Spring 2010

Prudence is paying off for Canadian mortgage holders
Canadian Association of Accredited Mortgage Professionals releases
spring survey report on residential mortgage market

Toronto, ON (May 10, 2010) – Canadians appear well prepared to face the new phase of the residential mortgage market, where interest rates are rising and house activity is easing off, according to the sixth bi-annual review of the Canadian mortgage market by the Canadian Association of Accredited Mortgage Professionals (CAAMP), released today.

Highlights:
• Consumer concern about rising rates is offset by increasing home equity
• Many mortgages were renegotiated at lower rates; amortization periods are declining
• Many Canadians have used cost savings from low rates to pay more than required, providing flexibility to deal with mortgage rate increases
• Mortgage debt is a priority – the vast majority of  Canadians have never missed a payment
• A high percentage of Canadians still believe it is a good time to buy a home

The report entitled Prudence Paying Off For Canadian Mortgage Borrowers is authored by CAAMP Chief Economist Will Dunning and based on information gathered by Maritz Research Canada in a survey of Canadian consumers conducted in April 2010.

Canadians positive about prices, but not rushing to buy
Canadians are positive about the housing market in their communities, but very few (3.4 per cent) said they were very likely to buy, suggesting activity may slow during the remainder of this year. This number is slightly lower than that of previous surveys.

Still, Canadians across the country are bullish about house prices. Almost one half of those surveyed (49 per cent) expect prices to rise and 44 per cent expect them to remain stable. These numbers, when tabulated with previous survey results, show the highest number of Canadians indicating they expect house values to increase rapidly. Previously, attitudes varied between provinces, but this spring, optimism is nationwide.

Mortgage holders more conservative about borrowing and focused on repayment
The CAAMP survey report reveals the average outstanding principal is $138,000 and for mortgage borrowers the average amount of equity represents 53 per cent of the average value of homes ($297,000). Approximately 11 per cent of mortgage borrowers withdrew equity from their home in the past year, totaling $20 billion, a substantial reduction compared to the $34 billion estimate of 2009. The results indicate caution on the part of borrowers.

This view is accentuated by the fact that among mortgages transacted during the past year, 65 per cent are fixed rate, 29 per cent are variable or adjustable, and six per cent are combination mortgages. Most terms are long – 70 per cent are five years or longer, nine per cent have short terms of two years or less, and 21 per cent have terms of three or four years. Significantly, of the 65 per cent with fixed rates, 12 per cent locked in from a variable rate during the past 12 months and a further 10 per cent had locked in more than a year ago in anticipation of rising interest rates.

The vast majority (93 per cent) of mortgage holders has never missed a payment and of the seven per cent who have, four per cent did so during the past year. The survey data indicates that recent purchases and extended amortization periods are no more risky than are prior purchases and shorter amortization periods.

Opportunities to weather rate increases
Mortgage holders have also been flexing their muscles – negotiating significant discounts on posted interest rates. Over 80 per cent of borrowers negotiated a discount of one percentage point or more.  Last year, the average five year fixed rate was 4.10 per cent while the average posted rate was 5.57 per cent. For new mortgages taken out in the last year, fifty per cent obtained their mortgage from a Canadian bank, 30 per cent from a mortgage broker.

“Our spring survey report reveals a remarkably mature borrower,” said Jim Murphy, AMP, President and CEO of CAAMP. “We find that Canadians have taken advantage of the low interest rates to increase their regular payments (16 per cent) and make lump sum payments (13 per cent). This planning puts them in a stronger position to weather more expensive borrowing.”

The report simulates the impact of mortgage rate increases up to 5.25 per cent and finds that about 375,000 mortgage holders are already challenged by their current payments, and another 475,000 might be if their rate rises to 5.25 per cent. “But,” Dunning noted, “many borrowers are paying more than required, they already have significant equity, and they have flexibility to adjust payments in the event of future challenges. The very high percentage of Canadians who have never missed a payment confirms that Canadians take their mortgage obligations seriously.”

