Bank of Canada announces appointment of Tiff Macklem as Senior Deputy Governor

OTTAWA, Ontario, February 26, 2010 — The Board of Directors of the Bank of Canada today announced that Tiff Macklem has been appointed Senior Deputy Governor for a term of seven years beginning 1 July, 2010. His selection was made by the independent members of the Bank's Board and was approved by the federal Cabinet.

Mr. Macklem, who has had a long association with the Bank of Canada, is currently Associate Deputy Minister of the federal Department of Finance and Canada's G7 Deputy. In this capacity, he has helped develop measures to mitigate the impact of the global financial crisis and has been closely involved in developing the global response to the crisis through the G7, G20 and the Financial Stability Board.

Governor Mark Carney warmly welcomed Mr. Macklem's return to the Bank of Canada in this important position. "Tiff represents the best traditions of the Bank of Canada. His extensive experience and management approach are ideally suited to the demanding and complex roles of the Senior Deputy Governor. As well as serving as a member of the Governing Council, which oversees the Bank's monetary policy and approaches to financial stability, the Senior Deputy Governor is the Bank's chief operating officer responsible for the effective and efficient operation of the Bank," said Governor Carney.

Mr. Macklem, who was born in Montréal, graduated from Queen's University (1983) with a BA in Economics and obtained an MA (1984) and a PhD in Economics (1989) from the University of Western Ontario. In 1984, he joined the Bank of Canada in the Department of Monetary and Financial Analysis. Mr. Macklem occupied increasingly senior positions in the Research Department (now Canadian Economic Analysis) until his appointment as Chief in January 2000. He was appointed Adviser to the Governor in August 2003. In 2003-4, he was seconded to the Department of Finance, returning to the Bank as a Deputy Governor in December 2004. He rejoined Finance as Associate Deputy Minister in 2007.

Archive: /mortgage-news/archive/2010/2010-02-26_BOC-bank_canada_announces_appointment.stm
News source: Bank of Canada

Manitoba's New and Resale Housing Markets Expected to Improve

WINNIPEG, Manitoba, February 25, 2010 — Housing market analysts predict single-detached and multi-family starts in Manitoba to increase in 2010 as buyers return to the marketplace following the economic downturn in 2009. Canada Mortgage and Housing Corporation (CMHC) experts will present their outlooks today at the annual Housing Outlook Conference in Winnipeg. Attendees will hear first-hand about economic, demographic, and other factors that will impact the Winnipeg and provincial Manitoba housing markets over the next few years.

"In the second half of 2009, home buyers took advantage of low mortgage rates and improved affordability, this momentum is expected to continue in 2010," noted Lai Sing Louie, CMHC's Regional Economist for the Prairie Region. "Improving economic conditions and positive migration will result in rising demand for both new and resale homes through 2011."

Jeff Powell, CMHC's Senior Market Analyst for Winnipeg noted similar expectations for the Winnipeg market. "The Winnipeg housing market experienced reduced activity in 2009, coinciding with the global economic downturn," he noted. "Increased sales for new and existing homes over the second half of 2009 will set the stage for modest growth over the next few years."

Meanwhile, the vacancy rate in Winnipeg remained low in 2009, despite increased rental construction and a growing rental market universe. "While slightly higher vacancies in the rental market are forecast in 2010 and 2011, prospective tenants will still require some effort in locating a suitable rental unit," said Powell.

As Canada's national housing agency, Canada Mortgage and Housing Corporation (CMHC) draws on over 60 years of experience to help Canadians access a variety of quality, environmentally sustainable, and affordable homes -- homes that will continue to create vibrant and healthy communities and cities across the country.

Archive: /mortgage-news/archive/2010/2010-02-25_CMHC-manitobas_resale_housing_markets.stm
News source: Canada Mortgage and Housing Corporation (CMHC)

Low inventory levels set stage for heated Spring market in most major Canadian centres, says RE/MAX

KELOWNA, British Columbia, February 24, 2010 — Lack of inventory will be the greatest challenge facing housing markets across the country this Spring, according to a report released today by RE/MAX.

