Tag Archives: Bank Of Canada

Police Force Property Tax Hikes

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Residential property tax increases since amalgamation have averaged less than one percent a year when inflation is taken into account, says city finance chief Rob Rossini, and this year’s 0.7 percent rise in the tax rate actually constitutes an inflation–adjusted decrease of more than two percent. In the last 11 years, all of the increase above inflation can be attributed to the police budget which climbed 5.1 percent this year and now accounts for over a tenth of total city spending, and more than 18 percent of the property tax bill.

Rossini’s figures include the effects of area rating and reassessment – but are city–wide averages so the actual results vary from property to property. In some parts of the amalgamated city, taxes have jumped sharply because of rising property values – or at least the values calculated by the Municipal Property Assessment Corporation based on sales of nearby and/or similar homes.

In 2011, the city expects to collect $692 million in property taxes, and provide $130 million to the police. That latter bill is up nearly $50 million since amalgamation. By comparison, the library budget rose just over $7 million in the same period – from $20.2 million in 2001 to $27.6 million this year.

Inflation has totaled just over 27 percent from 2000 to today according to Bank of Canada calculations. Hamilton tax increases have averaged 2.9 percent a year (not counting inflation) over the last 11 years. The hit nearly 6 percent in 2004 and 4.6 percent as recently as 2008, but have been “otherwise very modest” according to Rossini.

“Our tax adjusted increase with inflation is actually below zero last year and in 2001,” he told councillors last month. “I think that’s a very good record.”

The police budget actually recorded one of its largest jumps in 2001 – a 7.7 percent increase – and has only been below three and a half percent once in the last 11 years – in 2010 when the rise was 3.3 percent. In only one of those years did the police budget climb less than the city tax rate (and the difference was only a tenth of a percent) while in most years it has been sharply higher.

The detailed police budget in Hamilton remains secret, although the Toronto police force posts its detailed breakdown on the internet. However, salaries and related personnel costs are known to form over 80 percent.

Hamilton has 793 officers. That’s about 155 per 100,000 people. Halton, with a very similar sized population has 124 officers per 100,000, while Peel Region with 1.3 million people is at 148 per 100,000.

Crime rates have been falling in Canada, with criminal code incidents dropping five percent in 2010 over the previous year.
The crime severity index fell 6 percent in the same period, and crime levels are now lower than 1973.

The most recent annual report (2009) on the Hamilton Police Services website shows a slight drop in criminal calls for service between 2004 and 2009 despite rising population levels. Non–criminal service calls fell 14 percent in the same five year period, and the police budget expanded by nearly $22 million.

Toronto city council is pushing their police force for a 10 percent budget cut. Initially that was demanded for 2012 but has now been extended over two years.

Hamilton city council begins its 2012 budget deliberations later this month with a workshop on the operating budget on October 27. There are two more workshops in early November, and actual decisions start at the beginning of December when next year’s water and sewer rates will be determined.

http://www.viewmag.com/13915-Police+Force+Property+Tax+Hikes.htm

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Housing ‘bubble’ bound to burst

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When it does, the result isn’t going to be pretty, economist says

With fresh signs from the Bank of Canada that interest rates will stay lower for longer, Canada’s still-hot housing market has many of the hallmarks of the U.S. situation just a few years ago.

House prices dipped during the recession, but bounced straight back and have kept climbing since. And homebuyers are taking on record debt to buy houses at historically high prices.

When interest rates eventually rise, some forecasters warn the result isn’t going to be pretty. “Our view is that we are in a housing bubble, that housing prices have risen very sharply over the last 10 years, and that there is a big disconnect between housing prices and fundamentals, including interest rates,” said David Madani, an economist at Capital Economics in Toronto.

“It really does look like a housing bubble that will have a very unhappy ending.”

He predicted a 25-per-cent drop in house prices, adding Canadian homeowners would end up with negative equity.

Few economists are as willing to use the word “bubble” to describe Canadian real estate, even though the central bank noted in June that house prices are up 31 per cent from an early 2009 trough and are 13 per cent above their previous peak from before the global credit crisis.

Household debt is certainly soaring. Bank of Canada Governor Mark Carney recently warned Canadians were “as indebted as the Americans and the British.”

