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DECODING THE MORTGAGE MARKET Mortgage rates today are way below normal. Or are they?
Finance Minister Jim Flaherty called Canada’s low interest rates an “anomaly” last week, echoing warnings that other government officials have been making since 2009. But one of the country’s best-known economists believes today’s rates are closer to normal than many think.Benjamin Tal, deputy chief economist at CIBC, caught viewers off guard in a recent webcast with a mortgage company TMG The Mortgage Group. Whereas most economists have been calling for the Bank of Canada to lift its 1 per cent key lending rate back to a more normal 3 per cent, Mr. Tal thinks that these days, “normal” is significantly less.“The speed limit of the economy has been permanently reduced,” Tal said. Inflation, the key rate threat, is extraordinarily low at 1.1 per cent. And the pace of economic growth is in a long-run downtrend, with few signs of bucking that trend.Consequently, “The new normal is much lower interest rates than there used to be…The new normal would be maybe another 100-125 basis points (above today), not more than that.”If true, this would suggest that prime rate - the basis for variable mortgage rates – will average just 4 to 4.25 per cent over the long term, a big departure from the roughly 5 per cent prime rate that most economists forecast as “normal.”Saving ¾ of a percentage point, over the long-term, would have enormous impact on the finances of regular Canadians. Over five years alone, it would put $11,000 of interest back in people’s pockets on the average home purchase, with 20 per cent down. If you’re financially secure, that makes shorter-term and variable-rate mortgages worth a close look.In an email with Mr. Tal about his call, he was careful to point out that “the new normal is a theoretical rate.”“There is a big difference between the actual and theoretical rate,” he said. “In practice, rates tend to overshoot or undershoot. So it is possible that rates will rise by more than that, possibly to 3 per cent.”Presumably, if his model is correct, rates would then revert back down to the mean and cycle around that 4.25 per cent prime rate number.Regardless of how accurate Mr. Tal’s forecast proves to be, the odds are decent that the prime rate will remain almost two percentage points below its 6.89 per cent 30-year average. That’s in keeping with the Bay Street consensus. But more importantly, it’s reflective of Canada’s new realities: contained inflation and modest economic growth.“Variable will probably do better in this environment...if you have a five-year time horizon.” But long-term interest rates will be “permanently higher” five years from now, Tal predicts.If Mr. Tal’s estimate of a 4 to 4.25 per cent prime rate does pan out, variable rates could save people more than fixed rates over the long-run, as they have for decades. And even if “normal” turns out to be a 5 per cent prime rate (which is closer to most economic forecasts), variables should still come out on top over the long term.The question is, what happens between now and the time that rates “normalize.”Today you can find variable rates at prime – 0.5 per cent (i.e., 2.5 per cent) and five-year fixed rates at 3.49 per cent. Let’s assume that rates shoot up in 2015 as economists expect (an expectation that changes with the wind) and that they increase two percentage points over the two years that follow.In the hypothetical scenario laid out above, those of you shopping for a mortgage may find extra value in two particular terms:A three-year fixed mortgage: If you can find one in the 2.75 per cent range or better, it’s a compelling option. It gives you meaningful savings for three years (when compared to terms of four years or more). It also provides insulation from rate increases for three years. Compared to a five-year fixed mortgage, rates would have to be 2.25 percentage points higher at renewal for you to lose on this strategy. That assumes you make equal payments in all cases and renew into a two-year fixed (which adds up to five years total). Betting against a 225 basis point hike in three years is a wager that most strong borrowers should make.A hybrid (50/50) mortgage: Despite our personal beliefs, rates are impossible to foretell with accuracy. A hybrid mortgage removes the guesswork, cuts your risk of rising rates in half and lets you participate in today’s low variable rates. This strategy involves putting 50 per cent of your mortgage in a five-year variable and 50 per cent in a five-year fixed, netting you a starting rate under 3 per cent. It also gives you more flexibility than a five-year fixed by letting you refinance early with a lower potential penalty, and letting you lock in the variable rate at any time.Keep in mind, these strategies are primarily based on hypothetical interest cost. They’re also suited mainly to well-qualified borrowers with sound finances, stable employment and a five-year time horizon. Your situation may be different so as always, make sure to do your own research on what works best for you.Robert McLister is the editor of CanadianMortgageTrends.com and a mortgage planner at VERICO intelliMortgage, a mortgage brokerage. You can also follow him on twitter at @CdnMortgageNews.Source:ROBERT MCLISTERSpecial to The Globe and MailPublished Sunday, Nov. 10 2013, 10:47 PM ESTLast updated Monday, Nov. 11 2013, 10:32 AM EST
Ownership of Residential Property by Non-individuals
New data released today from the Canadian Housing Statistics Program provide information on ownership of residential properties by non-individuals in Nova Scotia, Ontario and British Columbia. The Canada Mortgage and Housing Corporation published a report using these new data,Residential Property in British Columbia, Ontario and Nova Scotia: An Overview of Non-individual Ownership, which also includes analysis of the ownership structure of vacant land across the three provinces.
