Should brokers in these markets be worried?

Desjardins Group Economic Studies released a statement on Tuesday declaring the Canadian housing market is less affordable than the average affordability of the last 25 years, citing the average home prices across the country are eclipsing household income – due, in part, by a rush to buy prior to interest rate hikes.

Mortgage rates during the summer hurried buyers; many took action out of fear that mortgage rates would climb even higher,” the statement said. “Even if the coming months bring more increases; they won't be enough to trigger a significant dip in affordability.”

Most markets, however, are still affordable… outside Quebec and the Toronto, that is.
“Despite a decline in nearly all Ontario CMAs, most markets are still affordable. Toronto is an exception, where the average home price is $527,821, well above that observed in other agglomerations in the province,” the report stated. “The Desjardins Affordability Index is only slightly under the historical average in Calgary, despite relatively high home prices ($438,793 in the third quarter).”

And although housing prices may be lower in hot Quebec markets, they are still considered less affordable than their more expensive counterparts in BC; due to the average income disparity.

“Sherbrooke and Quebec City rank alongside Vancouver as some of the least affordable agglomerations in the country,” the report said. “Even though housing prices are much lower than on the west coast, incomes in these two CMAs are considerably lower, making home purchases more difficult.”

However, the Quebec-based financial services conglomerate reports its home province is experiencing a teeter-totter of sorts; with a lowering in prices in some markets being cancelled out by rising prices in others.

“Rising prices are losing steam in the Quebec City market while prices in Montreal are starting to edge down,” according to the report. “Prices continue to rise, however, for single-family homes, whose market is balanced, overall. Housing prices continued to climb in Gatineau, Sherbrooke, Saguenay and Trois-Rivières, affordability thus deteriorated in the third quarter.”

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Discount Mortgages Dry Up As Canadian Borrowers Face Tough Test

The discount mortgages that stoked the Canadian housing boom are disappearing, increasing the likelihood of a correction in home values.

On Thursday, Royal Bank of Canada will hike its five-year fixed-rate mortgage to 3.89 per cent, one day after the Bank of Montreal raised its rate to 3.79 per cent. The other major lenders are all moving in the same direction.

The increases mean the cost of a new fixed-rate mortgage has climbed by more than a third in five months, signalling what could be the beginning of the end of ultra-cheap credit in Canada – and the start of fiscal pain for consumers who have overburdened themselves with debt.

“I think this is the real thing,” said Benjamin Tal, deputy chief economist at CIBC World Markets. “This is the end of extremely low interest rates. They’re simply unsustainable.”

So far, interest rates on other kinds of consumer debt are not on the rise, since they are often tied to the Bank of Canada’s benchmark rate, still sitting near a record low. Even so, the rise in mortgage rates will strain the ability of borrowers to juggle their debts.

“This is the beginning of a test for the mortgage market,” Mr. Tal said. “It’s a test of how Canadians are able to tolerate higher interest rates.”

And it is a test that came on swiftly and unexpectedly. Just five months ago, Finance Minister Jim Flaherty publicly scolded both BMO and Manulife Financial for offering mortgages he deemed irresponsibly cheap, advising against a “race to the bottom,” as mortgage rates sank as low as 2.89 per cent.

While the inevitable climb of mortgage rates has had false starts over the past couple of years, the recent hikes could be the first phase of a long-term trend.

“They’re going up every time we turn around,” said Paula Roberts, a Toronto mortgage broker. “It’s a shock to clients. Everybody just thinks they’re always going to stay low.”

As developing economies such as China falter, the United States has re-emerged as the likely engine of global economic growth. The improving U.S. outlook is already pushing up some lending rates, and should eventually reduce the need for central banks in the United States and Canada to hold down short-term interest rates to spur the economy. As long as the United States is making progress, mortgages here will probably continue to get more expensive.

The Canadian housing market is also still recoiling from regulatory changes Mr. Flaherty imposed in recent years in a deliberate attempt to engineer a “soft landing” for overpriced residential real estate. Last year, he reduced the maximum amortization period for a government-insured mortgage to 25 years from 30 years.

