, 2010 The Vancouver Sun

Paul Vieira, Financial Post

Inflation was softer than expected in August, data revealed Tuesday, leading analysts to suggest it may persuade the Bank of Canada to hold interest rates steady in the coming months.

The headline inflation rate was 1.7% in August on a year-over-year basis, Statistics Canada said, while month-over-month consumer prices slipped 0.1%. Meanwhile, the core rate — which strips out volatile-priced items such as food and energy — remained unchanged at 1.6% in the month.

Market consensus was for a headline rate of 1.9% and a core reading of 1.7% in August.

The figures indicate inflation poses no threat to the economy, and at present consumer price increases are running below the Bank of Canada’s forecast. For instance, analysts indicate the core rate — which the central bank closely watches because it excludes volatility — will come in lower than the Bank of Canada’s forecast for 1.8% in the third quarter of 2010.

This has analysts suggesting the Canadian central bank might refrain from raising its benchmark rate again at its next meeting on Oct. 19.

The central bank sets its policy rate in an effort to attain and maintain 2% inflation.

“This report clearly indicates that inflation is becoming a swing factor for Bank of Canada. And it supports our view that the Bank of Canada will be on hold for some time,” said Jonathan Basile, vice-president of economics at Credit Suisse in New York.

In seasonally adjusted terms, core prices were flat in August, and the six-month trend has ebbed to a mere 0.3% annualized rate — which is the lowest pace in over 25 years of data, said Douglas Porter, deputy chief economist at BMO Capital Markets.

“Inflation remains well under wraps in Canada,” he said. “If anything, some measures of core inflation trends are even lower than in the United States, where deflation chatter is rampant.”

As of Tuesday morning, markets had priced in roughly 66% odds that the Bank of Canada sits on the sidelines next month. Following the release of the consumer price data, the Canadian dollar sold off and yields at the short-end of the bond curve dropped.

The Bank of Canada has raised rates by 25 basis points at each of its last three meetings, as Canada recovered strongly from the recession. However, growth has ebbed as of late, due to a slowdown in the U.S. and global economies. Second-quarter GDP expansion was 2% annualized, down from the 5.8% reading in the first three months of 2010.

The soft inflation reading also suggested there still remains “significant amount” of excess capacity in the Canadian economy, said Toronto-Dominion Bank economists in a note.

Any further cool down in economic growth could put pressure on retailers to cut prices further to attract buyers — particularly on big-ticket items such as cars, added TD economist Diana Petramala.

The inflation data indicated energy prices rose 5% year-over-year, following a 7.9% increase during the 12-month period to July. Excluding energy, the headline inflation was up 1.4% in August.

Homeowner’s replacement costs, which rose 5.5%, passenger vehicle insurance premiums, up 5.1%, and food from restaurants, which was up 2.5%, also pushed the inflation rate higher. However, consumers paid 2.2% less for clothing and footwear in August than they did a year earlier.

– from September 21, 2010 Financial Post