TORONTO – The loonie has been living up to its name in recent weeks, swooping crazily from just above parity with the U.S. greenback to well below as it navigates a violently turbulent global economy.

The Canadian dollar’s latest move was a 2.12-cent retreat, as panicky currency traders looked for somewhere safe to park their cash while volatility rocks the world’s markets.

The biggest concern for weeks has been the threat of economic instability in Europe, with the possibility that Greece might default on its debts. Even if it doesn’t — thanks in part to a $1-trillion European Union rescue package — similar troubles in other member countries could still stall the global economic recovery.

Despite the relatively robust health of the domestic economy, the loonie has now fallen nearly four cents in little more than a week and nearly seven cents since late April, when it hovered around parity with the U.S. dollar.

“Canada is as unaffected as a country can be but that’s not to say it’s completely unaffected, because ultimately as we learned in the credit crunch if things were to get really quite bad, you do see every country in the world sucked into this thing,” said Eric Lascelles, chief strategist at TD Securities.

“It’s not a statement whatsoever against Canada, against the Canadian economy or against the currency directly — it really is a natural consequence of crisis which generally results in a flight to safe-haven currencies and, rightly or wrongly, the U.S. dollar is that currency right now.”

While the loonie appears to be taking it on the chin, that doesn’t mean it won’t bounce right back up to parity when the hurricane of uncertainty dies down and traders climb out of their risk-aversion bunkers, Scotia Capital currency strategist Camilla Sutton wrote in a note to clients.

“Though we continue to believe that the medium-term outlook for the U.S.-Canadian dollar is intact for another run at parity, until risk aversion abates (the U.S. dollar) is vulnerable to a push higher” against the loonie, Sutton wrote.

While that shouldn’t have much impact on the Bank of Canada’s plans to raise interest rates, “we think the market is still highly sensitive to the Bank of Canada decision on June 1,” she added. That makes it a little less likely — somewhere around a 50-50 chance — that the central bank will raise rates from their rock-bottom 0.25 per cent on June 1, waiting instead to do so in July. http://ca.news.finance.yahoo.com/s/20052010/2/biz-finance-loonie-continues-sharp-decline-against-u-s-dollar.html

Private sellers shaking up real estate industry Steve Ladurantaye

Globe and Mail

 Gordon Ives is the sort of customer who keeps real estate agents awake at night: a former customer.

Last year, after several years of trying to sell his Charlottetown home through an agent, the retired banker decided to change tack and find a buyer on his own. He calculated how much a conventional sale would cost him in commissions and sliced that much off his asking price. Four months later, it sold.

Net cost to him of selling it himself: zero. Net cost to the real estate industry: about $15,000 in lost commissions – and one client who is determined never to use an agent again.

“I hate to say this because I have some family members that are agents, but it’s really not that difficult to do if you’re comfortable dealing with people,” Mr. Ives says. “This is a wave that’s starting to build, and people have to realize that change is possible.”

Agents have long looked askance at people who wanted to sell their houses on their own, but those sellers were such a small part of the market that the industry rarely worried about them. That’s changing, and fast. Facing the erosion of their business model at the hands of a Competition Bureau that is intent on opening up the industry to new players, realtors are launching campaigns from coast to coast to discourage do-it-yourselfers and position themselves as the only sane way to sell a home.

The soft sell is being done on television, with an advertisement recently launched by the Canadian Real Estate Association that tries to show all the things an agent does to help – “Need staging advice? I do that too.” The hard sell is coming in other forms, as real estate boards ratchet up the rhetoric in a bid to win private sellers back.

In Nova Scotia, for example, homeowners who put their properties up for sale without the help of an agent can expect a scary letter to land in their mailbox, making sure they understand the hazards of going it alone. The letter, which comes from the Nova Scotia Association of Realtors, warns homeowners that they are “accepting with open arms increased risk of liability, threats to you and your family’s safety.”

“Realtors protect you and your family from any ill-intended strangers that will come in to your home under the pretense of wanting to buy,” the letter advises, before it goes on to warn of lower sale prices and longer sale times.

It’s a new position for the industry, which is used to having a near-monopoly on sales in Canada. It is widely accepted that about that 90 per cent of all home sales in Canada take place through the Multiple Listing Service maintained by the country’s real estate boards and CREA.

But that number is an educated guess, because there is no database that includes both houses sold by agents and those sold privately. And as technology makes selling on your own easier than ever, there’s little doubt that the estimate is increasingly out of date.