But faced with a stumbling global economy and European and U.S. debt woes, the central bank opted on Wednesday to keep rates steady, with many economists now expecting easy money until the second half of 2012.

“In order to crash you need two preconditions: a huge increase in rates as in 1991, which is unlikely, and a subprime type situation, namely very low-quality mortgages,” said Benjamin Tal, senior economist at CIBC World Markets. “That is not the situation in Canada.

“So although I see prices going down over next two to three years, I don’t see a crash, I see a moderate gradual softening.”

The government, fretting about high debt levels, is working to engineer that soft landing with tighter rules for government-backed insured mortgages that took effect in March. The changes cap mortgage terms at 30 years rather than 35 and cut the amount homeowners could borrow against their homes to 85 per cent from 90 per cent.

Canada’s national banks are more conservative lenders than America’s fractured regional banks were, and there is virtually no sub-prime market, where riskier borrowers end up paying higher rates. Mortgage interest is not tax-deductible, so the incentive to buy a home is less. And a large slice of the mortgage market is insured by the government.

http://www.theprovince.com/business/Housing+bubble+bound+burst/5376062/story.html

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Home ownership trumps renting in personal finance stakes

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The Bank of Canada gave its clearest signal so far this week that interest rates are set to rise, while a growing number of real estate watchers and some economists are forecasting property prices will decline.

Given such a scenario, some first-time buyers may be tempted to hold off on what’s likely to be one of the biggest purchases of their lives, though that may be a mistake.

Judith Cane, president of Antara Financial Group, said she has just advised a first-time buyer to get into the market.

They had been renting for four years and when they calculated how much they had been paying out, they decided they didn’t want to wait another year, Cane said.

“I am of the mind that it’s always good to buy,” said Cane, whose fees comes from clients paying for her advice and not from commission on the sale of financial products. “People may have to lower their expectations about what they can afford, but it’s better, especially if you are younger to put your money into buying rather than renting.”

About two-thirds of Canadians currently own their own homes, with men more likely to be homeowners than women at 69% compared with 63%, according to a recent BMO survey. Those least likely to have taken the plunge were in the 18 to 34-age bracket, where only a third were homeowners.

“If you have the opportunity to get into the market, it’s a great time to buy,” said Laura Parsons, a mortgage expert at BMO. “In many places it’s a buyers’ market.”

“There are a lot of renters out there and it’s very lucrative to have a rental property,” she said, pointing to rising Canadian rental prices.

According to the Canadian Mortgage Housing Corp. the average monthly rent for a two-bedroom place was $864 in April, up from $848 in April last year.

That price rises to $1,181 in Vancouver and $1,124 in Toronto, Canada’s costliest cities.

With interest rates currently so low, on the purchase of an average $300,000 property, mortgage payments are unlikely to be that much higher than rental payments.

A fixed-rate mortgage of 5% and an amortization period of 30 years would put monthly mortgage payments at $1,521.02. Adding in property taxes monthly payments are likely to be about $1,771.02, according to figures supplied by BMO.

If a monthly rental of $1,200 increases by about 5% a year, after eight years your mortgage payments will be less than your rent, BMO says.

> Cane said the main argument in favour or renting over buying is if you are highly mobile and plan to be in a location for less than five years. Then renting is probably the best option.

http://money.canoe.ca/money/business/canada/archives/2011/07/20110721-082454.html

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Average House Prices a Misleading Gauge of the Health of the Canadian Real Estate Market: CIBC

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The Canadian housing market is becoming highly segmented and multi-dimensional which is making traditional measures, like average prices, increasingly irrelevant in gauging the health and state of the sector, finds a new report from CIBC World Markets Inc.

“Glancing at popular metrics such as the price-to-income ratio or the price-to-rent ratio, it is tempting to conclude that the housing market is already in clear bubble territory and a huge crash is inevitable,” writes Benjamin Tal, Deputy Chief Economist at CIBC, in his latest Consumer Watch Canada report.

“Tempting, but probably wrong. When it comes to the Canadian real estate market at this stage of the cycle, any statement based on average numbers can be hugely misleading. The truth is buried in the details—and there the picture is still not pretty, but much less alarming.”