The RE/MAX Market Trends Report 2010, which examined real estate trends and developments in 16 markets across the country, found that unusually strong activity during one of the traditionally quietest months of the year has led to a sharp decline in active listings in 81 per cent of markets surveyed. The threat of higher interest rates, tighter lending criteria, and in British Columbia and Ontario, the introduction of the new Harmonized Sales Tax (HST) have clearly served to kick-start real estate activity from coast-to-coast, prompting an unprecedented influx of purchasers. As a result, 87.5 per cent of markets posted an increase in sales in January. Average price appreciated in 81 per cent of markets surveyed.

“Affordability is the catalyst for the vast majority of purchasers in today’s housing market,” says Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada. “While homeownership is still within reach in many major centres, levels are slipping. There is a growing sense, on both sides of the fence, that the time to act is now.”

Markets experiencing the tightest inventory levels include Toronto (- 41 per cent); Kitchener-Waterloo
(-33 per cent); Ottawa (- 30 per cent); Victoria (- 30 per cent); Greater Vancouver (- 27 per cent); Halifax-Dartmouth (- 19 per cent); London-St. Thomas (- 18 per cent); Regina (- 16 per cent); and Winnipeg (- 13 per cent). Conditions were still balanced, but starting to tighten in Calgary, Edmonton and Saskatoon, particularly in the single-family detached category.

The highest year-over-year sales gains were reported in Greater Vancouver (152 per cent), Kelowna (121 per cent), Greater Toronto (87 per cent), Victoria (69 per cent), Hamilton-Burlington (58 per cent), London-St. Thomas (55 per cent) and Calgary (47 per cent). Western Canadian cities dominated the list of centres with the highest increases in price appreciation. These included Victoria at 25.5 per cent, Kelowna at 22 per cent, Greater Vancouver at 19.5 per cent, and Winnipeg at 17 per cent. St. John’s (23 per cent) and Toronto (19 per cent) were also among the frontrunners for price growth.

“There have never been so many motivating factors in play at once,” says Michael Polzler, Executive Vice President, RE/MAX Ontario-Atlantic Canada. “We’re in for a heated Spring market that will, in all probability, spill over into the summer months as the window of opportunity draws to a close. The supply of homes listed for sale has been drastically reduced, housing values are once again on the upswing, and banks and governments are moving in unison toward stricter lending policies.”

While buyers are taking advantage of favourable conditions, sellers too are reaping the rewards. Competing bids are a factor in the marketplace once again, with well-priced listings—especially at the entry-level price point—experiencing multiple offers. Properties priced at fair-market value will likely sell quickly for top dollar. The overall pressure on sales and price is significant across the board – and it’s not likely to subside unless more inventory comes on-stream.

“The level of frustration is growing, as pent-up demand builds,” says Polzler. “For every successful offer, there are those that will walk away empty-handed. They’re thrust back into the buyer pool and the process starts all over again. Some buyers are upping the ante, while others are considering alternate housing options. Still, purchasers remain cautious in their bids, with most careful not to max out debt service ratios.”

Recent revisions to lending criteria will add fuel to the fire in the short term. Buyers considering a variable rate mortgage will step up their plans for homeownership in the next month or so just to get in under the wire. In the longer term, buyers will adjust, but move forward. Compromise has long been a reality—particularly in the larger centres. This simply means they may go smaller or further in their pursuits.

“It’s been a 180 degree turnaround from this time last year,” says Ash. “It’s clear that real estate from coast to coast has roared back to life and markets are once again firing on all cylinders. The vast majority of markets are now recovered and fully-evolved, with all segments working in tandem. At the luxury price point, activity was brisk in seventy-three per cent of centres surveyed, with momentum ramping up in the remainder. Opportunity exists in some areas, but the question is for how much longer?”

RE/MAX is Canada’s leading real estate organization with over 17,000 sales associates situated throughout its more than 677 independently-owned and operated offices across the country. The RE/MAX franchise network, now in its 37th year, is a global real estate system operating in more than 70 countries. Over 6,700 independently-owned offices engage nearly 100,000 member sales associates who lead the industry in professional designations, experience and production while providing real estate services in residential, commercial, referral, and asset management. For more information, visit: www.remax.ca.

