March Commentary - Economy, Housing and Mortgages

Spring is nearly here, in Toronto at least, (sorry Halifax) the snow is fast disappearing and while the weather has graced us with a couple of warm days we are at least seeing longer days. I love the sunshine. Maple season is here for those heading out to the sugar bush events and houses are being listed and sold at a searing pace, with the first 2 weeks of March seeing 3,838 sales through MLS, an 11.8% increase over this time last year.

The Bank of Canada has held rates down and while banks did finally drop their prime rates, 15 bps, they did not match the 25 bps the Bank of Canada announced in January.   This has still been great for variable rate borrowers.

As ever the pundits are calling for the rates to stay low and to go up.  While the US economy is doing well, places like Brazil and India have less momentum than they did, and if we can get around the official numbers it looks like China is slowing down more than the world had hoped. 

The spillover effect of the sanctions imposed on Russia for their acts of hubris are hurting Germany, the engine of Europe, so this is going to be a lose-lose on the sanctions game, but since no one wants war with Russia and they still want to take a moral stance I guess there is still a price to be paid.

Canada is now more than ever a petro-dollar economy and so we will probably not see our dollar go back up anytime soon, the hope that other sectors would pick up has not proved as successful at offsetting the declines due to oil, as had been hoped, so the dollar is low, rates are low and in some sectors jobs are being lost.  This does not suggest that we will see rate increases any time soon.

An average single detached house price in Toronto is now $1 million, a nice milestone to keep the news hounds happy, but what does this mean.  A few things, 1) cheap financing  2) there is a LOT of money in Toronto, 3) people keep coming to Toronto and 4) land is finite.   Developers, are now seeing the writing on the wall and are starting to invest in rental housing, they see that the long term prospects of owning a home will be further diminished as the wealth divide increases and more people will rent.

This means 2 things for the some people  1) it is a good time to invest in buying rental properties and 2) house prices are not likely to drop too much even when rates increase. 

Our personal (non-mortgage) debt levels keep rising, but we seem to be managing.  The government has not jumped on the banks for dropping their lending rates on mortgages this time, and Harper has indicated that they "are not planning to take any immediate action." This is good news for the real estate sector.

On a side note I have yet to see a news story where banks are dropping their credit card interest rates, but then those are not underwritten by government insurance and somehow they keep it out of the news. 

Something always happens, at the moment though I do not think it will be much. 

I do not think there should be a mad rush to buy just because of the current interest rates, while they may rise and fall a bit we are still in crazy low territory, so take your time and buy what you want when you can.

When you or someone you know is ready to buy, refinance or renew give me a call I will always work to get you a great deal and take advantage of the battle of the lenders to make sure you get the RIGHT mortgage at a GREAT Rate.  More often than not I can get you something better than most people can find on their own.


All the best.

Debt - Inheritance - Get your affairs in order!

This article from the CBC (http://www.cbc.ca/news/business/high-consumer-debt-reflects-laissez-faire-attitude-to-borrowing-1.2988768) and others discuss the growing debt burden on Canadians. They make allowances for the fact that house prices are insane, and interest rates are also historically low, and that despite the slump in the oil sector a lot of Canadians do not feel that the economy is too bad, but the pundits still feel their is a need to worry.

Then there are other articles about the transfer of wealth, and in the case of the Maclean's article, the battles that can come with that transfer (http://www.macleans.ca/society/life/the-inheritance-wars/).

So, how much of the transfer will offset the debt? And an insufficiently covered part, until I read the Maclean's piece, was how much will the lawyers get.

There are several battles waging for the money that might be transferred. The longevity and health of the people currently holding the wealth: they may be healthy enough to spend it travelling, or need more expensive medical care. The amount that their children might have needed during the much rockier times since the 70s with more schooling, poor job markets and now, high costs of housing. Then of course there is also the philosophical position of those holding the wealth. In 2013 this article came out (http://www.businessinsider.com/tycoons-not-leaving-money-to-their-kids-2013-8?op=1) and while being taken care of by billionaire parents might be more than most would get, it is still not what the rest of us thought might happen. I also know middle class families that hold the same views, that children need to make their own way and should not rely on their parents to get ahead.

