Bank of Canada – Hints at Longer Wait for Rate Hike

The Mortgage Emporium – Mortgage Brokers Ottawa

In a move anticipated by most analysts, The Bank of Canada announced today that the overnight rate will remain at 1 per cent target, suggesting it – along with variable rates — won’t rise anytime soon.

The Bank cited “weaker business investment and exports” as a one reason the rate remained the same, along with a pullback in household spending, the European recession, slow but gradual recovery in the U.S and muted inflation.

“Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent,” the bank said in a statement. “While some modest withdrawal of monetary policy stimulus will likely be required over time, consistent with achieving the two per cent inflation target, the more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggests that the timing of any such withdrawal is less imminent than previously anticipated.”

Governor Mark Carney’s commentary hinted that no rate hike is in the cards in the near future, but according to Jimmy Jean, economic strategist at Desjardins, his painting of lower interest rates as desirable came as a shock.

“It’s a surprise,” he said, “It has more dovish content than what we were anticipating. The forecast adjustments were pretty much in line with what we were expecting. The language is really where the surprise comes from. We still don’t think we’re likely to see any move (on interest rates) in 2013.”

The announcement likely doesn’t come as a shock to brokers who have been monitoring the rate.

Short-term mortgage rates are unlikely to rise anytime soon, but overall rates are not expected to fall.

The economy slowed more than anticipated in the latter half of 2012, falling below the projections outlined by the Bank in the Monetary Policy Report (MPR) released in October, and is expected to continue at a “restrained” pace until the second half of 2014. The Bank revisited earlier projections for 2013, revising the 2.3 per cent growth estimate to 2 per cent.
carney is expected to address new numbers later today at a press conference alongside Bank of

Canada Senior Deputy Governor Tiff Macklem. The Bank will announce the overnight rate target again on March 6, and provide a fully updated outlook for the economy and inflation in the new MPR released April 17, 2013.

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By Jemima Codrington

Canada’s Waning Growth Puts Balanced Budget at Risk

Theophilos Argitis, Bloomberg News | Jan 21, 2013 1:46 PM ET
More from Bloomberg News

The Mortgage Emporium – Ottawa Mortgage

Aaron Vincent Elkaim/The Canadian PressBudget planners are concerned that weaker revenue may outpace Finance Minister Jim Flaherty’s ability to offset it through accelerated spending cuts.

Canada’s revenue outlook has deteriorated since Finance Minister Jim Flaherty updated his fiscal plan in November amid signs the economy has slowed, making it more difficult to bring the budget into balance, a person with direct knowledge of the government’s budget planning said.

Budget planners are concerned that weaker revenue may outpace Flaherty’s ability to offset it through accelerated spending cuts, especially since the government pledged not to curb transfers to individuals and provinces, the person said on condition they not be identified because they aren’t authorized to speak to the media on the subject. Still, the goal remains to balance the budget by 2015, the person said.

Tax revenues are just not going to be maintaining the pace you would have expected just six months ago

Canada’s economy probably had its worst six-month performance since the end of the 2009 recession in the second half of last year, as exports fell and uncertainty about the global expansion prompted businesses to curb spending, leading economists to scale back their expectations for 2013.

“Tax revenues are just not going to be maintaining the pace you would have expected just six months ago,” said David Watt, chief economist at HSBC Bank Canada.

Flaherty, seeking to return the country to surpluses while ensuring the economy isn’t hurt by fiscal tightening, already scaled back revenue projections in a November budget update by $7-billion for the next fiscal year and by $36-billion over five years, citing lower commodity prices.

Optimistic Forecast

In that update, growth projections for 2013 were cut to 2% from a March forecast of 2.4% when the budget for the fiscal year beginning in April was released. That 2% now looks optimistic.

Slower growth will sap $22-billion a year from Canada’s economy, budget watchdog warns

Parliamentary Budget Officer Kevin Page says in a new report that he anticipates economic growth will brake to an annual rate of 1.6% in the second half of this year, after slowing to 1.8% in the first half.

