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Housing and the Big, Bad, Budget
A lot has been said about Thursday's budget announcement. From Flaherty's shoe selection to a vague job-training program, many Canadian's were left slightly confused following the much-anticipated announcement. With that being said, Flaherty's eighth (and potentially final) budget announcement could have been worse, especially for the mortgage industry. Thursday's budget included a tightening of controls on mortgage lending once again, as well as another promise to further limit lender access to bulk mortgage insurance. While this will inconvenience some lenders, it's actually good news for taxpayers. The announcement is just the latest in a long line of moves from the Finance Department that touch on concerns over the housing market. As Canadian's continue to sink themselves deeper into household debt, Flaherty once again verbalized his mounting anxiety over interest rates. “Our concern, my concern for a number of years, is with very low interest rates that people can afford their mortgages when interest rates go up,” Flaherty told reporters while purchasing is budget-day shoes, a long-running Canadian tradition, at a Roots factory in Toronto on Wednesday. The Housing Market Under a MicroscopeFlaherty has made a career out of meddling in the in the mortgage market, influencing a number of policy changes in the past decade. And while home sales have slowed significantly and prices are beginning to drop in some of the critical markets since Ottawa's intervention last summer, Flaherty still feels that more needs to be done to protect consumers from themselves. As the economy slowly begins to right itself and interest rates eventually begin to rise, economists like Flaherty are worried that current mortgage holders won't be able to meet their increased mortgage payments. And since Ottawa backstops mortgage insurance, the Canadian taxpayer would be on the hook to cover this exposure. The Bad Side of Bulk Mortgage InsuranceMortgage insurance, which is backed up by the Canadian Mortgage and Housing Corporation, is intended to help consumers with low down payments enter the housing market more easily. Unfortunately, over time, it's also become a tool for banks to manage their risk. Banks' appetite for bulk mortgage insurance (also referred to as portfolio insurance) has continue to grow over the years. In fact, it's one of the main factors behind the government-owned CMHC's growing balance sheet. You see, whenever a new homeowner purchases a house without the mandatory 20 percent down, the mortgage needs to be insured to protect the lender. However, banks also offer this extended coverage to insure large swaths, or portfolios, of mortgages that don't necessarily need the protection. The budget states that, “With the financial crisis well behind us, the government is amending the rules for portfolio insurance to increase market discipline in residential lending and reduce taxpayer exposure to the housing sector.” New RulesFallout from the budget will include new rules that will gradually limit the sale of insurance on low loan-to-value mortgages (i.e. mortgages where the consumer ponies up a higher down payment) to those that are being used in Ottawa's securitization program through the CMHC. This will prevent banks from insuring their portfolio mortgage products in order to reduce their capital requirements. Flaherty's changes will also enable Ottawa to stop the use of any taxpayer-backed insured mortgages (even the high ratio ones)as collateral in securities that are not sponsored by the Canadian Mortgage and Housing Corporation. This will protect Ottawa's potential exposure. Flaherty and the Department of Finance noted that they intend to further consult with the finance industry before implementing this rules later in the year. In the meantime, financial institutions will continue to have access to a broad array of financing options. As always, we'll follow this story as it unfolds right here on the Mortgage Talk Canada Blog.