Archive: /mortgage-news/archive/2010/2010-02-24_REMAX-low_inventory_levels_set_stage.stm
News source: RE/MAX

National resale activity edges down in January

OTTAWA, Ontario, February 17, 2010 — According to statistics released by The Canadian Real Estate Association, the number of homes sold through the Multiple Listing Service® (MLS®) Systems of Canadian real estate Boards declined in January 2010 from the previous month.

Seasonally adjusted national home sales dropped 2.8 per cent from near record levels reported in December. Ontario accounted for about half the national decline. Activity was also down in British Columbia, Alberta, and Manitoba, but reached new heights in Quebec.

Actual (not seasonally adjusted) residential sales activity in January 2010 was up 58 per cent from year ago levels, when national home sales activity reached the lowest level in a decade. Because activity began recovering in February last year, large year-over-year gains are expected to shrink over upcoming months.

The average price of all homes sold through the MLS® Systems of Canadian real estate Boards in January 2010 was $328,537, up 19.6 per cent from one year ago. In January 2009, the average residential sale price fell to the lowest level in almost three years. Year-over-year average price gains are being stretched by weakness one year ago, and are expected to shrink beginning next month.

The price trend is similar but less dramatic for the national weighted average price, which compensates for changes in provincial sales activity by taking into account provincial proportions of privately owned housing stock. It climbed 14.9 per cent year-over-year basis in January 2010.

The residential average price in Canada’s major markets also climbed 19.6 per cent year-over-year in January. As with the national counterpart, the price trend is similar but less dramatic for the major market weighted average price, which rose 13.1 from January 2009.

Across Canada, the seasonally adjusted number of new listings on Boards’ MLS® Systems edged up three tenths of one percent on a month-over-month basis in January to reach the highest level since November 2008. New listings rose in British Columbia, Alberta and Newfoundland, offsetting declines in other provinces. The actual (not seasonally adjusted) number of new residential listings was up 3.4 per cent from one year ago.

“The resale housing market is becoming more balanced in a number of provinces, including my own province of Saskatchewan,” said CREA President Dale Ripplinger. “A more balanced market is likely to result in smaller price increases going forward, with buyers in less of a rush due to an increase in supply. That said, market conditions vary across Canada, so buyers and sellers are wise to consult with a REALTOR® since they know current conditions in your local market.”

Strong demand for resale homes continues to draw down supply. There were 170,199 homes listed for sale on Boards’ MLS® Systems in Canada at the end of January 2010, a decline of 18 per cent from levels reported for the same month in 2009. Nationally, there were 4.4 months of inventory in January 2010 on a seasonally adjusted basis. This is up slightly from 4.2 months in December.

The actual (not seasonally adjusted) number of months of inventory in January 2010 stood at 6.6 months. This is well below where it stood one year ago (12.8 months), but slightly higher than it was in the month of January in the years 2004 through 2008. The number of months of inventory is the number of months it would take to sell current inventories at the current rate of sales activity.

“January results suggest that the national resale housing market may be past the recent peak,” said CREA Chief Economist Gregory Klump. “One car doesn’t make a parade, so a few more months of results showing a cooling trend will be required before talk of a Canadian housing bubble begins to fade. It could take until the second half of the year before a cooling trend becomes evident, since home buying activity may continue to be accelerated in the first half of 2010 by expected interest rate increases, and by the introduction of the HST in Ontario and British Columbia on Canada Day.”

Archive: /mortgage-news/archive/2010/2010-02-17_CREA-national_resale_activity_edges.stm
News source: The Canadian Real Estate Association (CREA)

Government of Canada Takes Action to Strengthen Housing Financing

OTTAWA, Ontario, February 16, 2010 — The Honourable Jim Flaherty, Minister of Finance, today announced a number of measured steps to support the long-term stability of Canada's housing market and continue to encourage home ownership for Canadians.

"Canada's housing market is healthy, stable and supported by our country's solid economic fundamentals," said Minister Flaherty. "However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing."