Read full story here.

Growth in 2013 will probably be closer to 1.7%, according to the median of the forecasts of economists at six Canadian banks: Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Nova Scotia, BMO Capital Markets, Royal Bank of Canada and HSBC Canada.

A 0.3 percentage-point reduction in 2013 growth projections may create an additional budget shortfall of more than $1-billion in the next fiscal year and almost $4-billion over three years, according to Bloomberg calculations based on a formula provided by the finance department in its last update. A one-year 1 percentage-point reduction in growth narrows the budget balance by $3.9-billion in the first year and $12.8-billion over three years, according to that formula.

“Growth has not been as firm as they had been expecting,” Watt said. “As a result, the fiscal situation has been a bit more of a challenge.”

Budget Balance

Flaherty has said he will balance the budget before the next federal election, expected in 2015, by cutting departmental expenses and forgoing new spending. A government pledge not to raise taxes or cut transfers to individuals and provinces is handcuffing the government’s ability to meet that goal as revenue wanes.

Direct program spending, which excludes transfers and makes up just under 50% of federal government spending, is projected to decline to $118.9-billion in the fiscal year that begins April 1, down from $120.8-billion projected in the 2012-13 fiscal year, then remain little changed through 2017, according to the November fiscal update. As a share of GDP, direct program expenses will decline to 5.4% by 2017, the lowest since at least 1967, from 6.7% this year.

The finance department also scaled back its revenue assumptions in the update, after final figures for the fiscal 2011-12 showed the government’s revenue as a share of the economy shrank to its lowest in at least 45 years.

Canada now projects total tax revenue as a share of GDP will average 14.3% over the next five years, ranging from 14% in the current year to as high as 14.4% in 2015. That ratio has averaged about 15.5% over the previous 10 years.

Bloomberg

Jim Flaherty on home sales dive: ‘I don’t mind prices coming down a bit, too’

TARA PERKINS AND SEAN SILCOFF
TORONTO/OTTAWA — The Globe and Mail
Published Tuesday, Jan. 15 2013, 11:25 AM EST
The way Jim Flaherty sees it, his July changes to Canada’s mortgage rules are having the desired effect on the housing market.
“Well, yeah,” the finance minister told The Globe and Mail. “I don’t mind prices coming down a bit, too.”
Mr. Flaherty’s comments Tuesday followed new numbers showing Canadian home sales posted their fastest year-over-year decline in December since he tightened mortgage rules in July.
Sales of existing homes over the Multiple Listing Service fell 17.4 per cent in December from a year earlier, and were down 0.5 per cent from November, according to the Canadian Real Estate Association.
The MLS Home Price Index, which seeks to factor out changes in the types of homes being sold to get an indication of underlying prices, rose 3.3 per cent from a year earlier. That’s the slowest growth since April of last year.
“Successive rounds of tightening mortgage regulations have kept the housing market in check during what has become an extended low interest rate environment,” said CREA chief economist Gregory Klump.
Having said that, the impact of the new rules are probably fully priced into the market now, said Toronto-Dominion Bank senior economist Sonya Gulati.
Economists at TD went through the data last year in an attempt to quantify just how much of an impact Mr. Flaherty’s four rounds of rule tightening were having.
In a report in September, they concluded that the changes had a significant permanent drop in housing demand, but “while home prices took an immediate hit following the rule changes, they bounced back within two or three quarters and continued to grow faster than underlying economic fundamentals.”
Blame interest rates.
Now, “with the whopping 17.4 per cent year-over-year change in sales seen in December, we suspect that the impacts from the mortgage rule tightening in July are now fully priced in,” Ms. Gulati said Tuesday. “We expect the Canadian housing market to stabilize at current levels over the next few months.”
Indeed, Royal Bank of Canada economist Robert Hogue pointed out that listings declined by more than sales in December, and that should lend some support to prices now. The number of newly listed homes fell 1.3 per cent from November.
The MLS Home Price Index has been declining for six months on a month-over-month basis, and there have been fears that those declines will accelerate.
“But now if supply is adjusting to the lower demand, this may guard against this acceleration of the decline,” Mr. Hogue said in an interview.
He has been of the opinion that the impact of Mr. Flaherty’s latest round of rule changes, which included cutting the maximum length of insured mortgages to 25 years from 30, would only be temporary.
“We’ll get the answer in the coming months,” he said.
And if the sharp declines in year-over-year sales end, and sales flatten out or even pick up a bit, the measures will have run their course, he said.
Ms. Gulati said the sales-to-listings ratio and the number of months of unsold inventory are well within the normal range.
“However, when we compare prices to other standard metrics like price-to-income, we still believe that prices have deviated from underlying economic fundamentals,” she said. “With this in mind, house prices will likely resume their trek downwards once higher interest rates come into effect in the fourth quarter of 2013.”