He notes that while the average house price in Canada rose 8.6 per cent on a year-over-year basis in May, that number slows to 5.6 per cent if you take Vancouver out of the picture. Remove Vancouver and Toronto and the average price increase drops to 3.7 per cent.

By digging into the details on the high profile Vancouver market he found that the gap between average and median prices is reaching an all-time high. While the average house price climbed 25.7 per cent on a year-over-year basis to more than $800,000 in May, he found that by removing properties that sold for more than a $1 million there was a much more moderate price appreciation in the market. It also reduced the average sale price by $220,000 to just over $590,000.

“What makes Vancouver abnormal is the high end of its property market,” says Mr. Tal. “And in this context many, including Bank of Canada Governor Mark Carney, point the finger at foreign—mainly Asian wealth—as the main driver here.”

Data on the extent of the role that Asian investors have played in Vancouver housing prices is quite limited. Mr. Tal’s analysis of data obtained from Landcor Data Corporation suggests that only 10 per cent of the nearly 4,500 transactions involving foreign money over the past five years were above the $1 million mark, with an average purchasing price of just under $600,000.

According to the information provided by Landcor, foreign money accounted for only 2.6 per cent of all sales during the same period. However, Mr. Tal believes that could be a serious underestimate, as it is based on where property tax assessments are mailed, and would exclude offshore buying on behalf of children or other local proxies. “There are many reasons to believe that a significant portion of what is perceived to be buying by offshore investors is, in fact, driven by Chinese immigrants that are integrated into the community but still maintain strong links to mainland China, with many residing and working in China while their family establishes roots in B.C.”

“Looking beyond the average price numbers reveals a highly segmented and multi-dimensional market that is probably influenced by different forces,” says Mr. Tal. “But even a multi-dimensional market can overshoot—and the likelihood is that prices in the Canadian market and its sub-segments are higher than what can be explained by factors such as income growth, rent and household formation. Given that, the housing market will eventually correct. The only question is what will be the mechanism of that correction.”

Mr. Tal feels the price correction in Canada will be gradual as the two key triggers for a price crash – a significant and quick increase in interest rates and/or a high-risk mortgage market that is very sensitive to changes in economic factors – are not at play in Canada.

“In Canada, a sharp and brisk tightening cycle is unlikely. The market expects a gradual increase in short-term rates in the coming years. The rising number of mortgage holders that carry a variable rate mortgage will be the first to feel the pain. But if history is any guide, they will return quickly to the comfort of a five-year fixed rate the minute the Bank of Canada starts hiking.”

He also believes that the country is in relatively good shape when assessing the two sub-segments of the mortgage market that traditionally account for most defaults: mortgage holders that carry a debt-service ratio of more than 40 per cent and those with less than 20 per cent equity in their house.

Just over six per cent of households have a debt service ratio of more than 40 per cent—a number that has risen by a full percentage point since 2008. “However, this ratio is still well below the ratio seen in 2003, when the effective interest rate on debt was more than a full percentage point higher, and no correction in house prices ensued,” adds Mr. Tal.

“All other things being equal, even a 300-basis-points rate hike by the Bank of Canada would take this ratio to only just over eight per cent. Not surprisingly, Vancouver has the highest ratio of households with high debt-service ratio, followed by Toronto.”

A little more than 17 per cent of the Canadian residential real estate pool is in properties with less than a 20 per cent equity position, a number that has been rising over the past few years. More than 80 per cent of households with less than a 20 per cent equity position are first time buyers.

“Digging deeper and looking at the households with both low equity positions and high debt-service ratios, we found that this fragile segment of the market accounts for only 4.6 per cent of total mortgages—a number that has been on an upward trend over the past few years,” says Mr. Tal. “Shock the system with a 300-basis-points rate hike and that number would rise to a still-tempered 6.5 per cent. Historically, even in that group, the default rate has been well below one per cent. Thus, short of a huge macro shock, there does not appear to be the risk of large scale forced selling that would typically be the trigger for a precipitous plunge in the national average house price.

“As a result, while house prices are likely to adjust as interest rates eventually climb, the national pace of any correction is likely to be gradual. That could still entail a period in which housing underperforms other assets as an investment class, until rising incomes and a tame price trajectory bring the market back to equilibrium.”