Speaking with reporters Wednesday outside a policy retreat in Wakefield, Que., Mr. Flaherty indicated that he sees no need at the moment for further intervention. “There are some bumps along the road in Toronto and Vancouver, in particular in the condo markets, but overall, I’m satisfied that the measures we’ve taken over the last several years have adequately calmed the markets.”

With multiple forces colluding on raising Canadian mortgage rates, the stubbornly strong housing market could finally relent. “Buying the same house will be more expensive this fall than this spring,” said Peter Routledge, an analyst at National Bank Financial.

An expected rise in rates could spur some to buy homes immediately to avoid the increased costs. Other prospective buyers will find they can no longer afford home ownership. “It’s going to limit the people that can buy,” Ms. Roberts said. “And it’s going to take longer for people to get into the market.”

Demand for homes could fall as a result. After that, the magnitude of the market’s reaction is difficult to anticipate. “Housing markets are prone to overreaction in both ways, the upside and the downside,” Mr. Routledge said. “The possibility that you get a vicious cycle goes up as rates go up.”

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3 Helpful Tips On Debt Consolidation

If your debts have become uncontrollable and you are serious to get out of this financial instability, you must go for debt consolidation. With the help of debt consolidation all your multiple unmanageable debts will be consolidated into a single debt. After consolidating your debts, you also do not need to face the hassle of paying off your creditors separately. All your various creditors are paid off with a single monthly payment that you make to your consolidation company. Thus, there are various benefits of consolidating your debts. However, you must be aware that in order to have a successful debt consolidation, you need to know certain tactics. This article provides you with some tips on debt consolidation that may help you out.

Debt Consolidation Tips

Here are some tips on debt consolidation you need to know before you go for consolidating your debts with the help of a debt consolidation company.

• Reputable company - Before you choose a debt consolidation company, make sure to have a thorough research on the debt consolidation company that you want to go for. Research well online about the company and find out if it is a reputable one. All debt consolidation programs are not equal. Shop thoroughly and this in turn will help you get the best deal that suits your needs. Investigate not only whether they are offering you a low fees or not but also how long the company has been in the business, their experience and reputation.

• Non-profit companies - Non-profit organization may offer you much lower fees but you must keep in mind that non-profit doesn't mean that they are eager to help you out with your financial situation. Some also make fake claims to be a non-profit company in order to attract you. Thus, you need to be cautious about them.

• All debts do not need consolidation - All debts are not similar and may not even need consolidation. Thus, do not unnecessarily consolidate them. Analyze each debt separately. You must read the terms and conditions for each of your debt carefully. Estimate the APR and total cost of loan with help of an online loan amortization calculator. If you find out that your existing unsecured debt is cheaper than the consolidation loan that is being provided to you, it is better to avoid consolidating it.

Apart from these tips mentioned above, you must also figure out the total cost of your debt consolidation loan. Securing a low interest rate provides you with the main benefit of consolidating. Thus, make sure to utilize these tips on debt consolidation if you want to secure a successful consolidation.

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Canadian House Hunters, Weigh Your Mortgage Options

Before we move into our new house this summer we have a really big decision to make. Do we go with a fixed or a variable rate? The answer to this question varies for everyone depending on their financial situation and tolerance for risk.

According to a popular study by Moshe Milevsky, choosing a variable rate has saved home owners money nearly 90 percent of the time. Sounds like an easy decision then, right? Not exactly.

This Time it’s Different
Interest rates are still at historic lows, with most experts predicting that rates will increase at least 1-2 percent over the next two years. Five-year fixed rates are currently under 4 percent, which is definitely an attractive rate to lock into and protect against the risk of future interest rate hikes.

But if the math favors choosing a variable rate mortgage over time, why are people so divided on this issue?

The vast majority of Canadians still choose the five-year fixed term. Proponents of fixed interest rates enjoy the peace of mind knowing that their payments won’t change and they also feel that we are in one of those rare situations where locking into a five-year term will save home owners money.

Since variable rates are always initially cheaper than five-year fixed mortgage rates, the decision ultimately comes down to saving money now vs. the potential of saving money in the future if interest rates go up.