While selling privately has always been an option for anyone willing to try their luck after reading a few books, it has been aided by the emergence of services like PropertyGuys.com, which launched in 1998.

The business is built on the assumption that every part of a real estate transaction can be handled by an industry professional for a flat fee. PropertyGuys helps link up sellers with appraisers who can set prices and lawyers who can handle paperwork. The time is right for owner-led sales to take more market share, argue the company’s founders, because technology makes it easier than ever to find information and compile databases that can help both buyers and sellers handle transactions without a lot of middlemen.

Starting out of his basement in Moncton, Ken LeBlanc built a national network of franchises that guide homeowners through the process of selling their homes. While the number of listings is minuscule (about 10,000) compared to what’s offered by real estate agents through their Multiple Listing Service (236,397 at the end of April), they say the proportion of listings that result in sales is about the same, at near 50 per cent.

“You’d be amazed how many people around the country still think it’s illegal to sell your house on your own,” he says.

For sellers, the fees range from a few hundred dollars to a few thousand, depending on the amount of hand-holding required, but it has been enough to push PropertyGuys to profitability. When they began selling franchises in 2005, the asking price was less than $5,000. Today, the top price is closer to $50,000, and the business has grown to include 110 franchises from coast to coast.

The biggest gains have come on the East Coast, though the company is also taking a larger share of Northern British Columbia. Ontario is a tougher market to penetrate, because the number of agents in large metro centres such as Toronto makes it initially difficult for franchises to stand out.

Kenny Singleton owns the PEI franchise, and has seen his business grow to the point that he handles about 30 per cent of all sales in Charlottetown. He’d be small player in any other part of the country – only 1,404 houses sold on the island last year. But on the island, it makes private sellers a force to be reckoned with.

His first year was the hardest. Almost every prospective customer “heard around town” that the franchise was on the brink of bankruptcy, he said. He has also had to fight for many of his listings – personal relationships run deep, and almost everyone is either related to or friends with someone who sells real estate professionally.

“That holds up for a while, but there comes a point where people realize that it doesn’t make sense to spend $20,000 to sell your house,” he said. “That’s a realization that hits people after a while, and we’ve been here a while.”

He’s convinced selling privately is a better model – and scoffs at the idea that agents will get you a better price. A house will sell at the point where buyers and sellers intersect on price. Anything else is just superficial, he says.

“If you’re looking for a two-bedroom house and I have a three-bedroom house, there’s no real estate agent in the world that will be able to close that sale,” he said. “Price is what matters, and once you agree on that, then it’s a very simple process.”

His optimism is based largely on demographics. Real estate agents on PEI tend to be middle aged or older, and growing out of touch with a younger generation that prefers online options and is more comfortable with the idea of private sales than their parents would have been.

“These kids aren’t going to use an agent,” he says. “That’s just the way this is going. The agents are older and the buyers are younger, and they’ve had the Internet their whole lives.”

Of course, real estate agents see things differently. It’s hardly a straightforward transaction, and there are significant perils to someone who makes a mistake.

“Some people don’t understand the services we provide and it’s important we help them get a better sense of the value we provide,” says Karen Edwards, president of the Nova Scotia Association of Realtors.

The problem with private sales is that you don’t know what you don’t know, says the president of the Prince Edward Island Real Estate Board. Jim Carragher insists a lot of his new business comes from private sales gone bad.

“I’m telling you that it is so terribly sad when I get that phone call at the 11th hour from someone who was trying to sell their home who suddenly realizes they have made a terrible mistake,” he says. “Their deal falls through, they already bought something unconditionally. I try to help, but I tell you sometimes it’s just too late to undo the damage.”

Friday’s inflation rate expected to open door to interest rate hikes: economists  By Julian Beltrame, The Canadian Press

OTTAWA – Canadians likely have only two weeks left to enjoy historically low interest rates.

With global markets beginning to stabilize following the recent fears over a Greek debt default, economists say the pieces are falling into place for the Bank of Canada to move off its emergency 0.25 per cent rate on June 1.

Economists — and markets — have already pencilled in a doubling of the policy rate in two weeks. But that is only a beginning say analysts who believe governor Mark Carney will keep on hiking rates through the rest of the year.

Even the TD Bank, which only a few months ago was advising Carney to wait until at least the third quarter of 2010, is now calling for an incremental hike beginning in June.

The reason, says the bank’s director of forecasting Beata Caranci, is that the Canadian economic recovery is well ahead of schedule with what looks like two consecutive quarters of five per cent and beyond growth, a jobs recovery more robust than predicted with another 109,000 added in April, and inflation — the key indicator for the central bank — heading toward two per cent.