The CAAMP survey report contains a wealth of industry information, including consumer choices and borrowing behavior, regional breakdowns of responses, and an outlook on residential mortgage lending. For a copy of the report, please visit www.caamp.org under Resources.

By Charles Rusnell, CBC News

This house in the Bearspaw district of Calgary was bought for nearly $900,000 and in three years, its value was inflated to $2.3 million, a profit of $1.4 million for the alleged fraudsters. (CBC)

The Bank of Montreal is suing hundreds of people in Alberta, including lawyers, mortgage brokers and four of its own employees, in what is one of the largest alleged cases of mortgage fraud in Canadian history.

Legal documents obtained exclusively by CBC News allege the bank was the target of a sophisticated fraud operated by 14 inter-connected groups. The documents allege the scheme generated at least $140 million, about $70 million of which was for phoney mortgages.

The bank has estimated it may lose as much as $30 million.

Toronto forensic accountant Al Rosen said he has never seen anything like it.

“This is massive in the sense that it is so broad and so deep,” Rosen said Tuesday. “This is [allegedly] a huge fraud. I can’t think of any situation that has so many people involved and over a period of time like this one.”

Problems detected in 2006

The bank said it first detected the alleged scam in 2006 when its security department noticed “irregularities” in a number of mortgages in Western Canada. Officials immediately hired a forensic accounting firm, which spent nearly a year unravelling what the bank calls a sophisticated scheme.

Legal documents allege millions of dollars have been transferred to such countries as Lebanon, India, Saudi Arabia, the United Arab Emirates and Pakistan. (CBC)

The bank’s investigators say the scam’s ringleaders would identify the worst house in a good neighbourhood. They would buy at an affordable, fair-market value price, but convince the bank it was worth much more because of the neighbourhood it was in.

The bank, which relies on a software program to determine house prices by neighbourhood, claims it would end up providing a grossly inflated mortgage, and the ringleaders would pocket the difference.

To carry out the alleged scheme, the bank claims masterminds would recruit what’s known in fraud parlance as a “straw buyer.” For a payment of $2,000 to $8,000, these straw buyers, mostly new immigrants, would allow their name to be used to obtain the mortgage on the house.

According to the court documents, the ringleaders allegedly created fake, inflated wage and net income documents for the straw buyers to make them appear richer than they were.

Lawyers, who are alleged to have been in on the scheme, would then produce the necessary legal documents for the house sale. Seventeen lawyers have been named in the bank’s lawsuit.

House nets $180,000

In one case, a house in the Bearspaw district of Calgary was bought for nearly $900,000 and in three years, its value was inflated to $2.3 million, a profit of $1.4 million for the alleged fraudsters. An Edmonton house is alleged to have netted the scheme nearly $180,000.

During its investigation, bank investigators seized records that showed millions of dollars from the alleged scheme have been transferred to such countries as Lebanon, India, Saudi Arabia, the United Arab Emirates and Pakistan.

The Bank of Montreal said it conducted the investigation and filed the lawsuit for two reasons.

“One was to recover as much as possible of what was taken from the bank from the fraud,” Ralph Marranca, the bank’s spokesman told the CBC on Tuesday.

“And secondly was to send a very strong message to fraudsters and anyone who might contemplate something like this that the bank will pursue this very aggressively and will not tolerate fraud.”

Other banks don’t appear to be as aggressive in their approach, even though documents indicate they may have been targeted too. Bank of Montreal investigators found documents that showed one Calgary management company had 150 suspect mortgages from 16 different financial institutions.

Rosen said this alleged fraud illustrates how weak and ineffective the controls are in our banking system.

“To me the most exasperating part of our business is we are not doing what we are supposed to be doing,” he said. “We are kidding ourselves that we have good systems, because we don’t.”

Read more: http://www.cbc.ca/canada/calgary/story/2010/05/04/mortgage-fraud-bank.html#ixzz0n43X4GCP

House prices to cool in 2011, says TD

Financial Post 

OTTAWA — The latest housing forecast from TD Economics leaves 2010 totals for sales and prices in Canada largely the same as its previous expectations in December, though that masks a wider discrepancy it now expects between a hot first half of the year and cooler second half.