Why more home sellers are listing in January

Michael Stuparyk/Toronto Star file photo
By Mark Weisleder | Fri Jan 11 2013 http://www.moneyville.ca/article/1313605–why-more-home-sellers-are-listing-in-january
Traditionally, January is a slow month for real estate as most sellers choose to wait until the middle of February in the hopes of capitalizing on the early spring market. However, given the uncertainty in the housing market right now, more sellers are opting to put their house on the market in January.
This presents an opportunity for buyers. Most people are reluctant to uproot their families during the school year, so that means less competition — and fewer bidding wars. Lenders will not be as busy, so buyers can expect a more efficient process to get approved for a mortgage to ensure they have financing in place before making an offer.
But there are things you simply won’t be able to inspect during the winter. Here are some tips for protecting yourself when making a deal during the winter months:
Sellers
Spruce up the outside: Use urns with light wood branches to brighten up the exterior of your home, to compensate for any overcast day or snow on the ground.
Get rid of the Christmas lights: homes that look dated on the outside give the impression that they are probably dated on the inside.
Make sure your fireplace is working during any showing, that the temperature is comfortable in the home and that any interior lighting compensates for what is usually grey lighting from outside.
Have pictures of your landscaping available from the summer and autumn, showing how beautiful your home looks year round.
Have available any inspections that you may have done on your air-conditioning unit or swimming pool before they were closed for the winter, as buyers will likely not be able to conduct inspections on these items and will have questions.
Consider inviting a company to do an environmental audit on your home in advance, confirming that there is no moisture behind the walls that could lead to mould and that you have sufficient insulation behind the walls.
Buyers
If there is anything that cannot be inspected because of the winter, such as the air-conditioning system or any swimming pool, then negotiate an extended warranty in the agreement, to give you until at least May 1, to inspect and have the seller be responsible for any damages. In addition, also negotiate a holdback of, say, $2,000 so that if a problem arises, the money comes out of that fund to fix it and you don’t have to chase the seller in court later.
Be careful about snow accumulating around the base of the home. It will be difficult for a home inspector to figure out whether the grading is likely to cause water problems in the basement later. Consider doing your own environmental audit to check for moisture behind any walls.
If the snow on the roof looks like it is evaporating faster than the snow around the house, it is likely a sign that there is not enough insulation in the home.
Check with your insurance company early as to whether you will have any difficulty obtaining insurance on the home; for example, by finding out whether there have been claims made in the neighbourhood about water damages or sewage backups.
Check whether snow accumulation makes it more difficult for street parking, as this may be the only parking available on certain streets. Also see how bad weather may affect your morning commute.
Check the last electric/gas bills, to determine how energy efficient the home is in winter.
People tend to hibernate and stay at home in the winter, so take the opportunity to get to know the neighbours before you finalize your purchase.
By being properly prepared in advance, buyers and sellers can negotiate a safe and successful winter home sale.