Good morning everyone;
I hope that all of you are keeping well and have managed to avoid the flu bug!
Property Teaser
- In about 1 week – I will be coming to market with another wonderful spacious downtown condo (with parking) at the foot of Yonge and Front! Stay tuned for more details.
Website Refresh
- I would like to share with you the agfineliving.com website will launch in the New Year with a new updated look and feel. Feel free to take a look at the current site and offer any suggestions that you may have. www.agfineliving.com
Mortgage Rate Watch
Bank of Canada seen raising rates in second quarter of 2015: Reuters poll
OTTAWA (Reuters) – The Bank of Canada is seen keeping interest rates on hold until well into 2015 as it waits for more signs of life from the U.S. economy and grapples with two big worries at home – low inflation and a hot housing market, a Reuters poll showed.
Bank of Canada Governor Poloz takes part in a news conference upon the release of the Monetary Policy Report in Ottawa
By Deepti Govind and Louise Egan
OTTAWA (Reuters) – The Bank of Canada is seen keeping interest rates on hold until well into 2015 as it waits for more signs of life from the U.S. economy and grapples with two big worries at home – low inflation and a hot housing market, a Reuters poll showed.
The median forecast in a Reuters poll of 32 economists published on Thursday was for the central bank to begin hiking rates from the current 1 percent level in the second quarter of 2015.
That is six months later than predicted in a poll last month, before central bank chief Stephen Poloz surprised markets by adopting a more dovish stance after 18 months of signaling rate hikes to come.
The day after that October 23 policy shift, Canada’s 12 primary securities dealers likewise changed their forecasts to show a rate hike in the second quarter of 2015.
The central bank’s next move hinges largely on events beyond Canada’s borders, with the big question being whether the U.S. recovery will accelerate as hoped next year, economists said.
Domestically, the bank is forced to stand pat due to uncomfortably low inflation on the one hand and excessive levels of household debt on the other, linked to a housing boom. If it cuts rates to address the former, it risks stoking a credit bubble that could bring bigger problems down the road.
“They’ve got two worries and they balance each other out,” said David Watt, chief economist at HSBC Bank Canada, adding strong auto sales to the equation, alongside housing.
“I won’t say that they are hamstrung but I think that they’re comfortable sitting on the sidelines at the present time … their focus is going to remain on eventual rate hikes.” he said. “It’s just that when that occurs is further down the road than they might have thought several months ago.”
The economists surveyed unanimously saw the bank holding rates unchanged at its next rate decision on December 4.
When asked for the percentage likelihood the bank might move rates next week, nine saw a slight chance it would lower rates, although the most extreme forecast put that probability at just 25 percent.
Canada’s central bank was the first in the Group of Seven major economies to lift borrowing rates from rock-bottom levels following the global financial crisis as the economy pulled out of a shallow downturn relatively quickly.
Despite many warnings by Poloz’s predecessor, Mark Carney, who now heads the Bank of England, that more rate hikes were coming, the bank has held its overnight lending target steady since September 2010.
Just five months after taking the helm in June, Poloz withdrew the hawkish language that characterized the end of the Carney era.
AHEAD OF THE FED
The reason for the policy shift was a disappointing performance by exports and business investment, which the bank had hoped would replace consumer spending as the drivers of growth, Poloz said. David Tulk, economist with TD Securities, notes the fact that the U.S. Federal Reserve did not taper its bond purchasing program in September probably also convinced the Canadians of the dangers of withdrawing stimulus too far in advance of the Fed, including a stronger Canadian dollar that would continue to hurt struggling exporters.
“At this stage of the recovery where they need a lot of things to happen that are outside their control, namely a stronger U.S. economy, they’re going to sound dovish as best they can because they would probably like, behind closed doors, to talk the currency lower,” Tulk said.
Tulk is confident the United States will “muddle through” upcoming fiscal policy decisions and eventually gain a little more momentum over the next couple of years.
The Bank of Canada has also made clear it is paying more heed to inflation, which has been below its 2 percent target since May 2012 and dropped to a 0.7 percent annual rate in October.
The International Monetary Fund projected in a report on Wednesday that the Bank of Canada was unlikely to lift rates before early 2015.
The Reuters poll showed rates are expected to climb to 1.5 percent by the end of 2015.
The most hawkish forecast was for the first rate hike to come in the fourth quarter of 2014, a call made by three economists.
Only one forecaster saw the bank cutting rates between now and the end of 2015, predicting the rate would fall by 50 basis points by the end of 2014.
Why 2013 has been a good year for GTA housing (By: Mark Weisleder is a lawyer, author and speaker to the real estate industry. You can contact Mark at mark@markweisleder.com – Published in The Toronto Star – November 28th 2013
Last December, many pundits were predicting a big housing slowdown in the GTA. Here’s why it didn’t happen.
Last December, many pundits were predicting a big housing slowdown in the GTA as an oversupply of condos in particular, rising interest rates and slowing demand put a dent in sales and prices.
My view was different. I expected the market to stay strong and prices to hold up — which is what has happened.
By the end of September, 68,909 new and resale homes had changed hands in the GTA, 1,000 units less than the same period last year. But the first half of October was strong — about 20 per cent higher than a year ago. So, it seems that sales for the year will exceed 2012’s 82,200 units.