I think I lie somewhere in the middle. The world is a tough place and while I think children, young or grown, need to be able to fend for themselves and build a future and not depend on what may be left to them, I think some help is OK. Some might want to build a dynasty, or grow family wealth and set things up so that whatever you are given by your parents you must give each of your children at least that amount. If this were the case then someone must double, or triple their net worth to keep those standards if they have children. Is this done through a Trust? How can you hold people to this? I think the key thing is raising your children with the values you really want them to have, and giving them too much will definitely lead to zero motivation to succeed on their own. So what this help looks like will be different for every family, but what I can say is whatever your plans make sure you get them down on paper and make sure they cover all eventualities.

Do not forget you, or a family member, may get dementia and you should know that, in Ontario anyway, the laws are against the family in the case of a single adult with dementia. Why do I say this? If you think children can be nasty fighting over their inheritance just think about what could happen if a nice man, or woman, saw your single mother, or father, with dementia and a tidy nest egg. Maybe the Will was in place before your parent got dementia, and maybe mom, or dad cannot legally sign a contract to buy a car, but they can get married, and in Ontario at least, if they get married that Will they wrote back when they knew what they wanted, becomes NULL & VOID, and then when they die, well, I guess the lawyers could get most of it, but it certainly will not shake out the way it was planned. (In case you want to read more check out this book, it is well worth the investment if you, or your parents have any net worth that might be targeted. http://www.carswell.com/product-detail/capacity-to-marry-and-the-estate-plan/ and/or listen to the following broadcast http://podcast.cbc.ca/mp3/podcasts/ontariotoday_20150115_54711.mp3 ).

I could go on, but my belief is that we are not going to see debt ratios getting any better while interest rates are so low and housing prices remain so high. I also think despite articles warning that there may be less than one planned when parents die, and it may come later, people are still going to pretend they will rely on their inheritance to get them through their own retirement. This kind of wishful planning is not the best path so whatever your beliefs, or plans, make sure you have the paperwork and budgets in line to meet your own, and your family's goals.

Bank of Canada Announcement not really a surprise

Well, Well the New Year has brought a big surprise for the business news watchers.

Personally, have had a great start to the year and hope the same for you. 

The unpredictability of the economy and what the big guys do has never been more evident than with the most recent Bank of Canada (BoC) announcement.  The 1/4 point drop in rate means they are worried about the effects of the low price of oil on the Canadian economy.  Granted we were reassured that the other parts of the economy e.g. manufacturing etc. are growing, and with the stronger US economy and a lower Canadian dollar it certainly opens opportunity for export growth, but this announcement means they do not expect the one aspect of the economy to pick up enough slack to offset the oil patch slow down any time soon.

The focus was on opening the lending gates to business to help them grow, and while the BoC hedged around it, the media sources jumped on the fact that people might take this opportunity to borrow and dig themselves deeper into debt.  So the banks have held off on dropping personal lending rates and even those of us with variable rate debt had hoped it would mean our payments would be making a bigger dent in the principal.  The banks though have taken the "general concern" and turned it into a window to boost profits as their margins improve while they save us from ourselves.  Maybe a good time to up the bank stock holdings?  Anyway, the rate drop does mean that while we had it pretty easy after the 2008 collapse we are going to have to pay some price for our focus on oil. 

Look at the federal government, in an election year they are postponing the next budget and starting an aggressive pre-election media and phone campaign and trying to figure what they can put on the table to give to voters because the money they thought they had has evaporated.  This means that even they are worried about the effects on all Canadians.  So this is no small announcement.

I also listened to the Obama state of the union and while I must admit I like the guy as a orator, I also think I like the way he reached across party lines and tried to find a way to help all Americans benefit from the current growth in the US.  I did not see a lot of happy Republican faces, but where before Obama was learning the job and the games and then had to be re-elected, maybe he meant it that he would use the 2 years he has left to do more of what people elected him to do the first time?  If that happens it may have a spin off effect in Canada.

Why you might ask? Well if he can get people paid sick days, fair wages and maternity leave, maybe some parts of the US will have improved economies and this would further boost consumption of both US and Canadian goods, and if wages go up we may be more competitive in our labour costs.  We do need to work on our productivity though.

