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Issue No. 4                     "Representing Your Best Interest!!" March 23 , 2010

Rates remain constant despite low yields!!

While everybody is watching the rate market for the first move upward, the signs of impending increases continue. Inflation reports yesterday show an increase in consumer spending, although much can be contributed to the Olympics, and the bond yields are at all time lows. Many in the industry are speculating that the banks are engineering one last gasp of obtaining a substantial market share before rates are increased, and it is felt that increases in 5 year money will be substantial and quick when it does happen.   Thus, while taking the risk of being wrong, I will continue to encourage all potential buyers and investors to move forward now! The combination of interest rate hikes looming, qualification rules tightening,  and a relatively small inventory of housing available, has all the earmarks for an even higher decrease in affordability of housing as we go forward.
Rod Minnes
Managing Broker

Rates as of March 23, 2010
Fixed Rate Mortgages    
6 month convertible            4.60%
1 year open                           6.50%
1 year closed                        2.35%
2 year closed                        2.95%
3 year closed                        3.50%
4 year closed                        3.89%
5 year closed                        3.79% 

Variable Rate Mortgages    
5 year closed - Prime* - .40%  ****
5 year open   - Prime* + .80%

Home Equity Line Of Credit

Please call for product availability and rates.

Information from sources deemed to be reliable. Product availability and borrower qualification apply.
*Prime = 2.25%
Rod Minnes
Global West Mortgage

Re/Max warns not enough homes for buyers

Julie Fortier, Canwest News Service  Published: Wednesday, February 24, 2010

OTTAWA - With new mortgage rules, a new harmonized sales tax in some provinces and the possibility of higher interest rates all set to kick in this summer, Canadian home buyers are on a tear and it is only going to get busier leading up to this summer, according to the Re/Max Market Trends Report 2010 released Wednesday.

The report, which examined real estate trends in 16 markets across the country, found that unusually strong activity in January -- traditionally one of the quietest months of the year -- has led to a sharp decline in active listings in 81% of markets surveyed. Too many buyers and not enough homes will probably be the main problem in coming months, according to the report.

Markets experiencing the tightest inventory levels include Toronto (-41 per cent), Kitchener-Waterloo (-33 per cent), Ottawa (-30 per cent), Victoria (-30 per cent) and Greater Vancouver (-27 per cent), which also had some of the highest year-over-year sales gains.

The highest year-over-year sales gains were reported in Greater Vancouver (152 per cent), Kelowna (121 per cent), Greater Toronto (87 per cent), Victoria (69 per cent), Hamilton-Burlington (58 per cent), London-St. Thomas (55 per cent) and Calgary (47 per cent), the report said.

Western Canada dominated the list of centres with the greatest increases in price, with Victoria home prices jumping 25.5 per cent in January compared with the same month a year before. Kelowna jumped 22 per cent and Greater Vancouver rose 19.5 per cent. St. John's saw an increase of 23 per cent and Toronto rose 19 per cent.

"While home ownership is still within reach in many major centres, levels are slipping. There is a growing sense, on both sides of the fence, that the time to act is now," Elton Ash, regional executive vice-president at Re/Max of Western Canada said in a release.

With the Harmonized Sales Tax, which will add more tax to home buying in two of the biggest and most squeezed markets - Ontario and B.C. - set to start July 1, and the Bank of Canada's record-low interest rates expected to rise around the same time, that pace of growth could slow dramatically in the second half of 2010. Last week, Finance Minister Jim Flaherty also said starting April 19 all borrowers must meet standards for a five-year fixed-rate mortgage, even if the buyer wants a variable rate mortgage, among other mortgage rule changes.

"There have never been so many motivating factors in play at once," Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada said in a release. "We're in for a heated spring market that will, in all probability, spill over into the summer months, as the window of opportunity draws to a close. The supply of homes listed for sale has been drastically reduced, housing values are once again on the upswing, and banks and governments are moving in unison toward stricter lending policies."