What Options To Consider?
Let’s take a look at some real numbers to help make our decision. These are the current interest rate options for us, along with some pros and cons to consider:

Five-year variable interest rate = 2.20 percent (prime minus 0.80 percent) – As I mentioned, this is likely the smart choice since the variable rate has saved money nearly 90% of the time vs. a fixed rate. However, this time could very well be different, and if interest rates climb quickly back to historic levels this can become a losing proposition.
Five-year fixed interest rate = 3.89 percent – All things considered, a five-year fixed term under 4 percent is extremely low and would give us the peace of mind knowing that our payments wouldn’t increase even if interest rates soared. On the downside, by choosing this option we would be paying $260 more per month than if we went with the variable rate.
Three-year fixed interest rate = 3.54 percent – This option would give us the flexibility of not locking into a five-year term and also benefiting from a 0.35 percent discount over the five-year term. The monthly payments would still be $200 more than the payments on the variable rate.
1 year fixed interest rate = 2.64 percent – This option might be the best for us if we feel this is still a period of uncertainty. We would maintain our negotiating power after just one year and we also benefit from a 1.25 percent discount off the five-year fixed rate. But if interest rates were to rise quickly over the next 12 months we would still have to renew our mortgage at a higher rate when it came due.
As you can see, the five-year fixed rate has a built-in premium of 1.69 percent over the best variable interest rate. If the Bank of Canada decided to raise interest rates fairly quickly and aggressively over the next few years, the five-year fixed rate would likely be the better option.

Economic Factors at Work
The Bank of Canada meets eight times a year to make interest rate announcements and historically will move the rate by 25 or 50 basis points (0.25 or 0.50 percentage points) at a time. There is definitely the potential for interest rates to move between 2 – 3% in a single year.

The problem is, we are not very good at predicting where interest rates are headed. When it comes to monetary policy, there are a lot of moving parts to consider. It’s not as simple as just trying to contain inflation or trying to prevent a housing bubble.

Think of the soaring Canadian dollar. If interest rates were to rise sharply, the loonie would continue to climb vs. the American dollar, which puts increasing pressure on our manufacturing sector that relies heavily on exports.

Interest rates are indeed at historic lows but, with the outlook of the world economy still very uncertain, it is likely that the Bank of Canada will continue to move cautiously to avoid triggering another recession.

The Affordability Factor
Ultimately, whatever we decide to choose will carry some risk. Often the fixed vs. variable interest rate question is more about affordability than anything. Can your budget handle a 2 percent – 3 percent hike in interest rates? If not, then the fixed rate gives you that peace of mind to know that your payments won’t change for five years. If you can handle an increase in mortgage payments then you might find a great opportunity to save thousands of dollars in interest over the life of your mortgage by choosing the variable rate.

In our case, I think we are leaning toward the five-year variable rate, but with a twist. We will set our payments as if we were paying a 4.5 percent interest rate. This way we will be knocking years off of the overall amortization of our mortgage while saving thousands of dollars of interest. And we will still have the peace of mind knowing that we have built in a 2.3 percent cushion into our monthly payments in case interest rates rise.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Helpful Advice For Making Home Improvements Easier

Perhaps you're scared to tackle home repairs for a slew of reasons. Maybe you've heard those stories about things going horribly wrong. Had these individuals done the research needed when it comes to home improvement projects, then they would not have experienced these horrors. You can pick up a lot of solid home improvement advice by reading the tips presented here.

Know what style you are looking for before beginning any type of home improvement. Identifying your decorating style will have a serious impact on the choices that you make. It is not hard to alter your style halfway through your project without realizing you have done so. Mistakes like this one can result in you having to backtrack and are also a waste of money.

Stained wood is a great product to choose for replacing baseboards. It is a classically warm look of the wood looks great in any room of the house. They also are better at hiding minor scuffs and dents than painted, and are easier to touch up should damage occur. The numerous colors of stain available ensure that you will find the right color for your home.

