Bank of Canada says third-quarter growth was worst since recession

By Julian Beltrame

OTTAWA – The Canadian economy likely suffered the worst quarter since the recession over the summer months, but Bank of Canada governor Mark Carney warns against taking too gloomy a view.

“I wouldn’t obsess about the third quarter,” Carney told reporters Wednesday after Canada’s central bank released its latest global economic outlook.

The bank conceded the economy likely continued to brake in the July-September months to 1.6 per cent growth — down from two per cent in the second quarter and the distant memory of the first quarter’s 5.8 per cent advance.

But Carney said Canadians should take a longer view and also take comfort that no matter how modest, at least activity is still positive.

“Two years ago, I (would have said) the economic picture we’ve just seen would have made the bank happy, would have made Canadians happy, given the alternative,” he said.

“We’ve recovered the jobs, we’ve recovered the lost output, we are doing better than virtually anybody else in the advanced world.”

Canada’s current rate of growth is about half the pace the bank had expected a few months ago, and even slower than the U.S., but Carney notes that there’s no comparison between the Canadian and U.S. economies.

While all and more of the about 400,000 jobs Canada lost during the recession have been recovered, the U.S. has only recouped about 15 per cent of their losses. And Canadian domestic demand is outpacing the U.S. by 20 per cent.

Dangers lurk, however, as the bank’s latest quarterly review makes clear.

Both the Canadian and global recoveries, as well as future growth projections, are more modest now than they were three months ago.

To accommodate those diminished expectations and increased risks, the bank on Tuesday suspended the monetary tightening cycle it began in June. Analysts think the bank’s key interest rate will stay at one per cent for many months.

The bank says in the balance it still believes the recovery will continue, but it highlights “important” risks, both internal and external, with the potential to upset the apple cart.

Canadian households are steeped in debt and could become a drag to the economy should housing prices collapse. Latest data shows debt-to-disposable income among households has reached a record 147 per cent.

“If there were a sudden weakening in the Canadian housing sector, it could have sizable spillover effects on other areas of the economy, such as consumption, given the high debt loads of some Canadian households,” the bank states.

Carney acknowledged keeping rates low for an extended period only increases the debtload risk, but said he believes consumer spending, including on housing, is tracking lower.

Coincidentally, the TD Bank also warned about household debt in a report Wednesday, saying one-in-10 households could find themselves in financial distress when interest rates rise. Fortunately, that many not be for some time.

Externally, the bank heightened its concerns over the growing friction in the world over currency manipulation, with advanced economies threatening to retaliate against China’s undervalued yuan.

The issue will be central to discussions at this week’s G20 finance ministers in Korea, but Carney suggested a solution will be slow and laborious.

Advanced economies, particularly the U.S., have long complained that China and other fast-growing Asian economies are artificially keeping their currencies below their true value in order to boost exports and discourage imports.

Although China has made some moves to increase the value of the yuan and hike domestic consumption, advanced economies believe those actions have not gone far enough.

Carney said as big a concern is that frustration will grow in advanced economies to such an extent that it will touch off a currency war, although he said China was the key.

“It’s not just China’s position … but as part of rebalancing the global economy, increased flexibility of the (yuan) is absolutely essential,” the bank governor said.

Despite the challenges, the bank sees the Canadian economy advancing from the slow third quarter to a 2.6 per cent gain in the fourth, and an average 2.3 per cent in 2011, followed by 2.6 in 2012.

One encouraging signal is that businesses have begun to invest in new machinery and equipment, which should boost productivity going forward.

Another, said Carney, is that exports will turn from being a net drag on growth to a tiny positive sometime next year as global demand picks up.

Still, it’s going to be a slow, hard slog back to normalcy.

The economy is not nearly as strong as the bank thought it was in July. It calculates output gap — the slack in the economy — remains at 1.75 per cent, not 1.5 per cent as estimated in the previous review.

The bank’s best guess now is that the economy will eventually right itself, but won’t be firing on all cylinders for another two years.

The Canadian Press http://news.therecord.com/Business/article/797065

*BoC Keeps Key Rate Unchanged

The market widely predicted the Bank of Canada would not raise rates, and it was right. The BoC has left its key lending rate at 1.00%.

In turn, prime rate will remain at 3.00%, making today’s BoC meeting a non-event for mortgage holders in the short-term.

The BoC’s call comes amid languid recent growth and inflation numbers. Here’s a sampling of the Bank’s commentary from its official statement:

• The BoC sees a “weaker-than-projected recovery in the United States.” (No revelations there)
• The potential exists for “a more protracted and difficult global recovery.”
• “…domestic considerations…are expected to slow consumption and housing activity in Canada.”
• “Inflation in Canada has been slightly below the Bank’s July projection.”
• “The inflation outlook has been revised down and both total CPI and core inflation are now expected to converge to 2% by the end of 2012.” (That’s potential good news for mortgage rates)
• The 1% overnight target rate “leaves considerable monetary stimulus in place.”