The forecasting unit of Toronto-Dominion Bank released a report on Wednesday that maintained its call for housing resales this year to rise 2.1% to 475,000, and the average price to gain 9% to $349,000.

“While sales in Q1 were slightly higher than our late-2009 forecast, we view the strength as borrowing from future sales in a move by buyers and sellers to pre-empt regulatory and interest-rate changes,” TD said in its report.

The bank said that people in Ontario and British Columbia are pushing ahead with home purchases to avoid higher costs associated with harmonized sales taxes that take effect in those provinces in July.

As well, it said homebuyers across the country have felt rushed to avoid higher interest rates. Major banks have already started raising their borrowing costs, and the Bank of Canada is expected to start hiking its overnight target rate from a record-low 0.25% in June or July.

The more accelerated cooling effect during the second half of this year will lead to lower prices than previously thought in 2011, TD said. It now expects the average home price to fall 2.7% to $339,700 next year; it previously called for a 1.6% price gain.

TD said housing prices in Canada are currently overvalued by about 15%, based on longer-term economic factors such as income growth. That gap should narrow to 10% by the end of next year, it said.

The gap will close further in the following two to three years, the report said, as housing prices grow at about the rate of inflation – after having averaged 8% annual gains over the last eight years – and household incomes catch up.
Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2990374#ixzz0n98RQoRI

rebate (71.43%) of the provincial portion of the HST for new housing to ensure that new homes up to $525,000 (increased from $400,00) will bear no more tax than under current PST system, while homes above $525,000 will receive a flat rebate of $26,250.

 Former Grow Op

2

Tenants come and go at unusual hours but never seem to stay over night.

Little or no garbage is brought to the curb each week.

Mail is rarely delivered to the house, and the mail box may be taped shut.

Windows are always dark and may be secured with metal bars, blacked out or heavily draped.

A strong odour similar to skunk cabbage (bulk marijuana comes from the building.

Power meter spins at a very high speed or signs of electrical tampering.

Heavy condensation on the inside of the windows.

Humming sounds of fans or generators.

Condensation or discolouring on the roof.

Unusual amounts of steam coming from vents in the house in cold weather.

Rooftop with no snow on it when the surrounding houses are covered in snow.

Individuals arriving at the house to put the garage, move toys in the front yard shovel the snow or cut the law and then leaving immediately.

People entering and exiting the residence only through the garage keeping the garage door closed.

Excessive security such as guard dogs, “keep out” signs, high fences, heavy chains and locks on gates.

Housing affordability: the great quandary Why there’s time to wait for the right home at the right price

With only Montreal and Vancouver left to cheer for in the Stanley Cup playoffs, many luncheon conversations have returned to the topic of housing prices.

Recently, we’ve seen lots of headlines suggesting that house prices have run up to an unsustainable level and are due for a correction.

In mid March, The New York Times made a rare foray north of the border with a headline that read “Some See a Real Estate Bubble Forming in Canada.” A couple of weeks back, Gluskin Sheff star economist David Rosenberg released a report suggesting that Toronto and Vancouver housing prices could drop by 20 per cent.

And one of the most e-mailed Globe articles last week was based on a ReMax report trumpeting the buoyant sales of luxury homes.

Focusing on affordability

Perhaps the most important determinant of short-term-price movements is affordability, the percentage of a typical household’s income required to carry a house. The two big variables that drive this number: house prices and mortgage rates.

RBC has been tracking this data for 100 neighbourhoods across Canada since 1985, focusing on typical two bedroom homes, bungalows, townhouses and condos.

As housing prices spiralled up in the 1980s, this guideline was relaxed – since 1985, the typical household would have devoted 39 per cent of its income to carrying a detached, 1,200 square foot bungalow.

RBC economist Robert Hogue points out that there have been large swings in affordability over time and that different cities show different patterns.