The Government will therefore adjust the rules for government-backed insured mortgages as follows:

• Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
• Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
• Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one. Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," said Minister Flaherty. "If some lenders aren't willing to act themselves, we will act. These measures demonstrate the Government is committed to taking action when necessary to support the long-term stability of a sector that is so vital to our economy and the financial well-being of Canadian families."

These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010.

Archive: /mortgage-news/archive/2010/2010-02-16_FINANCE-government_canada_takes_action.stm
News source: Department of Finance

Statement by BMO Bank of Montreal on Changes to Canada's Mortgage Market

TORONTO, Ontario, February 16, 2010 — "While we do not believe that Canada faces a housing bubble, we fully support the Minister's actions. Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent. Currently, we require high ratio mortgages to be able to qualify using the 5 year rate," said Frank Techar, President, Personal and Commercial Banking, BMO Bank of Montreal. "For several months now, BMO has been encouraging Canadians to stress test their financial budget using a mortgage payment based on a higher interest rate. If you are looking for a bank that will listen to you, help guide you and bring clarity to home financing decisions, come in and talk to a BMO Bank of Montreal Banker."

Archive: /mortgage-news/archive/2010/2010-02-16_BMO-statement_bmo_bank_montreal_changes.stm
News source: BMO Financial Group

BMO asks Canadian Home Owners- How Low Can You Go?

TORONTO, Ontario, February 12, 2010 — It’s time more Canadian homeowners and prospective buyers consider taking a shorter amortization for their mortgage, according to BMO Bank of Montreal.

"While many people choose the longest length of time to pay back their mortgage, they could pay thousands of dollars more in interest in the long run,” said Jane Yuen, Senior Manager of Mortgages, BMO Bank of Montreal. “Cutting your amortization period by 5 years from 30 to 25 years could save you over $53,000 in interest. You will be mortgage-free faster and your monthly payments will only increase by $84.” ¹

Comparison ($200,000 mortgage at 7 per cent interest on a fixed term²):

“Shortening your amortization period during an expected rising interest rate environment makes good sense,” according to Sal Guatieri, Senior Economist, Bank of Montreal. “To ensure to you aren’t negatively affected when rates go up, it is important to work with a banker to stress test your financial budget using a mortgage payment based on a higher interest rate,” added Yuen.

For news media inquiries, please contact:
Toronto, 416-867-3996

¹ Example is based on $200,000 mortgage, at 7% APR amortized for 25 years.
² Per annum, calculated half-yearly, not in advance. The rate shown is an example only and is not necessarily applicable to an actual mortgage.
³ Assumes same interest for entire amortization period.

Archive: /mortgage-news/archive/2010/2010-02-12_BMO-bmo_asks_canadian_home_owners.stm
News source: BMO Financial Group

Resale housing forecast extended to 2011

OTTAWA – February 8, 2010 – The Canadian Real Estate Association has revised its forecast for home sales via the MLS® Systems of Canadian real estate boards in 2010, and extended the forecast to 2011.

With Canadian economic growth rebounding from the recession, the unusually severe decline in sales activity in early 2009 is not expected to recur in 2010.  Annual activity in 2010 is forecast to be well above the previous year’s level as a result.

CREA forecasts national activity will reach 527,300 units in 2010, up 13.3 per cent from 2009. This would represent a new annual record, standing 1.2 per cent above the previous peak in 2007. Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario.

National home sales activity is expected to remain strong in the first half of 2010, fuelled by low interest rates and homebuyers motivated to avoid the HST before it comes into effect in Ontario and British Columbia.  Over the second half of the year, national activity is expected to trend downward as the last of pent-up demand is exhausted, interest rates begin rising, and the HST comes into effect in Ontario and British Columbia.

Interest rate increases will contribute to weaker national sales activity in 2011.  National home sales activity is forecast to decline 7.1 per cent to 490,100 units in 2011, putting it on par with annual levels reported in 2005 and 2006.

“Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers requiring mortgage financing, and support overall housing demand,” said CREA President Dale Ripplinger.