The next and final interest rate meeting of 2010 is on December 7.

*BoC Keeps Key Rate Unchanged – Canadian Mortgage Trends – October 19, 2010

Click here to view article: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2010/10/boc-keeps-key-rate-unchanged.html

There has been a bottoming out  Garry Marr, Financial Post ·

Rock-bottom long-term mortgage rates appear to have handed the housing sector the lifeline it desperately needs, helping to push up sales for a second consecutive month and keep prices from falling.

The Canadian Real Estate Association said Friday sales last month rose 3% from August on a seasonally adjusted annualized basis — highest since May 2010 — and the second straight month sales rose.

Meanwhile, prices have also begun to stabilize as fears of a dramatic meltdown appear to be abating. The average price of a home sold in Canada last month was $331,089, down slightly from the $331,683 average a year ago. But prices were up from a month earlier, when the average was $324,928.

“Supply and demand are rebalancing and that’s keeping prices steady in many markets,” said Georges Pahud, president of CREA.

The other factor keeping the market afloat are interest rates.

The Bank of Canada has signalled it will take a pause on raising its key lending rate which should keep the prime rate at most banks at 3%, affecting any variable rate borrowers.

But it’s consumers on the long end of the borrowing spectrum who appear to be getting a better deal with the five-year term fixed-rate mortgage reaching an all-time low over the past month.

Gary Siegle, the Calgary-based regional manager for mortgage broker Invis Inc., said the standard rate for locking in for five years is now 3.69% but adds some lenders have dropped to as low as 3.39%.

“I’ve been working for 38 years and I don’t recall rates this low ever in my career,” said Mr. Siegle, adding the discount on variable-rate mortgages has dropped to the point that consumers can float with a rate as low as 2.35%.

“The question I wonder about is at these rates is why are people not all over the real estate market?”

CREA said two-thirds of local markets last month posted sales increases with Winnipeg, Calgary and Montreal standing out. However, compared with last year, sales still lag across the country, down 19.8% in September from a year ago.

“Record level sales activity late last year and earlier this year is expected to further stretch year-over-year comparisons in the months ahead,” the group warned.

TD Bank Financial Group economist Shahrzad Mobasher Fard expects falling mortgage rates to be a significant boost for the market for the near future. “They are a factor that cannot be dismissed,” said Ms. Mobasher Fard. “[Current rates] won’t lead to an overheating but it will support further growth in home sales and prices. The last two months of data indicate there has been a bottoming out of home-selling activity and prices.”

Demand is still tepid but there has been a slowdown in new listings, which are 15% off the peak reached in April. The number of months of inventory, which represents the number of months it would take to sell inventories at the current rate of sales activity, was down to 6.6 months in September.

It was the second straight month inventory levels dropped, having stood at 6.9 months in August and 7.2 months in July.

“Mortgage lending rates eased in the third quarter, which helped support sales activity over the past couple of months,” said Gregory Klump, chief economist with CREA.

“Interest rates are going nowhere fast, so home ownership will remain within reach for many home buyers.”

The chief executive for Royal LePage Real Estate Services Ltd. said he was almost a bit relieved to see the latest figures.

“I was pleasantly surprised to see the year-over-year average price flat given the strength of last year’s September results,” said Phil Soper. “I expected a small decline in average price. It has been driven almost entirely by the low cost of money.”
Read more: http://www.financialpost.com/news/rates+bail+housing/3679749/story.html#ixzz12i6nm2z1

Are Mortgage Brokers Doomed or Are Origination Models Evolving?

by C.M. “Corky” Watts, CMB

Mortgage News Daily

“In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed” -Charles Darwin

Last week I debated one of my Management Advisory Program (MAP) clients who operates a mid-size retail mortgage banker. The topic of dispute: Are mortgage brokers a dying breed?

He felt passionately that top-producing independent mortgage brokers would soon be forced to attach themselves to a regional mortgage banker.  I believe markets ebb and flow and human nature tends to follow the crowd. Retail is vogue today. Wholesale is not.  Being a contrarian, I stated there may be an opportunity to develop a modified Third Party Originator (TPO) strategy in anticipation of the origination model changing in 1-2 years.  He disagreed and said emphatically, brokers are walking dead.