The data tables include information on non-individual entities, referring to firms and governments. For the purpose of this release, they are classified into the following categories: corporations, governments, and sole proprietorships and partnerships. Information on selected sectors in which those entities operate, following sector groupings from the North American Industry Classification System (NAICS), is also included in this release.
Among firms and governments, corporations own the majority of residential properties
Across the three provinces, corporations are the most common legal type of non-individual owners of residential properties, followed by governments. Corporations include businesses and non-profit organizations, while governments include federal, provincial, territorial and municipal governments. In terms ofNAICSsectors, entities belonging to the real estate and rental and leasing sector, the public administration sector and the construction sector are the most common non-individual owners of residential properties.
In Ontario, three-quarters of non-individual owned properties are held by corporations, compared with68.9% in Nova Scotia and57.3% in British Columbia. The share of non-individual owned properties held by governments is highest in British Columbia (39.0%), followed by Nova Scotia (22.9%) and Ontario (20.1%).
In Nova Scotia,28.8% of residential properties held by corporations are owned by the construction sector, compared with22.5% in Ontario and21.4% in British Columbia. Among the residential properties owned by corporations, the real estate and rental and leasing sector accounts for the largest share in Ontario (31.1%) and in British Columbia (23.4%), while in Nova Scotia it represents about one-quarter of the properties held by corporations.
The average assessment value of a residential property owned by corporations is highest in British Columbia at $1.3million, compared with $630,000in Ontario and $330,000in Nova Scotia. In British Columbia, corporations account for84.7% of the total assessment value of non-individual owned properties, while in Ontario and Nova Scotia this share is closer to80%. Residential properties owned by governments represent around10% of the total assessment value of properties owned by non-individuals in each province.
Resolution broken already? Try a wellness goal instead
Many of us make New Years resolutions every January. But statistics show that nearly 80 per cent of people who make them will have broken them by February.
If you feel like this is you, dont fret. Most of us can agree, especially with recent holiday indulgences, that improving personal fitness and nutrition is an intimidating idea. But the secret to getting motivated and keeping the momentum going into the spring is to follow these three simple guidelines:
Dont try too much at once. When we first set fitness and wellness resolutions, were often inclined to make a goal to spend every day at the gym and eat clean 100 per cent of the time. There is a reason these are too often broken they are hard to accomplish. Listen to your body and do what feels good for you. Modify your lifestyle to a healthy one that fits your needs and is one youll be able to sustain throughout the year.
Stick to it. Experts say that it only takes 21 days to create a lasting habit. While that may seem like a lot, three weeks will come quickly and there are many resources out there to help you through it, from fitness plans to eating guides. AdvoCare, a nutrition and wellness company new to Canada, carries several products to help enhance your results.
Keep a positive mindset. If you miss a day, dont stress about it, you can get back on track tomorrow. Staying positive about your wellness journey will keep you on track to reach your goals and maintain a healthy lifestyle well into the future.
If you are able to make it to day 21, youll set the stage for the rest of the year and will be on the right track to meeting your fitness and nutrition goals.
Find more information at advocare.com/en-ca.