The national average home price is forecast to climb 5.4 per cent in 2010, reaching a record $337,500, with average price gains forecast in all provinces. The national average price increase will continue to reflect upward skewing from the rebound in activity among Canada’s priciest markets, particularly in British Columbia and Ontario.

The national average price is forecast to ease by 1.5 per cent in 2011. Modest average price gains are forecast for all provinces except British Columbia and Ontario, whose share of national activity is expected to ease. The shift in the contribution made by provinces toward national activity will continue skewing the annual comparison in the national average price in 2011.

The price trend is similar but less dramatic for the weighted national average price, which compensates for changes in provincial sales activity by taking into account provincial proportions of privately owned housing stock. The weighted national average price is forecast to climb 4.8 per cent in 2010, and remain stable in 2011.

“Improved financial market stability and recovering global economic growth mean that home sales activity in 2010 is unlikely to repeat the dive it experienced in late 2008 and early 2009,” said Chief Economist Gregory Klump.

“Fiscal restraint, a strong Canadian dollar and a subdued inflation outlook point to marginal interest rate increases over the next couple of years, especially if the U.S. economic recovery proves to be weak and protracted,” said Klump.

“The Bank of Canada will need time to gauge the effect of interest rate increases on Canadian economic growth,” Klump said.  “It recognizes that consumer debt burdens are running high, so it will want to gauge the impact of interest rate hikes on domestic demand and overall economic growth. Changes in interest rates impact the economy with a lag, so the timing and magnitude of interest rate hikes will be tricky, given that the Bank expects the private sector to lead economic growth once temporary government stimulus spending expires,” he added.

“The decline and subsequent rebound in sales activity for homes in the upper price spectrum in some of Canada’s priciest markets skewed average prices upward in the second half of 2009 and into 2010. This segment of housing activity in Ontario and British Columbia is expected to ease beginning in the second half of 2010, causing average prices to moderate in those provinces,” said Klump.

“A downward trend in national sales activity combined with an increase in listings will result in a more balanced market. Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely continue to be held in check. As a result, while the real estate market will become more balanced, Canada will continue to avoid the massive realignment in housing supply and demand experienced in the U.S.”

CREA Residential Market Forecast:

NOTE: All statistics contained in this release are obtained through analysis of the MLS® Systems of real estate Boards across Canada.

MLS® Systems are co-operative marketing systems used only by Canada’s real estate Boards to ensure maximum exposure of properties listed for sale.

8217;habitations en janvier

Archive: /mortgage-news/archive/2010/2010-02-08_CREA-resale_housing_forecast_extended.stm
News source: The Canadian Real Estate Association (CREA)

CREA Disappointed By Bureau Tribunal Filing

OTTAWA, Ontario, February 08, 2010 — The Canadian Real Estate Association (CREA) learned today that the Competition Bureau filed a Notice of Application with the Competition Tribunal against CREA.

“CREA views the Commissioner’s decision as surprising and disappointing,” said Dale Ripplinger, President of CREA.  “We do not agree with the Bureau’s position that certain CREA rules are anti-competitive, either as a matter of fact or as a matter of law.  CREA’s rules allow for innovative business models and provide a broad range of choice for consumers.”

In good faith, CREA engaged in settlement negotiations with the Competition Bureau for several months in an effort to arrive at a consensual resolution.  Unfortunately, the parties were unable to reach an agreement.  This is very disappointing, since CREA has consistently indicated – right from the outset – that it has always been prepared to work with the Competition Bureau to revise its rules to clarify the way the rules operate.

Last week, CREA advised the Commissioner of Competition that CREA had made the business decision to move forward with rule changes to address the issues raised by the Bureau, whether or not a settlement with the Bureau could be reached.

“In making these clarifications on a proactive basis, CREA believes that it is fully addressing the Competition Bureau’s concerns, while ensuring the accuracy and quality of MLS^® information that Canadians have come to trust and REALTOR^® compliance with a code of ethics” said Ripplinger.

The Commissioner’s press release states that CREA’s rules restrict consumer choice and prevent innovative business models.  That is simply false.  CREA is disappointed that the Bureau would make this statement in view of the months of discussions about CREA’s rules and CREA’s consistent position that its rules are not intended to and do not restrict any business models.

