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15 Dec

D Stands For Debt


Posted by: Kimberly Walker


Industry News
Monday was D-Day. Statistics Canada reported on it. Bay Street’s economists pontificated on it. And Mark Carney, in his own way, declared war on it. 
“D” stands for debt, and Canada Monday reached a high-water mark: For the first time, household debt hit 148% of disposable income and, for the first time since the late 1990s, topped the US equivalent. 
Carney, the Bank of Canada Governor, warned of the rising debt burden among Canadian families, and the risks they face when interest rates inevitably rise. 
“Experience suggests that prolonged periods of unusually low rates can cloud assessments of financial risks,” he said in a speech in Toronto. “Low rates today do not necessarily mean low rates tomorrow. Risk reversals when they happen can be fierce: The greater the complacency, the more brutal the reckoning.”
Click here for the full Globe and Mail article.
Ask questions first, regulate later. The potential for new mortgage restrictions is again making headlines.
This latest bout of concern is being fuelled, among other things, by:

1) Record consumer debt
2) Mark Carney’s debt warning
3) Concern by TD & BMO’s CEOs over 35-year amortizations
It’s clear that debt-to-income ratios cannot be left unchecked forever. Eventually consumers will have to reign in credit or the government will do it for them. The repercussions are undeniable. Unabated debt can put Canada’s economy in peril. If macro shocks occur, high debt ratios mean people have less ability to weather income reductions or home price declines.
The nightmare scenario is runaway defaults. Defaults sparked by economic crises can create a “negative feedback loop” says Mark Carney. That occurs when desperate home sellers drive down prices and beget more desperate home sellers.
The good news is that Canada’s regulators are keenly aware of these risks. The Bank of Canada, default insurers and major lenders regularly collaborate on ways to control systemic risk. One important tool is “stress testing,” which involves creating “what-if” scenarios using dire economic assumptions.
Click here to read the article.
BMO encourages Canadians to consider choosing a mortgage with a 25-year maximum amortization to help them save interest costs and pay down their mortgage faster. 
A BMO survey showed that 69% of Canadians are open to the idea of a shorter amortization. 
“While the purchase of a home represents an important investment for many Canadians, those looking to get into the housing market now or in the near future should be considering financially responsible options, such as a 25-year amortization, to ensure they can pay down debt faster and begin saving more for their long-term goals,” said Martin Nel, Vice President, Lending and Investment Products, BMO Bank of Montreal. 
“Canadians should be realistic in measuring what they are able to afford when it comes to the purchase of a home. Taking on a larger mortgage with a longer amortization in order to afford a ‘faux chateau’ will mean carrying the debt load longer and ultimately paying more in interest over the full term.”
Click here to read the BMO press release.
National resale housing activity continues its return to normal levels, having risen in November 2010 for the fourth consecutive month, according to statistics released today by the Canadian Real Estate Association.
Seasonally adjusted national home sales activity via the MLS Systems of Canadian real estate Boards climbed 4.8% in November 2010. Although this is well short of record level activity for the month of November posted a year ago, seasonally adjusted sales now stand 19.5% above levels recorded in July 2010, when it reached this year’s low point.
“Sales activity rose in many local markets but eased in others,” said Georges Pahud, CREA President. “Home buyers and sellers need to recognize that local and national market trends may differ, and for that reason, they would do well to consult their local realtor in order to understand how the housing market is shaping up in their market.”
Click here for the CREA press release.
As some of us are watching our gift budget balloon, it’s easy to think about financial atonement in the year ahead. It’s also easy to feel paralyzed by the endless choices for how to spend, save and invest. 
Stop sweating it. Think about how personal trainers help people get fit: They don’t show them a fancy new way to do a sit-up; they just make sure they do the sit-up. 
The same applies to your financial health, so start by focusing on three core areas.
Click here to read more from the Globe and Mail.
I recently wrote about, the personal finance website that now has me poring over every cent I spend. 
Mint helps you keep track of your money by pulling all your income and expenses into one central dashboard. 
Like any new discovery, I was all over the site in the beginning. I could break down my spending by category, set budgets and look at the company’s suggested ways to save money – all of which I find highly entertaining. (I know, I’m a weirdo.) 
But some of the shine has since come off my new-found toy. To be fair, I don’t blame Mint for this. I still think it’s a great site. The problem is my “entertainment” expenses. In the words of Jimmy McMillan, they’re too damn high.
Click here to read more from MoneySense.