In most cities, rising house prices meant that affordability was at its lowest in early 1990, when the typical household would have spent 53 per cent of income to carry a bungalow. On the other end of the scale, Vancouver, always an outlier when it comes to real estate, hit its own high of 81 per cent of household income to carry a bungalow in early 2008.

Once out of balance, there are only three ways for affordability to get back in line:

– Prices can stay flat as incomes increase over a period of years

– Mortgage rates can come down – unlikely in the next while

– Or housing prices can drop – something that happened after the all-time lows on affordability were hit in 1990

The impact of low mortgage rates

In the past eighteen months, governments around the world chopped interest rates to boost economies – and Canada was no exception.

As a result of low interest rates, carrying costs dropped and affordability improved. Even with strong housing prices, at the end of December the affordability level in most cities was close to its long-term average. The exception, again, was Vancouver – with the average bungalow taking up 69 per cent of the typical family’s income, up from the historical average of 57 per cent.

In a recent report, RBC estimated that in late December posted rates for a five year mortgage were 5.6 per cent, 1.6 percentage points lower than normally expected given inflation expectations. Note that we’ve already seen mortgages rates begin moving up toward those higher levels, with more increases likely to come.

RBC estimates that if mortgages had been at their normal levels in December, the percentage of the typical Canadian household’s income to carry an average bungalow would have increased by four percentage points – although some cities would have been hit worse than others.

The affordability verdict

If mortgage rates in December had been at normal levels, the percentage of income to carry a house in most cities would have been well above its long-term average. The good news: In most cities those percentages would still have been well below their highs – prices may be a bit elevated but this doesn’t suggest a bubble or a big drop ahead.

The one city to worry about if you’re a homeowner is Vancouver, where normal mortgage rates would have resulted in the typical household spending 78 per cent of its income to carry a bungalow, just shy of the peak level.

History shows that it’s impossible to accurately predict short-term movements of house prices – markets regularly overshoot rational levels both on the way up and the way down. What we can say is that based on current affordability, if house prices do continue to escalate, at some point they’re almost certain to correct back down.

That means there’s no rush to buy and time to wait for the right home at the right price – and that for the next while at least home buyers should evaluate houses as places to live rather than on their potential for appreciation. http://www.theglobeandmail.com/globe-investor/investment-ideas/features/experts-podium/housing-affordability-the-great-quandary/article1554481/

Have a great day!

BUSY HOUSING MARKET MEANS MORE CHOICE FOR FRASER VALLEY BUYERS

(Surrey, BC) – The Fraser Valley Real Estate Board’s Multiple Listing Service (MLS®) saw close to record levels of listings in April, in addition to strong sales and prices.

Deanna Horn, president of the Board, says, “This is a typical, healthy spring market for the Fraser Valley. We received an abundance of new listings in all price categories giving buyers tremendous opportunity, while sellers saw a typical detached home sell in an average of 40 days for 13 per cent more than in April of last year.”

The Fraser Valley Real Estate Board received 3,760 new listings in April compared to 2,477 new listings received during the same month last year, an increase of 51.8 per cent. The new inventory increased the number of active listings to the second highest April on record, reaching 10,635, with only April 1995, at 11,891, offering more selection.

Along with the surge in listings, April sales remained strong, similar to the same month in 2007 and 2008, finishing with 1,793 total units sold, an increase of 38.7 per cent compared to the 1,293 sales sold in April of last year when the market was beginning to recover.

“A number of factors are motivating buyers. Spring is one of the most popular times of year to house hunt, plus interest rates are edging up and buyers are inquiring about the upcoming Harmonized Sales Tax in BC.”

Horn explains, “The Fraser Valley will offer savings when the HST comes into effect because many new homes in our region fall under the new housing rebate threshold.”

Thanks to lobbying efforts by REALTORS® and other housing industry advocates, the threshold to receive the maximum BC new housing rebate was increased to $525,000 from $400,000, the government’s originally proposed limit. Horn says, “It’s important for buyers to know that the majority of new townhomes and apartments in the Fraser Valley cost less than $525,000, including some single family detached homes.”

