News from LouiseFuller.com

by Sharon Essington

On Jan. 20, the Bank of Canada announced a further one-half cut to its overnight interest rate, bringing it down to a record low of 1%.

Lenders responded by lowering their prime lending rate a corresponding half point, bringing prime to 3%.

This was, of course welcome news to Canadians as the last rate cut of 0.75 points by the BoC only translated into a half-point reduction to prime rate, as was decided by lenders. Not a very popular move in the eyes of borrowers.

In the last 13 months the BoC has lowered its policy interest rate by 3.5%, which according to TD economist Pascal Gauthier, "speaks clearly to the severity of the U.S. and global recession and its impact on the Canadian economy." It's an impact which only really began to be reflected in Canadian economic indicators since November 2008.

Even though the BoC's policy rate is at an all time low, economists are projecting a further reduction of 0.5 points on the next announcement date of March 3. An additional cut would bring the policy rate to 0.5%, which is obviously getting very close to the absolute bottom of 0%--an action that cannot be ruled out as we have seen the Federal Reserve south of our border do such a thing.

Although possible to take the cuts all the way to zero most economists are predicting that the expected 0.5% reduction on March 3 by the BoC will likely be the last, with that pricing being held until mid-2010.

A number of initiatives were proposed to the federal government on ways to stimulate the economy. Of course we cannot expect all will be accepted, but the government is looking for ways to get this economy moving. The Canadian Real Estate Association (CREA�) met with senior government officials and proposed several ideas to help fuel the housing market.

For residential homebuyers, CREA� proposed the government increase the limit of the Home Buyers Plan (HBP). The HBP allows first time buyers to withdraw up to $20,000 from their RRSP to help purchase a residential property, which then must be repaid over a period of 15 years.

According to CREA�, "The government should immediately raise the HBP limit from $20,000 to $25,000 and it should keep pace with annual inflation. Additionally, it should be available to all homebuyers, not just first time buyers."

CREA� is also calling for "a deferment of capital gains taxes and the capital cost allowance recovery for all real property investments when an invest property is sold and the proceeds are re-invested in another real property within the subsequent year."

According to the recent press release by CREA�, "studies show that more than 29 jobs are created for every $1 million invested in property renovation." The study, prepared for CREA� by Altus Clayton, also shows that each residential MLS� transaction generated an additional $32,200 in consumer spending, where as commercial and investment property transactions can generate even higher levels of economic spinoffs.

Additionally, the Harper government has been floating the idea of a refundable tax credit for home renovations. A move that of course would be applauded by those in the building-trades sectors.

There will be much to watch for over the next few weeks in Canadian news. Now more than ever it is imperative to work with a mortgage expert who is keeping abreast of all the upcoming changes. Before you make assumptions about mortgages or real estate in this market contact a professional to help you separate the facts from the myths.