Poke holes in your wall paper bubbles! Sometimes bubbles form when you are hanging wallpaper and you don't notice them until it's too late to pull the paper back and correct them. All is not lost! Just use a pin to pierce each bubble then carefully flatten it out against the wall.

If your front door has to endure torrents of hot weather, make sure to choose an oil based paint instead of latex to prevent the paint from peeling off. A peeling front door is rather unsightly, so invest some money in high quality oil based paint to keep your door looking fresh in the heat.

As stated previously, most home improvement mishaps can be avoided by planning ahead and researching the project beforehand. You should now have a better idea on how to get started on your next home repair.

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Improve Your Home With These Practical Tips

Improving your home can be quite exciting! Maybe fix, replace or freshen-up something! However, if you do not have the right advice or information, this can be very stressful for all involved. This article contains a number of tips to help you and your household make a success of that home improvement project.

To improve the value of your home, you should think about remodeling it. A home that looks new can be sold for more. Adding new rooms or an outside patio can increase its value. Consider remodeling as a form of investment and make sure you know what most people want, before you start.

Put your used paint brushes and rollers in plastic and in the fridge! If you are going to continue using the same paint in the near future there is no reason to wash out your brushes and rollers. Just seal them in a plastic bag and put them in the refrigerator. They will be usable for weeks!

Clean out your home every few months by taking a look around and collecting items that you no longer need. It is a great feeling to update your home decor as well as giving unwanted items to charity. Take those things you no longer need and donate them to a local charity or orphanage. This will de- clutter your home and give you space for new items.

To see a return on your home improvement project, consider converting existing space into a new living environment for your family. Making an attic into a bedroom or finishing off your basement will earn you extra money when reselling your home because you are utilizing something that is already available to create a desirable feature.

Bugs tend to plague every household. A great way to ensure that you have it under control is by vacuuming and moving things around daily. Also, pinecones are actually a great remedy to keep bugs away. Collect pinecones and display them in a bowl to: repel the bugs, and add a chic touch to your decor.

If your room feels plain, add interest to it by choosing a heavily patterned rug. Stripes (horizontal or vertical), polka dots and swirls always make for a bold statement in your room. Don't be afraid to try new things, even if at first glance they don't match. Try small swatches of a design before you purchase the full product to make sure you like it.

So, home improvement has the potential to be a fun and exciting project! However, the process can be very difficult and stressful if you do not have the right advice and information. Use the tips found in this article to improve your home with ease!

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How To Improve Your Home On A Budget

If you are not a professional home improvement worker, there is always information that will help you complete your jobs. If you lack some knowledge, the improvement could turn into a catastrophe. This article will provide you with information that will help you defeat what used to be challenging home improvement ventures.

If you're interested in home improvement, a good place to start is by experimenting with color schemes. You can do this by getting swatches from your local paint store, or using a variety of online color scheme websites and apps. Doing this can be creative and fun, and inspire you to think of ideas you might not have had if you had focused on details like furnishings straight away.

If you heat with a wood stove, smoke will cause your walls to become dingy and you will need to repaint more often than if you heat with a furnace. When you do repaint, it is worthwhile to wipe the walls and ceiling down with a damp sponge to remove as much soot as possible before putting on a new coat of paint.

Adding accessories to your room can be a great way to make a space feel like your own. Infuse your own personality into your room by carefully choosing some accessories to your liking. Make sure not to go overboard with decorations because it can make a small room feel rather cramped.

Make your child a room-sized blackboard! It will provide hours of entertainment and offer interest to practically any room. All you have to do is paint a section of a wall with paint that's made especially for blackboards. If you want, you can even frame it in with molding to give it that professional look.

Having a small kitchen doesn't have to be all bad. Since you have limited surfaces and space to work with, make sure to purchase a sink with a deep bowl. Then add some elegant high- end faucets to match the rest of your kitchen. You can easily create a feeling of space without having to compromise the rest of your home.

As was said earlier in the article, home improvement can turn into a great catastrophe if you do not have the knowledge necessary for some of the jobs. Now that you have the knowledge, apply it to your specific needs of home improvement. Don't let setbacks get you down, trudge through and the practice will make you better.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.