“The bank is looking a year or year-and-a-half out, and they are looking at an output gap that is not going to be there anymore, so they’ve got to start adjusting now to get the interest rate at what would be considered more neutral,” she explained.

“And if they don’t go now, it could mean we see bigger adjustments down the road,” she added.

Higher rates are meant to slow down excessive borrowing and head off asset bubbles like an overheated housing market, which the central bank has already highlighted as a risk. Cheap money is also seen as destabilizing in the long term, much as happened in the United States in the early part of the decade and eventually led to the most recent crisis.

Economists caution that the anticipated hikes by the central bank should not be seen as an attempt to slow down activity, but merely as moving to a more traditional posture. With inflation at near two per cent, the current 0.25 per cent level is actually a negative interest rate, they note.

The TD Bank and many others believe Canada’s policy rate will hit 1.5 per cent by year’s end, more in line with inflation.

Carney gave a strong hint last month that he was preparing to move, surprising observers by dropping his year-long conditional pledge not to hike rates until at least July.

He has since added an element of doubt into expectations by noting that he considered the very act of removing the conditional commitment to have been a policy tightening measure. The rate-hiking narrative took another detour earlier this month with the recent turmoil in equity and financial markets over government debt issues in southern Europe — that added new uncertainty to the global recovery scenario.

But unless Europe again flares up in a major way, the only question remaining for Carney will likely be answered Friday with the release of April inflation data by Statistics Canada, say economists.

The consensus is that headline inflation will rise to 1.6 per cent and core underlying inflation — the index the central bank closely watches — will edge up to 1.8 per cent.

Those numbers are still below the bank’s two per cent target but economists say they are worried because inflation is digging in at a time when the economy is still operating far below capacity, and at a time when the Canadian dollar is near parity.

That is not the case in the U.S., where inflation is actually heading south and could once again approach zero by year’s end.

“Even with the current volatility in financial markets, the Canadian story remains intact as underlying fundamentals continue to improve alongside strong corporate and household balance sheets,” write Scotiabank economists Derek Holt and Karen Cordes Woods in forecasting an interest rate hike.

Bank of Montreal economist Douglas Porter says there is still a chance Carney will wait until July 20, or even later, especially if the European crisis threatens to leak into North American credit markets, or if there’s a big downward surprise in underlying inflation Friday.

Increasing rates in Canada, especially since the U.S. is likely to keep its policy rate at zero until 2011, will put added upward pressure on the Canadian dollar, which will further depress the country’s manufacturing and exporting sectors.

But Caranci believes the dollar impact will be minor, because markets have already priced in several moves by Carney ahead of the U.S. And the loonie’s recent dip below parity to about 96 cents US has partly removed an important impediment to act on rates for the Bank of Canada, she adds. http://ca.news.finance.yahoo.com/s/18052010/2/biz-finance-friday-s-inflation-rate-expected-open-door-interest.html

Andrew Allentuck, Financial Post  Published: Thursday, May 06, 2010

Taking on a mortgage is a big commitment. Every buyer who uses a mortgage has the choice of floating or going with a fixed rate that often costs a couple of percentage points higher per year. Today, for example, one can get variable rates at an average rate of 2.34% while five year closed rates average 5.27%, according to Fiscal Agents Financial Services Group in Oakville, Ontario. Negotiated rates can be lower.

If rates never changed very much, there would be no contest – the floating rate deal would win. But rates do rise and fall and therein lies the borrower’s dilemma.

Borrowers with kids and an aging car fear that their ability to pay interest rates twice or thrice the current floating rates are limited. “The test is liquidity and risk tolerance,” says Derek Moran, a registered financial planner who heads Smarter Financial Planning Ltd. in Kelowna, B.C. “People with ample liquidity can afford to take a chance on rising mortgage rates. It follows that those who lack liquidity feel some pressure to avoid drastic interest rate increases.”

The point is not merely academic, for Canada, in spite of recent mortgage rate increases, is still at a relatively low point of rates over the last four decades. “There is more room for rates to go up than down,” Moran points out.

The cost of making a decision to float or go fixed varies with the rate differences.

In 2008, Moshe Milevsky, Associate Professor of Finance at the Schulich School of Business at York University, and Brandon Walker, a research associate at the Individual Finance and Insurance Decisions Centre in Toronto, published a study that measured the direct and opportunity costs of going with either choice. “Over the long run, homeowners really do pay extra for fixed rate mortgages,” they concluded.

