STIMULUS SUFFICIENT TO TURN ECONOMY AROUND LATER THIS YEAR: BANK OF CANADA
By The Canadian Press OTTAWA - Bank of Canada governor Mark Carney says he does not envision that the struggling economy will require additional monetary stimulus.
The central bank governor says he believes the economy will begin to grow again late this year, after four quarters of decline that began at the end of last year. Carney says that as things stand today, he believes there is enough stimulus from governments and the bank to provide the boost the economy needs.
He sees the elements of recovery forming, including a gradual improvement in the world economy, the housing markets in the U.S. and Canada , the depreciation of the Canadian dollar and Canada 's sound financial system.
But he admits that the economic recovery will be muted, growing only by 2.5 per cent in 2010 after falling back a full three per cent this year.
While he says he is optimistic, he underplayed talk of encouraging green shoots appearing on the economic terrain as premature. It is too soon to be totally reassured, he says. And Carney says he is prudently planning for worse.
Carney says in case of a financial system shock, he has prepared plans to intervene by expanding the money supply or purchasing corporate assets - so-called quantitative and credit easing.
HOME RENOVATION TAX CREDIT
The federal government's Home Renovation Tax Credit (HRTC) has a lot of takers according to a recent survey by Resmor Trust, who revealed 94% of Canadian homeowners who are planning to renovate their homes before next February will take advantage of the credit.Of that number 5% of respondents said they will add the renovation costs to their mortgage.
The HRTC applies to renovations between $1,000 and $10,000, and 83% of survey respondents said they plan to spend within that amount on renovations. Half of those surveyed said they will use savings to pay for the renovations, followed by 30% who will use a line of credit
HOUSING IN CANADA BECOMING MORE AFFORDABLE
Affordability is a key concern among buyers, but today's economic conditions are helping alleviate this stress as prices drop, allowing those that were on the fence to make a purchase. "Going forward, low mortgage rates and persisting downward pressure on housing prices will continue to help repair affordability although slowing income growth will act as a restraint," says Robert Hogue, senior economist at RBC, Toronto . Fourth quarter 2008 research by RBC, which measured the proportion of pre-tax household income needed to own a home, found that affordability improved across Canada up to 3.5 percentage points. This is due in part to rising family income, as well as lower lending rates. For example, the Bank of Canada has further reduced the overnight rate to 0.25%, from 4.5% in about a year.
VARIABLE MORTGAGE RATES DOWN
In the past six months variable mortgage rates went from prime minus .85% to prime plus .80% - 1.00%, simply the banks way of protecting their profit margin with huge reduction in the overnight rate. Now that it appears the Bank of Canada overnight rate may have hit bottom, we will probably see a small reduction in the variable rates. We have one lender who is currently lowered rates to prime plus .60% (effective rate of 2.85%), and possibly more will follow. As per Ben Tal's (CIBC) prediction last January, once the economy settles we should expect an average variable rate of prime minus .25% as the "new normal" and not the deeper discounts we experienced in previous years.
BUYER INCENTIVES CAN CREATE FINANCIAL SHORTFALL
Real Estate vendors will often offer incentives to encourage prospective homebuyers to purchase a property. These incentives either:
· Contribute to the value of the property, an example being upgrades to the property. · Does not contribute to the value of the property, examples include vendor cash backs, waiving mortgage payments, rate buy downs, vacations, new cars, etc.
Where a purchase incentive does not contribute to the value of the property, the value of the incentive will be deducted from the purchase price to avoid inflated property values. This applies to conventional and high ratio mortgages.
· Review the Agreements of Purchase and Sale along with MLS listing (if applicable) in detail to determine if an incentive is being offered.
· If an incentive has been offered which does not contribute to the value of the property, the Loan-to-Value will be calculated using the purchase price less the amount of the incentive. This will reduce the mortgage amount or increase the loan-to-value, either way it will have an effect on the mortgage financing and both buyer and lender should be aware of this while making the buying decision.
INFO PROVIDED BY :
Michael Hatch AMP Mortgage Agent Lic#M08008114 Integrity Financing - Dominion Lending Centres 704-2197 Riverside Dr, Ottawa , ON K1H 7X3 Tel: 613.203.2030 Fax: 613.424.2111 Toll Free: 1.877.238.3521 Email: firstname.lastname@example.org Web: www.ottawashometeam.com