Active listings by market for January:

Market/ 2009/ 2010/ percentage change

St. John's/ 951/ 999/ 5%

Halifax-Dartmouth/ 3311/ 2695/ -19%

Hamilton-Burlington (xx)/ 1028/ 1261/ 17%

Ottawa/ 3988/ 2840/ -30%

Kitchener-Waterloo/ 1323/ 884/ -33%

London-St. Thomas/ 2538/ 2071/ -18%*

Greater Toronto/ 20450/ 12052/ -41%

Winnipeg/ 2222/ 1938/ -13%

Regina/ 456/ 381/ -16%

Saskatoon/ 1156/ 729/ -37%

Calgary/ 9225/ 6838/ -26% (xxx)

Edmonton/ 6573/ 4864/ -26%

Kelowna/ 4648/ 4120/ -11%

Victoria/ 2930/ 2061/ -30%

Greater Vancouver/ 13996/ 10218/ -27%

Preparing for higher interest rates

Canadians have profited from extremely low borrowing costs for some time, but that's about to change.

Canadian borrowers have had it pretty good lately. Mortgage interest rates, already at historic lows at the start of the year, fell even further during January and February.

 As if that weren't enough, financial institutions, taking their cue from the Bank of  Canada's low overnight rate, have kept interest rates low on a variety of other borrowing products ranging from consumer loans to some credit cards.
However, according to one expert, that may soon change.

"Earlier this year, we had forecast that the central bank would only begin to raise its policy rate in October," says Francis Fong, an economist at TD Bank Financial Group. "However, due to strong economic data and the continued stickiness of core inflation, we now believe that it will act as soon as July."

Low borrowing costs matter
Interest rates are one of the most important influencers of Canadian economic activity. When consumers need to pay more to borrow money, they have less available to buy stuff like cars, televisions and restaurant meals. That, in turn, means the businesses that produce and distribute those things all suffer.

To put things in perspective: A one per cent increase in the interest rate Canadians pay on the approximately $1.3 trillion in household debt they owe would leave them with $13 billion less to spend each year.

The country's current ultra-low interest rates date back to the wake of the economic crisis, when the Bank of Canada quickly brought its policy overnight rate, which influences many of the country's other key rates, down to just 0.25 per cent. The move, which echoed policies of the U.S. Federal Reserve Board and those of many of the world's other major central banks, is widely credited with having kept Canada out of a serious downturn, far worse than the one from which we are emerging.

However, the Bank of Canada's drastic cuts to its policy rate turned out not to be enough. So, last year, the central bank promised to keep its lending rate near zero until the middle of this year. The hope was that consumers, knowing they would not be hit with an abrupt rise in borrowing costs, would then have the certainty they needed to go out and spend.

The inflation problem
The good news is the Bank of Canada's boldness seems to have worked. During the fourth quarter of last year, Canada's real GDP grew at an impressive rate of five per cent. Furthermore, February employment data are expected to show that 20,000 jobs were created that month.

So, if  low interest rates are good for consumers, businesses and governments, why doesn't the Bank of Canada always keep them low?

The reason is inflation. If interest rates are too low, for too long, prices inevitably start to rise. If unchecked, inflation can get really bad. One only has to look at the experiences of South American countries such as Argentina and Brazil during the 1980s for examples of how quickly inflation can spiral out of control when central banks run overly loose monetary policies. For a more extreme example, one only has to look at Zimbabwe today, one of the world's poorest countries, which owes a good chunk of its most recent deterioration to an inability to keep inflation under control.

The challenge for central bankers today is that once inflation gets into the system, it is terribly hard to get it out. The last time that happened in Canada was during the early 1980s, and it caused a massive recession. The resulting unemployment levels ended up far higher than what we see even today. As a result, most policy analysts expect that the Bank of Canada will begin to tighten its policy rate long before inflation starts to become a real problem.

The upshot is that Canadian consumers need to start preparing for a higher interest rate environment right now. At a minimum, that would suggest not rashly borrowing to finance immediate consumption. However, the more ambitious would do well by also paying down some of that $1.3 trillion that Canadian households already owe.