The reason is intuitive. Lenders do not want to take the chance that when they have to refinance a loan that they will be stuck paying more than they are getting.

Mismatching what they lend with the cost of what they borrow can cut their profits and even lead to insolvency. So lenders attach what amounts to an interest rate insurance fee and bundle that into the price of money they lend on fixed terms.

Milevsky and Walker confirmed this explanation. “The study showed that a positive Maturity Value of Savings [the value of investing the difference between floating and fixed mortgages in 91-day T-bills] was positive the majority of the time, so the homeowner saved by using a variable-rate mortgage.”

The amount of money that the homeowner can save by taking a chance on floating rates varied in the Milevsky and Walker study, depending on the time periods in question. But the average amount was impressive: $20,630 as of 2008. Put another way, floating allowed borrowers to cut the time it would take to pay off the mortgages by a year or more, in some cases as much as five years on 15-year amortizations.

Rational calculation and personal feeling are, of course, different things. A person with a fixed income and a great deal of debt may be reluctant to put a rate casino between himself and the lender and will therefore go with certainty, even at a high price.

It is also a matter of experience. “First time buyers tend to pay close attention to the cost of the mortgage,” says Laura Parsons, Areas Manager of Specialized Sales – which includes mortgages, for the BMO Financial Group in Calgary. For them, the appeal of locking in is relatively high. Their mortgages are new, the amounts they owe are higher than they would be 10 or 15 years in future when the mortgage is substantially reduced, and their incomes, often early in their adult lives, are lower than they will be in future.

“First time home buyers are net debtors and they don’t want to endanger their finances,” suggests Adrian Mastracci, a portfolio manager and financial planner who heads KCM Wealth Management Inc. in Vancouver.

There are other strategies that the buyer can use to provide some rate insurance without taking on what Milevsky and Walker have demonstrated as the high cost of peace of mind.

“The buyer can take a variable rate mortgage but set payments higher than the minimum required” says Parsons. “That could be at the 5 year closed rate, which would mean a faster paydown and growing asset security while still keeping the low cost of the variable rate mortgage. Faster paydown is itself cost insurance if interest rates do rise.”

Banks are nothing if not inventive in helping clients cope with the fixed versus floating dilemma. For example, TD Bank offers to give 5% of the amount borrowed on a five or six year fixed rate residential mortgage to the borrower. The program, aptly dubbed the “5% CashBack Mortgage,” implicitly acknowledges that fixed rate loans can be more costly than variable rate ones.

For its part, RBC has a RateCapper Mortgage that builds on the initial low cost of a variable rate mortgage but limits the cost if rates shoot up. On a five year mortgage, the borrower will never pay more than the capped rate and if the variable rate, based on the prime rate, drops below the RateCapper mortgage maximum, the interest rate charged to the borrower also drops. The plan is a compromise and spreads interest rate risk. Many other lenders allow borrowers to mix fixed and variable rates, thus accomplishing a similar goal.

Plan selection, it turns out, is gender-related. According to a BMO survey, men, 44% of the time, are more likely than women to choose a fixed rate mortgage than women, who make that choice only 28% of the time. Women, it turns out, tend to make the better choice, for as BMO’s analysis shows, “fixed rates were advantageous during only two periods – through the late 1970s and in the late 1980s, in both cases ahead of a period rising interest rates, as is the case now.”

So where are interest rates headed? The yield curve, a line that links interest rates for periods of time from 1 day to 30 years, implies that rates will rise, but not very much.

There is no sense that we are returning to a period of double digit rates. Moreover, there are deflationary forces at work, notes Patricia Croft, chief economist of RBC Global Asset Management in Toronto. “The present crisis in European finance and the potential fizzling out of the present recovery in North American capital markets could presage falling inflation and even disinflation – the subsidence of rising prices and interest rates,” she explains..

BMO forecasts that the rising Canadian dollar will put downward pressure on consumer prices, reflecting the fact that much of what Canadians eat and use is imported. Inflation could flare up, BMO’s economists say, but there is a balanced risk of declining prices. For now, the Bank of Canada is being very cautious in its interest rate management commitments. For those who are strapped for cash, personal circumstance may dictate the choice of a fixed rate. But for everyone else, the folly of trying to make interest rate predictions over a business cycle and to predict both the short term rates and the long term rates along the yield curve should be apparent. No promises, of course, but the odds of saving money are with borrowers who choose variable rate plans or those that emulate them.

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.