The experts say they were caught off guard by the rate drop, and the Bank of Canada said they dropped hints and that the experts understood the effect the big drop in oil prices would have so they should not have been surprised.   The BoC said this move was for insurance purposes and reminded us that the effects of a drop are never immediate ( 6 - 8 quarters to influence inflation) and that it could take a year to get back on track.  They have room to go up, or down, if they still need to and with their models predicated on $60 it is going to be interesting.  The recent death of the Saudi King may also lead to changes, overall it is a dramatic start to the year.

Will this help return "output to its full potential" or help "close the labour market gap?"  Hard to say.  I am going to agree with Michael Hlinka on this and I think there is far too much under employment and people who are in the wings with better educations and skills than the economy is putting to use.  I do not think the Canadian economy is crashing and burning, but I also am not yet convinced that this one cut will give us the growth we need if governments and business do not start investing in infrastructure, growth and people.  And I am not sure I see enough of that across the country to say that me might not see another rate drop. 

The benefit to the consumer is delayed by banks who will not match the rate drop, and it may take time to work its way into mortgage rates, but I guess the one thing we can be sure of is that mortgage rates will not be going up soon.  So if your personal economics and job prospects are good it is still a great time to buy, and a great time for those happy with where they are to pay the debts down even faster and free up that cash flow for a much freer life down the road.

The dollar remains low and this too will affect how Canadians spend their money.  Higher food prices ahead.

Youth are worth nothing to business if they have to work for free

The Bank of Canada Governor set off a new round of discussions about unpaid internships.  I love all the coverage, but I must say that while some of the articles sound tough they are really skirting some of the really IMPORTANT points.

1) Bank leaders like Mr. Poloz and other "Lords" of industry I am sure do not have their children working for free.  They probably call up a buddy at another company and get their kids on the payroll somewhere.  It may be an entry level job, but it is a paid job with a future, barring massive stupidity on the part of the young worker.

2) Why is it that the young people in earlier generations took on these same mail room type jobs and got paid?  In the 50s 60s and even 70s there were jobs, and they all brought about the equivalent level of skill and knowledge, for their time, to the table as the young graduates of today.  Somehow businesses valued what they brought enough to pay them, sometimes not much, but it was a paycheque and a chance to prove oneself.  Now, whatever work the interns are doing in the companies has no value and the students, or graduates, the companies bring on have nothing to offer, and the companies do not see them as having any potential.  If they did then they would pay them right?


I understand that it will take a couple of generations to plant the seeds that this is OK, and that a form of serfdom is a way to get ahead.  But even serfs were able to use some land to feed themselves and were entitled to protection, and justice.  OK, so the state has taken care of the justice part, sort of, and the protection of things like OHIP, but what about the feeding part.  I guess they have to work triple hours, most for free and a bit at the food counters to keep fed.

I am not seeing any great improvement from the Middle Ages in terms of treatment by the "Lords" of industry.  Wage pressures continue increase the levels of poverty for those that are working, and now we are asking parents to carry the burden so multimillion dollar corporations can increase executive compensation and dividend payments to the people who can afford to own shares. (Yes, I know many of the parents' pensions benefit, but hey may never retire if they have to keep supporting their kids.)

Is anyone else seeing a problem with this?

I understand that it is an opportunity to build a resume, or try a new field, but people used to get paid to do the same work.  I guess if I were an intern I would be happy to go in and observe the work of others, and see how it all came together, but the minute I actually had to do something I think it is fair to get paid. Right?

Maybe they think of this as an apprenticeship?  If so, then if we are sticking with the historical references, then there was a legal agreement that the apprentice was bound to the master and got something in return.

What it was like to be an apprentice in early New England is indicated by these words from a 1640 indenture.
"Know all men that I, Thomas Millard, with the Consent of Henry Wolcott of Windsor unto whose custody and care at whose charge I was brought over out of England into New England, doe bynd myself as an apprentise for eight yeeres to serve William Pynchon of Springfield, his heirs and assigns in all manner of lawful employmt unto the full ext of eight yeeres beginninge the 29 day of Sept 1640. And the said William doth condition to find the said Thomas meat drinke & clothing fitting such an apprentise & at the end of this tyme one new sute of apparell and forty shillings in mony: subscribed this 28 October 1640." (http://www.lni.wa.gov/TradesLicensing/Apprenticeship/About/History/)

While not always treated fairly, they were housed and clothed, I am not seeing that today, that burden is shifted to the families, who may also be struggling.