After a few more jabs, he provided some support for his opinion:

1. Regulatory Changes:  Numerous regulator changes have made it more difficult for independent originators to compete with regional bankers.  Whether its HVCC or disclosure of certain fees, brokers don’t have the control they once had  Moving a file from one wholesaler to another is very difficult today.
2. Profitability:  Without the owner originating a lion share of the loan volume, most mortgage brokers lose money.  Many owner/operators are strong producers, but poor business managers.  They lack skills in accounting, HR, IT, marketing, compliance, etc.  Furthermore, my client felt brokers don’t know how to effectively recruit, manage or fire loan officers. 

He believes these issues will eventually force broker originators toward working for a strong regional mortgage banker. 

According to my client, these originators are looking for the following attributes in a mortgage banker:  

• Strong Balance Sheet
• Few Legacy Issues and Limited Repurchase Risks
• Must Sell Loans Through Mandatory Conduit
• Cutting Edge IT Department. Web Based Technology is a Must
• Most Importantly, a Loan Officer Centric Culture and Management Team

I don’t agree that mortgage brokers are a dying breed.  I do believe mortgage originators and mortgage bankers are creating new ways to do business though.  A growing strategy for many wholesalers is to convert some of their better broker customers to retail branches. Is this the wrong move? Will these originators maintain this retail relationship in the future?  Only time will tell. 

The mortgage business is a study in Darwinism.  Mortgage participants that learn to collaborate and adjust to the business environment will prevail.   Those that don’t may become road kill.

http://www.mortgagenewsdaily.com/garrett_watts/149946.aspx

October 07, 2010

TD Mortgages To Become Collateral Charges

TD is making a big change with respect to how it registers its mortgages. 

Effective October 18, all new TD mortgages will be registered as “collateral charges.”

A collateral charge is a different way to secure a home loan than a standard mortgage. “The terms of a collateral mortgage are outlined in a loan agreement that’s not registered,” says Invis’s Gary Siegle. “With a regular mortgage, the terms are in a ‘registered document’.”

Effectively, collateral charges allow lenders to change the interest rate and/or loan more money to qualified borrowers after closing, without involving a lawyer.* That saves the borrower legal costs if he/she needs to withdraw equity from their home.

In TD’s case, customers will now be able to register their mortgage for up to 125% of the value at closing. Hence, if one’s property value goes from $200,000 to $250,000, qualified borrowers will be able to withdraw most of that new equity without refinancing. 

“If I’m a consumer and I’m told that I can get more money in the next few years without extra cost, I would think most consumers would find that appealing,” says Siegle.

The downside comes at renewal. For consumers who want to keep their options open at maturity, this is an unfriendly change. That’s because TD customers will now have to pay legal fees to switch lenders.

Obviously, people switch lenders for many reasons, not the least of which is better rates or features.  And, with most other lenders, you can switch your mortgage for free, save for the discharge fee or other minor charges. 

From our own informal polls, many industry observers we’ve spoken with view this change largely as a strategy to retain customers at renewal.  If this is TD’s intention, they’re definitely not the first lender to think this way. There are various credit unions, for example, that register all of their mortgages as collateral charges.  There are also banks that push readvanceable mortgages (which also use collateral charges), for similar reasons.  TD itself has used collateral charges with its variable and HELOC products for a while.

For now, it’s difficult to assess the impact of this change.  Everyone needs to renew, but not everyone needs to refinance. So TD’s move will benefit some while hurting others. 

On the other hand, most mortgagors renew with their existing lender anyway, so the number of TD customers who refinance may be higher than the number of people leaving TD at renewal. 

That depends on the term, of course. Someone in 1-year fixed has a low probability of refinancing. So, other things being equal, TD will now be a less attractive option for standard 1- to 3-year terms.

In any event, TD customers need to be aware of both the pros and cons of this move. 

One thing we’re not certain of at this time, is how existing TD mortgages will be affected.  TD spokesperson Kelly Hechler said TD would release a clarification on this soon.

We’ll post more information in the comments section as it becomes available.

____________________________________________________

*  A collateral charge generally doesn’t allow a lender to change a fixed rate or the discount on a variable-rate mortgage. However, it does allow the lender to change the rate if you ask for more money later, or if you have a line of credit portion with a floating rate.

What’s the difference between a mortgage broker and a road rep?

By Derek Sankey, Postmedia News October 5, 2010

When Laura Parsons’s son, a heavy-duty mechanic, graduated with student debt like so many of his post-secondary peers, he also wanted to get into home ownership. Realizing the financial burden, he found a creative solution.

Over two years, he put money that would have gone to pay student loans into an RRSP for home ownership, which triggered a rebate that paid off half his student loan.

He put $8,000 into the RRSP and received back $4,600.

“It’s smart use of debt and understanding all the programs out there,” says Parsons.

If it’s not managed well, everyone faces the potentially crushing grip of debt.

Parsons’s son, perhaps, had one advantage: His mother is a manager for BMO Financial Group in Calgary.