Average prices are also almost 5 per cent higher than a year ago and there are still bidding wars in many areas, because there are more buyers than listings.
Here’s why this is happening:
1. Low interest rates: Events such as the U.S. “fiscal cliff” crisis, civil war in Syria and instability in the Middle East, have had little impact here. Canada remains an island of stability. Things will only improve as economies in the U.S. and European Union continue to improve. Interest rates may rise a little over the coming year, but the moves are unlikely to have a serious impact on the market.
2. Canada’s appeal to immigrants: We continue to be the envy of the world when it comes to quality of life and the fact that so many cultures and communities can live in harmony. That is why more than 150,000 people come to Ontario each year, with the majority to the GTA. They have to live somewhere.
3. Low rental vacancy rates: The Toronto condo market has slowed somewhat, but prices haven’t crashed. The reason is that the vacancy rate for rental condominium units in downtown Toronto is 1.7 per cent. As a result, the average rent for a two-bedroom condominium is about $2,500, which is also the amount an investor needs to carry an average two-bedroom condominium, even if it costs $500,000. If you can carry your condo, you are in no rush to sell or lower your asking price.
Things could get better with a few changes to rules and regulations:
The tighter mortgage rules announced by Ottawa a year ago mean fewer people are qualifying for new homes. Those who do qualify are much less likely to default on their mortgages. This means the CMHC is making more money because it is paying out fewer claims. Why not pass on some of these savings to buyers with lower premiums?
Some sellers who sell homes by themselves are refusing to pay any commission at all — even to the buyer’s real estate agent — believing they can make more money that way. The commission can exceed several thousand dollars on a typical sale.
What these sellers don’t factor in is the fact that the buyers will then have to pay their agent themselves, meaning they’ll offer less money to buy the home.
As the rules stand now, buyers cannot include commissions as part of the mortgage. But if the rules change to include commissions as part of the loan application, more buyers would be able to afford a home.
People have been predicting the real estate market crash in the GTA for the past 13 years. It hasn’t happened yet and won’t happen next year either.
Federal government should end insuring high-risk mortgages through CMHC: IMF
11/27/2013 10:28 AM The Canadian Press
CMHC is seen on a Quebec City office September 15, 2010. THE CANADIAN PRESS/Francis Vachon
The International Monetary Fund says Ottawa should consider phasing out insuring home mortgages through Canada Mortgage and Housing Corp.
The advice is contained in the IMF’s latest economic report card on Canada, which projects modest economic growth of 2.25 per cent for the country next year.
Such a recommendation, surprising from an international financial organization, appears to side with Finance Minister Jim Flaherty, who has recently questioned whether the federal government should be in the business of insuring higher-risk mortgages at all.
Some analysts have credited the system for providing much needed confidence in Canada’s housing sector during the 2008-09 crisis, which many believe was sparked by a crisis in the U.S. mortgage market.
The IMF concedes that the current system has its advantages for stability. But it says it also exposes the government, or taxpayers, to financial system risks and might distort the market as a whole in favor of mortgages over more productive uses of capital.
Meanwhile, the IMF cautions that if any structural changes are made, they should be gradual to avoid unintended consequences.
The report, released Wednesday morning, forecasts that Canada’s economy as a whole will start benefiting next year from a pickup in the U.S. economy, leading to greater demand for Canadian exports and renewed business investment.
In essence, the scenario is identical to the one predicted by the Bank of Canada, which also sees growth rising from the current 1.6 per cent level to 2.3 next year.
A slightly more positive estimate was issued Wednesday by the Ottawa-based Conference Board of Canada, with is projecting Canadian real GDP will grow 1.8 per cent in 2013, 2.4 per cent in 2014 and 2.6 per cent in 2015 — assuming strong growth in the United States.
The Bank of Canada, in its forecast, holds that the risks are balanced — meaning there is as much chance the projected growth rate will be higher as lower.
But the Washington-based IMF warns, however, that the risks to its outlook are primarily on the downside. The main reason, it says, is that it might be wrong about the U.S. economy rebounding in 2014.
“Renewed political standoff (in the United States) over spending appropriations and the debt ceiling and a faster than expected increase in long-term rates in the context of exit from quantitative easing could negatively affect the U.S. recovery and hence demand for Canadian exports,” the IMF said.
“Protracted weakness in the euro area economic recovery and lower than anticipated growth in emerging markets would also hurt the prospects for Canada’s exports, including through lower commodity prices,” it added
On the domestic front, the IMF said the long period of low productivity growth and strong Canadian dollar may have left a deeper dent in Canada’s export potential, especially in the traditional manufacturing base, limiting the economy’s ability to benefit from the projected strengthening in external demand.
Among other things, the IMF recommends that Canada’s central bank hold off raising interest rates until there are firmer signs of a sustained transition from household spending to exports and investment, something bank governor Stephen Poloz has signalled he intends to do.
And it warns the federal government that it need not be so fixated on balancing the federal budget in 2015 if there is no meaningful pickup in economic activity.
That is likely to fall on deaf ears, however. Finance Minister Jim Flaherty said this week he is confident he will eliminate the deficit in 2015 and bring in surpluses after that.
Have an amazing weekend and an even better week,
Anthony