We are sort of getting the points across in the media, but the media also seems to be missing a big point.  Just because those who shape society want us to believe it is OK to work for free and thus also enslave our families who then have to feed and clothe us, does not mean it is actually a right and just thing.  For the leader of the Bank of Canada to say this proves that he is part of the machine of  mistreatment and not looking to the companies to help grow the economy.

Saving a company a few dollars is nothing compared to the value to an economy of giving any person paid employment and having them contribute to the economic life of the whole society in a meaningful way.  Do not forget the more impoverished the family they less likely they are to be able to navigate the system and crime for some, even middle class youth, may becomes a more enticing future because there is money in criminal behaviour, right big companies?

Financial Update from Newsletter

Ok, as weather goes this year has been weird and I guess this week will be no different.

But meteorological weather is in no way reflecting the financial weather we are all facing.

The world's smartest (well one hopes) leaders try as they might cannot seem to wrangle 7 billion people to behave in a way that makes the economy do what they want. Strange how that happens.  When I put it that way is it so surprising?

So what is new on the home front?

Well first off the 20 somethings of today are continuing the trend of earning less than the generation before, and the gap is widening.  The worst part is that older workers doing the same job, even accounting for experience, are getting paid WAY more than the younger workers.  The reason is simple it is corporations and governments gradually pushing down wage expectations so that when older workers, who knew a better life when workers were scarcer and they could make a living wage, will not kick up a fuss and rock the boat (they still have more democratic power), but the younger workers will not know any better and overall wage costs will decline increasing profitability.  It is a good business strategy and quite long term thinking for a change, I am just not entirely sure what the final social ramifications will be, but I am sure it will not be good.

So, now younger workers cannot buy new homes, what will that do to prices over time?  Older people may not get the money out of their homes that they had hoped, unless they sell to overseas parties hiding money in Canada, so maybe their retirement is not as easy.  The other thing I think the western world is waiting for is to see what the generational shift in wealth will do to pull them out of the hole they are digging.  I think that will depend on how selfless parents are in terms of spending their hard earned money vs. sacrificing again to leave something to their children, the "ME" generation giving up things...?  Still a tough call.

So the government has tightened mortgage rules, debt with solid underpinnings (relatively) instead of credit cards etc.  But OOPS we forget TD, and other banks now have all your assets underwriting any debts you have, (read your fine print) so if you get into trouble with an "unsecured" line of credit or credit card, they might dip into your savings accounts to clean up your mess, it might not have been your plan, but it is theirs.  I generally suggest keeping debt at one financial institution and assets at another to keep those two worlds from colliding, and maybe undermining your self management.  Your call though.  I keep reminding people banks are only your friends when they can make money from you, so be careful how you handle that relationship. There is a reason they give you a better rate when you give them more business.  FINE PRINT.

The Bank of Canada held its overnight rate for a long time now, with no signs of change for some time. This is great news for variable rate holders.  They are predicting rate increases, but no timelines yet.  But the increases they are anticipating are not earth shattering, though it may shock young people who have only been borrowing since 2008.

Bond rates are going up so lenders are on the cusp of raising rates again.  Not much, and they may come down again, but generally there are optimistic noises coming form economists which is not good news for borrowing rates.

The deals I post today may not hold tomorrow but more often than not I can get you something better than most people can find on their own.



All the best.

Bank of Canada and rates hold steady

Greetings ALL





It is a new school year but the world has not yet decided that it is ready to do great things again.  I cannot help but think that the West's reluctance to go to war again, while not a bad choice,  because most wars don't solve problems, it does mean continued uncertainty on how to stop a massive ego on one front and "medieval mayhem" on the other.  (Modern politics is far from simple.) Harper's reluctance to spend his vote getting pot of money supporting Canada's allies with increased military spending is either a good idea, or a bad one, depending on how big a view you take of all the events going on.  As with anything big, history and the victors will decide the true value of these choices. 



In the meantime, on the homefront it is still good news for borrowers.  With a chance to get 2.79% 5 year fixed mortgage, the BoC announcement is reaffirming for home buyers.  They have time.

Things are going as the Bank of Canada expected, economically speaking, which is why the target for the overnight rate is still sitting at 1%.