The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/cw-20110707.pdf.

http://www.digitaljournal.com/pr/356694#ixzz1XkKwWyPi

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Renting v. buying your home: an affordability check

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Today, in some parts of the country, just the opposite is true. Smart people are renting instead of owning.

Renting doesn’t have to be a permanent choice and, in fact, it probably shouldn’t be for most people. But renting temporarily to avoid making an unfortunate leap into today’s housing market can make good sense.

Affording a house is murder these days. The average price nationally is $372,544 and three cities – Victoria, Calgary and Toronto – are in the $400,000 to $500,000 range. In a galaxy far, far away is Vancouver at just above $800,000.

The minimum 5-per-cent down payment for the national average-priced home is $18,627. Add another $5,000 to $6,000 for closing costs and you have a grip on the cost of buying.

Next come endless life lessons on the cost of owning. No one ever moved into a house and didn’t soon after have to pay hundreds or thousands of dollars in unexpected costs for everything from maintenance to furniture.

Royal Bank of Canada’s economists took a look at affordability recently and found that the costs of owning a two-storey house (mortgage, property taxes and utilities) consumed 80.4 per cent of median pretax household income in the Vancouver market, 55.6 per cent in Toronto, 53.7 per cent in Montreal, 40.9 per cent in Ottawa and 36.8 per cent in Calgary. As alarming as those numbers look today, they’ll be worse when interest rates rise.

Affordability Check

Here’s how to do your own affordability check: Total up all your monthly debt payments including mortgage, add your expected monthly share of property taxes and heating, and then see what percentage of your monthly pre-tax household income it amounts to.

Lenders will let you go as high as 40 per cent, but that’s going to leave you minimal room to save for retirement, your children’s college or university education, stuff for the house and so on. So consider an upper limit of 30 per cent to 35 per cent, unless you see big pay increases in your future.

If you’re on the affordability borderline, pull back. Don’t be one of those chumps who justifies buying something they can’t afford because they’re afraid it could get more expensive tomorrow.

This is where renting comes in. No, it’s not an ideal permanent solution unless you foresee the kind of housing market collapse the U.S. market has gone through. Renting drastically limits your options for choosing a nice place to live, and you’ll never hit that sweet spot of living rent- or mortgage-free and owning a big asset you can sell tax-free.

But renting temporarily offers a way to bide your time while building up your savings. It costs less to rent than own, which means you can write your monthly rent cheque and then bank the money a homeowner would be paying for property taxes and routine upkeep and maintenance.

Training Wheels

Call it home ownership with training wheels. You’ll try paying the same amount as a homeowner does and, if you wobble, there’s no harm done.

Delaying the purchase of a house is problematic, mind you. The later you buy, the later you pay off your mortgage and give yourself the room to start pumping big money into your retirement savings plan.

But that’s life. We’re all living longer, and many of us are going to be working longer as well. Having all your financial affairs wrapped up with a bow on it by age 65 is nice, but not always possible any more.

And let’s remember that renting does have some rewards of its own. If you’re young and restless, renting allows you to change jobs and cities with ease. Renting may also allow you to live downtown in a city where the only homes you can afford are an hour’s commute away.

I did an informal survey of attitudes about renting on my Facebook page (Rob Carrick – Personal Finance) and was surprised by the favourable take most people have on this option.

No, you’re not a slacker if you rent instead of buying a home you cannot properly afford. If there’s a correction in the housing market, people may even call you a genius.

http://www.theglobeandmail.com/globe-investor/personal-finance/rob-carrick/renting-v-buying-your-home-an-affordability-check/article2040469/

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Home prices to stay stable, RBC says

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The Bank of Canada held its interest rate steady this week, but analysts suggest future mortgage rate hikes will be the biggest factor when it comes to assessing how affordable homeownership is for Canadians.

“Our affordability measure looks at the cost of owning a home at current market prices,” says Robert Hogue, senior economist at RBC Economics Research. “We calculate mortgage payments … utilities and property taxes. [The affordability measure] is all those costs as a percentage of the median household income, so the higher the measure, the less affordable is housing or home-ownership.”