The real estate industry in Canada is highly competitive and thrives on small businesses with independent agents, brokers and franchises conducting a wide variety of transactions every day. CREA currently has more than 98,000 members operating independently across the country to compete for consumer business, offering a wide array of services and pricing structures.

“CREA’s interest and that of its members is to ensure consumers have choice, that they are protected during one of the most significant transactions they will undertake, and that the integrity of the MLS^® system is preserved for the benefit of REALTORS^® and the Canadian public” added Ripplinger.

About The Canadian Real Estate Association

The Canadian Real Estate Association (CREA) is one of Canada’s largest single-industry trade associations, representing more than 98,000 real estate Brokers/agents and salespeople working through more than 100 real estate Boards and Associations.

Archive: /mortgage-news/archive/2010/2010-02-08_CREA-crea_disappointed_bureau_tribunal.stm
News source: The Canadian Real Estate Association (CREA)

January Housing Starts

OTTAWA, Ontario, February 08, 2010 — The seasonally adjusted annual rate¹ of housing starts reached 186,300 units in January 2010. This is an increase from an annual rate of 176,100 units in December 2009, according to Canada Mortgage and Housing Corporation (CMHC). According to final figures, actual housing starts for 2009 totalled 149,081 units, with activity improving as the year progressed.

“Housing starts improved in both the singles and multiples segments in January,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “These increases are similar to the ones that occurred in December.”

The seasonally adjusted annual rate of urban starts increased by 4.4 per cent to 165,200 units in January. Urban multiple starts increased by 5.7 per cent to 76,300 units while single urban starts increased by 3.3 per cent to 88,900 units.

January’s seasonally adjusted annual rate of urban starts increased by 19.8 per cent in British Columbia, by 7.3 per cent in Quebec, by 2.3 per cent in Atlantic Canada, and by 1.5 per cent in the Ontario. In the Prairie region, the seasonally adjusted annual rate of urban starts decreased by 4.8 per cent.

Rural starts were estimated at a seasonally adjusted annual rate of 21,100 units in January².

As Canada's national housing agency, CMHC draws on more than 60 years of experience to help Canadians access a variety of quality, environmentally sustainable and affordable homes. CMHC also provides reliable, impartial and up-to-date housing market reports, analysis and knowledge to support and assist consumers and the housing industry in making vital decisions.

For more information, call 1-800-668-2642.

¹ All starts figures in this release, other than actual starts, are seasonally adjusted annual rates (SAAR) — that is, monthly figures adjusted to remove normal seasonal variation and multiplied by 12 to reflect annual levels.

² CMHC estimates the level of rural starts for each of the three months of the quarter, at the beginning of each quarter. During the last month of the quarter, CMHC conducts the survey in rural areas and revises the estimate.

Archive: /mortgage-news/archive/2010/2010-02-08_CMHC-january_housing_starts.stm
News source: Canada Mortgage and Housing Corporation (CMHC)

Signs of Thaw in Corporate Attitudes Emerging, Says Governor Carney

WINNIPEG, Manitoba, February 04, 2010 — With improvements in financial conditions, economic activity, commodity prices, and confidence, the Bank of Canada anticipates that there will be a relatively modest recovery this year in business fixed investment in Canada, and an acceleration of investment spending in 2011. "The first signs of a thaw in corporate attitudes have begun to emerge," Bank of Canada Governor Mark Carney said in a speech today.

The actions of the corporate sector will be critical for the economic recovery, growth in employment, and competitiveness in Canada. As policy stimulus begins to fade, a key determinant of the pace and sustainability of Canada's recovery will be how investment and hiring intentions of businesses in all sectors evolve.

The recent global recession was the worst economic downturn since World War II, and both its speed and virulence took business by surprise, the Governor noted. In the future, global economic growth may not only be lower, but it could also be more volatile. "Canada is entering this period of adjustment with many strengths, but the efforts required of us will be historic," the Governor told the Winnipeg Chamber of Commerce.