Listing This Spring? Sounds Like You Could Use a CMA
Thinking about listing your property this spring? Then now's the time to request a comparative market analysis(CMA) from your real estate agent. A CMA is an evaluation of listings and sale prices of similar houses in your neighbourhood. Similar to an appraisal in that it provides sellers with an estimate of their home's market value, a CMA can help you be objective about the true value of your home. CMAs can also be useful for home buyers and homeowners. Buyers can use a comparative market analysis to ensure that they aren't overpaying for a property, while homeowners often consult a CMA as part of mortgage refinancing application. A CMA will show whether or not the value of your home is high enough to qualify you for a better mortgage rate. A comparative market analysis can also be useful if you're in need of a second mortgage. For more information on the benefits have performing a comparative market analysis as part of your refinancing application please contact a mortgage broker directly. Data Doesn't LieMost comparative market analysis reports contains information on the following: Active ListingsThis section of the CMA offers a detailed outline of the listings currently on the market in your neighbourhood. These homes are in direct competition to your listing; as such, it's important that you take their price breakdowns into account. If you price your home above the list price of pending sale properties, chances are good you'll have difficulties selling quickly. Pending ListingsThe pending listings portion of your CMA will contain information about homes that are no longer on the market, but are still under contract. These homes have received an offer and are currently in the process of closing. Since these properties are still technically open, you won't be able to access the exact sale price. With that being said, pending sales are indicative of the direction that your local real estate market is moving in. As such, it's worth noting the list price of these properties when putting together you own listing. Sold ListingsThis is the most important part of your CMA. This portion will normally contain a listing of the homes that have closed in your neighbourhood over the past three to six months. This will include their list price and their final sale price. Expired, Off-market, Withdrawn, and Otherwise Cancelled ListingsIf you're worried that you're overpricing your property, be sure to take a long hard look a this portion of your CMA. This section of the report will provide a good indicator of the highest median sales price of homes in your median. Look for Comparable PropertiesComparative market analysis are most useful when you can pinpoint properties that are similar in size, shape, and condition to your own. You can then use these listings to influence your pricing strategy. When reviewing listings for comparable properties, look for the following factors: Similar square footage Similar age and construction type Similar amenities and upgrades LocationA comparative market analysis will help you make an educated decision concerning your home's pricing strategy. Remember, competitively priced homes have a far better chance of selling in a timely period. Consult with your real estate agent and mortgage broker today for more information on comparable properties in your area.
No Change in Bank of Canada Rate
While the Canadian economy continues to grow at a slower pace than expected, last week's release from the Bank of Canada wasn't all doom and gloom. Consumer debt and the housing market finally appear to bestabilizinghere in the Great White North, at the same time debt concerns in the United States and Europe have begun to dissipate. As such, the message was clear from Bank of Canada Governor Mark Carney last Wednesday - interest rates aren't going anywhere anytime soon. Last Wednesday's report was the first time that policymakers combined theirregularlyscheduled rate decision release with the Bank's Monetary Policy Report, one of the nation's most important quarterly statements concerning the state of domestic and global economic factors. Business As UsualAs expected, the Bank of Canada announced that they will continue to keep borrowing costs low, maintaing its trendsetting overnight rate at a 1 percent low. This rate has remained unchanged since September 2012 making it the longest dormant stretch since the 19050s. Even so, analysts were surprised by the tone of the statement.Dovish was the word that a handful of analysts used to describe the announcement, which revised the Bank's projected interest rate and pushed a possible increase to 2014. The announcement cited excess capacity and soft inflation as the contributing factors to this decision: Total CPI inflation is expected to remain around 1 per cent in the near term before rising gradually, along with core inflation, to the 2 per cent target in the second half of 2014 as the economy returns to full capacity and inflation expectations remain well-anchored.The Bank also adjusted their economic forecast based on this new information, updating their Monetary Policy Report estimates as follows: Following an estimated 1.9 percent in 2012, the economy is expected to grow by 2.0 percent in 2013 and 2.7 percent in 2014. The Bank now expects the economy to reach fullycapacityin the second half of 2014, later than anticipated in the October Monetary Policy Report.The Bank expects growth to pick up through 2013, citing a rebound in investments and exports as foreign demand strengthens. Consumption is also expected to grow moderately, while residential investments will decline from their recent historically high levels. Reading Between the Lines of the Monetary Policy ReportAccording to January's revised economic outlook, near-historic lending rates from the nation's financial institutions have slowed the growth of household credit from 5.5 percent last year to slightly more than 3 percent in the first quarter of 2013. According to the report, this is the lowest rate of growth since 1999 and reflects a slowdown in the growth of both residential mortgage and consumer credit. This latest release puts the nation's ratio of household debt to income at 165 percent. Canadian mortgage holders and financial experts can review the Bank's statement online here. The full Monetary Policy Report can also be downloaded from the Bank of Canada's website. The next scheduled date for announcing the Bank's overnight rate is March 6th. The next Monetary Policy Report will be released on April 17th. It's also worth noting that Carney will be stepping down as the Bank's Governor on June 1 in order to take the top position with the Bank of England. Stay tuned to the Mortgage Talk Blog for more information on interest and mortgage rate changes.