The Housing Trends and Affordability report, covering the fourth quarter of 2010 released by RBC, indicates that, mainly due to lower mortgage rates, most categories of homes were more affordable for Toronto homebuyers. The RBC affordability measure for condominium apartments in Toronto eased 0.6 of a percentage point to 31.3%.

The affordability measure for detached bungalows in Toronto fell 0.5 percentage points to 46.8%, but for two-storey homes the measure rose 0.3 percentage points to 56.6%.

The RBC report says the rebound in the Toronto housing market followed the steep decline last spring and early summer, which in turn followed the unsustainably high levels last winter. Mr. Hogue says transitory factors, such as the introduction of the HST and revised mortgage lending rules, affected demand for housing rather than any underlying weakness in the Toronto market.

“[This week] the Bank of Canada decided [not to raise its rates], but interest rates are about to start rising again. This will, in our opinion, be the single most important factor eroding affordability over the next couple of years,” Mr. Hogue says. “Meanwhile, housing prices are relatively flat, [though] there’s a slight increase.”

Mr. Hogue says Toronto has many different pockets and types of housing, making generalizations difficult.

“In terms of affordability, I think rising interest rates will put a bit more stress on the market. At this point, we see the market as relatively balanced overall in Canada and Ontario. In Toronto, it might be favouring sellers a little,” Mr. Hogue says. “Generally speaking, we’re looking at a period of time where markets will be mostly balanced, so in that sense it’s unlikely that prices will start dipping in a significant way.” This expected stability in home prices means other factors will have more influence on housing affordability.

“Home prices have contributed fairly significantly to the deterioration in affordability prior to the downturn in 2008, but will not be that much of a factor going forward,” Mr. Hogue says. “Meanwhile, we are going to continue being in an economic recovery. In our opinion, employment will continue to grow, which will mean that household income will continue to rise. Higher income will partly offset the negative impact on affordability of rising interest rates.”

Read more: http://www.vancouversun.com/life/Home+prices+stay+stable+says/4396076/story.html#ixzz1J7sg03x9

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Canada 2nd Best-Performing Housing Market in 2010

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Canada showed a good housing market performance last year landing the 2nd spot next to Australia, Toronto-based Scotiabank, an international financial organization that dates back to 1671.

Canada had one of the better performing housing markets among advanced nations in 2010, though also one of the most volatile.

An unusually active winter and spring, prompted by pent-up demand, expectations of rising interest rates that only partially materialized, the looming transition to a Harmonized Sales Tax (HST) in Ontario and British Columbia, and pending changes in lending qualifying criteria, gave way to an unusually soft summer.

Over the fall, sales have returned to a more typical, sustainable level, according to the report.

“We are neither overtly optimistic nor pessimistic regarding the outlook for 2011,” stated Warren.

“On the one hand, we expect interest rates to remain at historically low levels, with the Bank of Canada deferring any further rate hikes to late 2011 given an uncertain global economic outlook and subdued inflation, and longer-term borrowing costs drifting up only modestly.

“This is an extremely powerful inducement for both first-time and move-up buyers and should maintain a decent level of sales.”

Yet, demand will likely be tempered by more moderate employment and income growth as government restraint efforts take hold, Warren states.

Public sector hiring has accounted for fully a third of the net new jobs created in Canada over the past year, a pattern not likely to be repeated next year.

“Overall, we anticipate a fairly lackluster year for residential housing, with modestly higher sales volumes and flat inflation-adjusted prices,” says Warren.

“The bigger risk likely awaits 2012 when more significant interest rate increases, combined with record high home prices, will notably strain affordability.”

http://tinyurl.com/2due2ld

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Housing market to be more stable: RBC

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Canada’s housing market is likely to be far more stable in the next two years than it has been for the last two, the Royal Bank of Canada said in a report on Thursday.

The housing market since 2008 was shaped by truly exceptional events and factors such as the global financial crisis, a major recession that destroyed nearly 430,000 jobs in Canada, cuts in policy interest rates to the lowest levels in a generation, the introduction of a harmonized sales tax in Ontario and British Columbia, and the tightening of mortgage rules, RBC’s senior economist Robert Hogue said.

“With the economy (both global and national) on a more solid footing now, the road ahead will be less bumpy,” he said.