In April, the benchmark price for Fraser Valley detached homes was $520,423 – reflecting all residential sales on the MLS®, of which approximately 10 per cent were new homes. That benchmark price is 13.1 per cent higher than it was in April 2009, when it was $460,229.

The benchmark price of Fraser Valley townhouses in April was $326,367, a 10.6 per cent increase compared to $295,078 in April 2009. The benchmark price of apartments increased by 8.3 per cent year-over-year going from $230,337 in April 2009 to $249,453 in April 2010.

Information and photos of all Fraser Valley Real Estate Board listings can be found on the national, public web site www.REALTOR.ca. Further market statistics can be found on the Board’s web page at www.fvreb.bc.ca. The Fraser Valley Real Estate Board is an association of 2,978 real estate professionals who live and work in the communities of North Delta, Surrey, White Rock, Langley, Abbotsford, and Mission.

Islands join Greek party

Diane Francis, Financial Post  Published: Saturday, May 01, 2010

Greece isn’t a country. It’s a party.

The Germans, one of the few groups in Europe who work, are furious. They are balking at the bailout but must come across because a couple of big German banks are on the hook for Greece’s IOUs.

Best suggestion by a German politician, not altogether silly, is that Greece should pay off its lenders with islands. These Aegean beauties are government-owned and their privatization might help skate the whole place onside quickly.

Despite the world’s crisis, there are plenty of well-heeled buyers: the suits at Goldman Sachs (dubbed “haves” and “have yachts”), Russian oligarchs, oil sheiks or Mexican cartelistas.

That aside, the details oozing out about Greece’s spendthrift ways, make it obvious that the real legacy of Goldman Sachs and Wall Street is that they democratized greed.

Greek retirement ages are 60 and 65 years, respectively, for males and females, but the average is more like 53 years because many jobs are considered physically strenuous or hazardous. These include hairdressers (all that standing and putting your hands into chemicals); musicians (all that plucking into the wee hours); bakers and radio presenters.

Public-sector employees have got bonuses for showing up to work on time. They received a 13th month’s wages at Christmas and a 14th month’s wages at Easter.

While these perqs are now history, at the insistence of the IMF and EU, it’s hard to imagine the Greeks rolling up their sleeves and getting back to work. The same goes for the other members of PIIGS, more elegantly dubbed the “Club Med,” which includes fellow miscreants Portugal, Italy, Ireland and Spain.

Well, the party’s over for them, but not for Goldman Sacks (sic) yet. The investment banking casino played a starring role in the Greek comedy when it gave the country a strategy to hide debts from euro zone officials.

As we write, Goldman trading desks are busily shorting all those Greek stocks and bonds they once sold long to clients, and its underwriters are undoubtedly preparing a series of IPOs to peddle those islands.
Read more: http://www.financialpost.com/story.html?id=2973587#ixzz0mobwuzPX

 Hi Cindy
>
> Thank you to you, Dave and Amanda for organizing the garage sale 
> yesterday.   It was a huge success from our point of view with many  
> many people stopping buy.  We recovered a few hundred dollars (from  
> our original investments of thousands ha ha) and knew that our  
> possessions were being passed on to people who could make some use 
> of  them, rather than ending up in landfill!   Additionally, we got 
> to  meet several of our new neighbours, as well as visit and chat 
> with  neighbours we already knew and many of the buyers.   For 
> instance, I  recognized the accent of one lady as Polish, and she 
> and Alec had a  good chat in Polish.   Another family was speaking 
> Korean and we were  able to chat with them about Alecs 6 week sojurn 
> in South Korea in the  1980s.  So, really it was a fun social 
> experience for us too!
>
> We realize that it takes a great deal of work on your part to 
> organize the publicity and drop off and pick up of signs as well as 
> provide  tips and info to us, and we really appreciate it.   Thank 
> you Cindy:    you even dropped around to make sure everything was OK!
>
> I hope Amanda’s elbow is on the mend and she is getting back on track.
>
> God bless.
>
> Cathie