The Bank announced on Wednesday that, with the global economy performing largely as expected and Canadian inflation settling down again, there doesn't seem to be a need to increase interest rates-for now.

Stronger growth in the second quarter-due largely to surging exports-has brought the GDP almost exactly to the point the Bank projected in July. The housing market continues to perform stronger than expected, but so far it hasn't impacted inflation enough to warrant higher interest rates.

For now, risks contributing to the increase of inflation seem to be balanced, which is why the Bank ultimately decided to stand pat. But it's not making any promises going forward, however, as it says only time will tell what the global and Canadian economies will look like heading into the October 22 announcement.

If you're wondering how this announcement affects your specific situation-or if you have questions about variable mortgages, locking in or anything else mortgage-related—feel free to drop me a line. I'd love to chat!  416.486.1113

What Mortgage Brokers do - FAQ

What is a Canadian Mortgage Broker?

Canadian Mortgage brokers are independent, trained professionals licensed to represent and provide you with the best advice for your mortgage needs.
Mortgage brokers primary expertise is locating funding for mortgage financing. They know where the best rates can be found. What's more, they have the knowledge required to present a proposal for financing to lenders in the best way possible to successfully obtain mortgage financing.

Why deal with a mortgage broker in Toronto?
Mortgage brokers represent you, the customer, not the lender. Because they are not employees of a lending institution, brokers are not limited in the product they can offer you. brokers seek out the best lender package to suit your specific situation, whether it’s with a Chartered Bank, Trust or Insurance Company, or Private Funds.
There is a wide assortment of options and features available to homebuyers today. Shopping around takes a lot of time and effort. The mortgage process within today's very competitive marketplace intimidates many Canadian homebuyers. It pays to work with a mortgage professional who will represent you and ensure the mortgage you get is the one best suited to your needs.
Choosing the wrong mortgage can cost you thousands of extra dollars. Mortgage brokers are trained professionals who can help you save on your mortgage dollar.

Other than rates, why should I use a mortgage broker?
In addition to rates, because mortgage-based financing is the broker's primary business, he or she has developed expertise in what type of mortgage financing each lender prefers to pursue. This kind of knowledge not only results in the most favourable rates for each project, but often whether a project is funded at all.

How do mortgage brokers find the best rates?
Interest rates are a concern to borrowers. Because of their daily contact with lenders, brokers know which project or home attracts a favorable interest rate from one institution, but a higher rate at another. Some institutions, in fact, will only accept mortgage submissions from mortgage brokers.
These rates, and preferences for types of mortgages, can change daily, depending on economic circumstances or based on the size of an institution's portfolio in a particular type of mortgage. Your mortgage broker keeps current and knows which lender to approach first. As a result, mortgage rates obtained by brokers are among the best available at the time of placement.

Why should I go to a mortgage broker first?
A professional presentation to a lender on the first application will get the best response and save you valuable time and money. Secondary applications with previous credit bureau inquiries may be more costly.
Often the success of obtaining mortgage approval depends on the way a proposal is presented and to whom it is sent. Your mortgage broker is trained to present your mortgage proposal where and how it will get the most immediate, positive result.
You don't call an insurance company for insurance - you use an insurance broker, because of their expertise, product knowledge and rates. So remember, call your mortgage broker first!

Do mortgage brokers only do residential mortgages?
Brokers can place all types of loans provided they are backed by mortgage collateral. This includes small loans backed by a residential property to million dollar commercial loans backed by commercial property. Mortgage-backed loans in the millions are not uncommon with private pension funds and private lenders.
In addition to handling straight mortgages, mortgage brokers are often called on to assemble financing ( based on mortgage collateral) for businesses. Mortgage brokers excel in this type of financing package because of their expertise in looking at loans from a mortgaging perspective, as well as their knowledge of financial institutions' interests and desires for a particular product at specific times.

How do mortgage brokers get better deals than many banks?
The lenders who work with mortgage brokers include traditional sources, such as chartered banks, trust companies, as well as corporate and private pension funds.
In addition to these sources, brokers often develop professional relationships with private sources of funds, termed private lenders. These lenders can provide many various mortgage products not available at conventional sources. For best results call your Broker first.
Can I still go through my bank with my mortgage broker?
Yes, letting a mortgage broker represent you to your own financial institution can often result in a better mortgage rate than you could get on your own.