Canadians are living with rising levels of debt, but there’s good debt and bad debt.

How you deal with it, financial planners say, will either allow you to move forward with your finances or run you into roadblocks.

Fifty-one per cent of Canadians say they are focusing on reducing their debt over the next year. Meanwhile, 39 per cent plan to spend less, according to the RBC Canadian Consumer Outlook Index.

“It’s important that Canadians feel confident and understand that managing debt is crucial to their financial success,” Andrea Bolger, a senior vice-president in personal financing products for RBC, said in the report.

Most Canadians’ largest source of debt is their mortgage, and recent talk of a housing bubble has led to some fear in the market. But Parsons says that fear is unfounded because Canadian borrowing rules and regulations are vastly different than those in the U.S. Parsons cited a recent Canada Mortgage and Housing Corp. article that argues the housing market is stable in Canada.

“We’re nowhere near the U.S. rules that caused so many foreclosures,” Parsons says. “That didn’t exist in Canada.”

Debt needs to be actively managed, according to Calgary financial planner Debbie Ehrstien, with RBC Wealth Management.

“People really need to analyze what kind of debt they’re carrying and [determine] if it makes sense,” says Ehrstien.

Active debt is debt on which interest rate payments and other expenses associated with the debt are tax deductible, such as borrowing to invest.

Passive debt, such as credit card debt, is non-deductible and the borrower shoulders the entire cost.

Moving forward with any financial plan requires consumers to deal with their debt. Pay off high-interest debt first, understand the true cost of each kind of debt — the terms and the interest rates — and manage debt by consulting with planners and using online tools to find ways to pay it down in the most cost-effective way, says Ehrstien.

Eighty-three per cent of Canadians who develop a comprehensive financial plan feel in control of their finances, she adds.

“Most people are starting to slow down enough to ask those key questions [and] utilize the cheaper debt to pay out the more expensive debt,” says Parsons.

The Financial Planning Standards Council has launched Financial Planning Week this week, during which certified financial planners will go into the community and give “financial planning health checkups” in various community venues to raise awareness about debt management.

© Copyright (c) The Vancouver Sun

Read more: http://www.vancouversun.com/business/Managing+debt+crucial+financial+success/3624422/story.html#ixzz11aIWNiUj

News Release: October 4, 2010

September previews fall real estate market in the Fraser Valley      

(Surrey, BC) – After a slowdown in July and August, the Fraser Valley Real Estate Board (FVREB) saw a modest month-over-month increase in sales on its Multiple Listing Service (MLS®) in September and a decrease in overall inventory for the fourth month in a row.

Deanna Horn, FVREB President, says, “This is the beginning of the fall market. Our sales, while lower than a typical September, are up compared to the summer and the average days to sale for single detached homes decreased slightly compared to August.”

A total of 1,044 sales were processed on FVREB’s MLS® in September, an increase of 5 per cent compared to 997 sales in August, however a decrease of 34 per cent compared to 1,590 sales in September of last year. The Board received 2,411 new listings last month, a 15 per cent increase from August, yet a 9 per cent decrease compared to September 2009. The Board finished September with 9,959 active listings, 3 per cent fewer than in August and an increase of 13 per cent compared to the 8,799 properties available in September 2009.

Horn explains, “Although consumers have 13 per cent fewer properties to look at in Fraser Valley than they did in May, it remains a buyers’ market with a healthy selection, near-record low interest rates and stable prices.

“It’s important that both buyers and sellers recognize that as long as inventory levels continue to decline, there is less downward pressure on pricing.”

The benchmark price for Fraser Valley detached homes in September was $507,429, down 0.5 per cent compared to August and 3.3 per cent higher compared to $491,404 in September 2009.   

The benchmark price of Fraser Valley townhouses in September was $321,843, a 0.8 per cent decrease compared to August and a 3.1 per cent increase compared to September 2009 when it was $312,143.

Year-over-year, the benchmark price of apartments decreased 0.3 per cent going from $240,378 in September 2009 to $239,625 last month. It remained unchanged from the benchmark price in August.   

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 2,960 real estate professionals who live and work in the communities of North Delta, Surrey, White Rock, Langley, Abbotsford, and Mission. 

 Canada 2011: The Hangover

North American & International Economic Highlights

Not surprisingly, the Canadian recovery didn’t play out as advertised. While we did see a spike late last year

and early 2010, the momentum has faded lately, largely as a result of a strong C$ and a softening US

economy. Growth in the second half of the year will be only a fraction of the Bank of Canada’s July Monetary

Policy Report forecast. Early 2011 doesn’t look promising either, which should prompt major revisions in

October’s MPR, forcing the Bank of Canada to defer further tightening.