But there will be regional variances, the bank expects. With Saskatchewan, Alberta and Manitoba seen leading economic growth among the provinces in 2011, demand for housing will similarly outpace that of other provinces. A slowing housing market is possible in areas east of Manitoba.

The bank expects home prices to rise in all provinces, but at a very slow pace in most cases in 2011.

On average, the bank is forecasting price gains of 0.5 per cent in 2011 and 1.3 per cent in 2012. That compares with a very strong, but unevenly distributed, 8.3 per cent gain in 2010.

“In our opinion, the Canadian housing market is on path towards mostly flat levels of resale activity and minimal price increases this year and next,” Hogue wrote.

Earlier this week, the Canadian Real Estate Association forecast the national average price is now expected to rise by 1.3 per cent in 2011 to $343,300.

Read more: http://www.cbc.ca/money/story/2011/02/10/rbc-housing-forecast.html#ixzz1DjuWE5HP

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August Canadian Housing Market Performance

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August home price value jumped 0.2 per cent from July statistics— a clear indication that home prices is moderating across Canada, based from the recent Teranet-National Bank composite home price index.

According to the authors, for the second consecutive month, home value did not rise from the month before in all six markets. The trend of Canadian home prices has been different in every region, there was a noted decline in Calgary and Vancouver while on opposite direction in Toronto, Montreal, Halifax and Ottawa.

See the price gain in these 6 major Canadian cities based from the data gathered from public land registries:

clip image002 thumb August Canadian Housing Market Performance

Results had shown that home value was up 10 per cent in August compare to the previous year. Although majority were gained in the first half of the year.

Buyers rushed into the market amid fears of higher interest rates, tighter mortgage rules and a new harmonized sales tax in B.C. and Ontario—one good explanation why home prices inflated quickly at the beginning of the year. However, the market went on the opposite by spring which was supposed to be the busiest period.

According to a Royal Lepage poll, housing prices drop as well as the sales in the third quarter and increases in housing slowed to a more normal 5 per cent rate year-over-year. The Canadian Real State Association said in its monthly report that home prices in September were little changed from last year at $331,089.

Despite the weak market condition, prices continue hover record highs, which may place the country in a housing bubble. Canadian homes may be overhauled and that home prices drop could more sharply than expected. If this takes place it would exacerbate growing debt burdens that households are facing, said Bank of Canada Governor, Mark Carney.

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Canadian housing market had strong finish to 2009

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The housing market in Canada has been stronger in the second half of 2009 than was widely anticipated. That has been particularly true for residential resales.

The first quarter of 2009 was nearly disastrous for the existing home market, but all of that turned around in late spring and early summer. Record low mortgage rates have done the trick.

Potential homebuyers know that they are not likely to ever see interest rates this low again.

As for new home construction, it is worth remembering that an existing home sale is often a prelude to a new home purchase.

There have been other factors that have contributed to recent resale strength as well.

The home renovation tax credit extending through February of next year is an incentive to spruce up one’s property and then, perhaps, put it on the market.

Also, Canadian labour markets have held up better than in the U.S.

The service sector in particular has experienced little in the way of job losses.

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The November labour report showed an overall increase in employment in Canada of 79,000 jobs.

There has been only one really bad labour market report in the past four months, in October, and that was partly an adjustment after strong August and September numbers.

The improving labour market overall, the Bank of Canada’s commitment to keep its trend-setting overnight rate at 0.25% until next summer, and the end to the recession are all serving to raise consumer confidence levels.

Add to the foregoing that foreign investors are seeing this country as well-positioned to benefit from the recovery. Foreign investment money is being attracted to Canadian stocks, commodities and to commercial and residential real estate.

The net effect is to raise the prospects for new home construction. CanaData has somewhat revised upward its housing starts forecasts for next year. The latest figures are set out in the accompanying tables.

It is remarkable the degree to which housing starts in the largest cities in Canada dominate their provincial residential markets. In Quebec, Montreal usually accounts for almost 50% of total starts in the province.

Toronto housing starts are usually slightly more than half of the total in Ontario. Calgary and Edmonton each account for about one-third of Alberta’s total.

Finally, Vancouver starts traditionally make up between 55% and 60% of total starts in British Columbia.

http://dcnonl.com/article/id36930

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