Governor Carney acknowledged that businesses in Canada are understandably waiting for confirmation of the recovery before acting. He cautioned, however, that action will be needed. "Companies are emerging from the recession to an altered world – one that may require deeper restructuring and bolder strategic initiatives than currently contemplated," he stated.

Canada's corporate sector has advantages, the Governor observed. Domestic demand is expected to be relatively strong, providing a base of support for some sectors. Corporate balance sheets are in outstanding shape, and margins have held up very well. In addition, Canada's overall financial conditions are now contributing to, rather than retarding, the recovery.

In concluding, the Governor reaffirmed the Bank of Canada's commitment to price stability and to keeping inflation low, stable, and predictable. "Price stability lowers uncertainty, minimizes the costs of inflation, reduces the cost of capital, and creates an environment in which households and firms can invest and plan for the future," he said.

Archive: /mortgage-news/archive/2010/2010-02-04_BOC-signs_thaw_corporate_attitudes.stm
News source: Bank of Canada

Fixed or Variable Mortgage Rate? BMO Experts Offer Their Verdict

TORONTO, Ontario, February 01, 2010 — With interest rates at a record low, a growing number of people are looking to purchase a home. Every homebuyer faces the age-old question of whether to choose a fixed or variable rate mortgage.

“The question of whether to lock in to a longer-term fixed mortgage rate or stay in a variable rate has become an increasingly complex and important debate,” said Doug Porter, Deputy Chief Economist, BMO Capital Markets. “Short-term rates are at historic lows and pressure is likely to build for higher rates in the year ahead.”

Research shows that over the past 30 years it has been more cost-effective for borrowers to have a variable rate mortgage 82 per cent of the time. However, under the current environment, Porter points out there are a number of factors to consider before assuming the variable rate is the hands-down winner:

• Canada has been in a long-term declining rate environment since the early 1980s.
• The Bank of Canada’s overnight rate is now as low as it can go, so there is no further downside for variable rates. The surprises can only be to the high side from here.
• Fixed rates were advantageous during only two recent periods – through the late 1970s and in the late 1980s; in both cases ahead of a period of rising interest rates, as is the case now.

The Case for Staying Fixed

A conventional fixed rate mortgage can mitigate a number of risks. Although inflation has not been a problem since 1991, there is a risk of an inflation flare-up as global central banks keep the pedal to the policy metal, and amid record government deficits. The Bank of Canada could be forced to raise interest rates aggressively, driving variable mortgage rates higher, but leaving Canadians with fixed rates relatively unscathed. Plus, fixed rates are currently very attractive given that short-term rates are already as low as they can go.

The Case for Going Variable

The advantage to a variable rate mortgage is that it has been consistently less costly over time. As well, the current outlook for inflation remains benign, which will likely keep price pressures at bay well into 2011. The soaring Canadian dollar is putting additional downward pressure on prices, reducing the near-term need for the Bank of Canada to raise rates. There is also some risk to locking in as fixed rates could fall if the economy performs worse than anticipated. Even as rates start to rise, Canadians can always lock into a fixed rate at a later date.

The Verdict

The decision depends on the individual. For those who do not have a lot of financial flexibility – such as first-time home buyers and those who would run into difficulty from an upswing in interest rates – the moderate extra cost of peace of mind you can get from a fixed rate may be a price worth paying. There is also a reasonable scenario where fixed rates may actually prove to be a cheaper alternative at this point. That’s particularly the case given some recent cuts in long-term fixed rates, such as BMO’s current special rate of 4.09 per cent for a five-year fixed mortgage. BMO Economics’ view is that variable rates will climb only moderately, but by enough to tilt the balance in favour of current fixed rates.

“The most important thing a current or first-time homeowner can do is talk to a knowledgeable mortgage expert about their situation and make decisions based on their particular circumstances,” said Jane Yuen, Senior Manager, Mortgages, BMO Bank of Montreal. “So come in to a branch or contact a mortgage expert to decide on the type of mortgage that is best for you at this point in your life.”

Archive: /mortgage-news/archive/2010/2010-02-01_BMO-fixed_variable_mortgage_rate_bmo.stm
News source: BMO Financial Group