Toronto Real Estate and Neighbourhoods Blog | Move Smartly

Monday Morning Interest Rate Update (August 27, 2012)

David Larock in Mortgages and Finance, Home Buying, Toronto Real Estate News

The week ahead will be an important one for anyone keeping an eye on mortgage rates because the world may look a lot different by close of business this Friday.

There are several important economic data releases scheduled throughout the week, including second quarter GDP results for the U.S. (Wednesday) and Canada (Friday), Canada’s employment report for June (Thursday), the release of the latest U.S. Beige Book (Wednesday) as well as a slew of other U.S. indices updates. But the real action will be in Jackson Hole, Wyoming, where the Federal Reserve Bank of Kansas City is hosting central bankers from around the world at its annual Economic Symposium.

Jackson Hole was where U.S. Federal Reserve Chairman Ben Bernanke outlined the U.S. Fed’s plans for its second round of quantitative easing in 2010 and for Operation Twist in 2011. As such, investors are expecting Chairman Bernanke to hint at significant new stimulus measures when he steps to the podium this Friday at his scheduled post-meeting press conference.

Here are the topics that the experts I read are anticipating he might cover (with my comments on any potential impact on Canadian mortgage rates in italics):

• An extension of the Fed’s guarantee to hold its policy rate at 0% out to 2015.

Bank of Canada (BoC) Governor Mark Carney has long argued that Canadian monetary policy can operate independently of U.S. monetary policy but this is true only within narrowly defined boundaries. An extension of the U.S. Fed’s near-zero percent policy-rate guarantee into 2015 should put to rest any talk of any BoC rate hikes for the foreseeable future.

Why the SPIS Can Cause More Grief Than it Spares

Bob Aaron in Legal, Home Selling

As a result of its promotion by the Ontario Real Estate Association (OREA), the seller’s property information statement (SPIS) continues to be a source of never-ending business for litigation lawyers and endless grief for unlucky buyers and sellers who are being swept into the bottomless pit of lawsuits because they used it.

It’s time to debunk some of the myths surrounding the form, many of them promoted by OREA and its industry apologists. Here they are:

 • Myth: Commonplace advice for sellers signing the form is Liars Beware. Nothing could be further from the truth. The real reason sellers often get sued is not because they lie but because the SPIS is complicated, highly technical, misleading and highly ambiguous. It is impossible to complete the form fully and accurately without expert advice from industry professionals. And judging from more than 200 Canadian lawsuits, even the professionals get it wrong sometimes.

Monday Morning Interest Rate Update (August 20, 2012)

David Larock in Mortgages and Finance, Home Buying, Toronto Real Estate News

Bank of Canada (BoC) Governor Mark Carney has made it clear that he wants to raise interest rates but the economic data are not co-operating.

We saw the latest example on Friday of last week when Statistics Canada released its July Consumer Price Index (CPI) which showed price inflation of only 1.3% over the most recent twelve months. That was lower than the BoC’s 1.6% forecast for the month and remains well below the Bank’s target inflation rate of 2%.

Interestingly, in the latest Bank of Canada Review, published last Wednesday, there is an essay titled “Measurement Bias in the Canadian Consumer Price Index: An Update” which concludes that the CPI probably overstates our inflation by about .5%. Thus, one could argue that our real rate of inflation is now below 1%.

So while Governor Carney continues to try to reign in borrowers with warnings about higher rates, his words continue to ring hollow with many informed observers.

Monday Morning Interest Rate Update (August 13, 2012)

David Larock in Mortgages and Finance, Home Buying, Toronto Real Estate News

To my surprise, Government of Canada (GoC) bond yields (on which our fixed-mortgage rates are based) did not drop last week.

Here are five guesses as to why demand for GoC bonds didn't increase:

1. The European Central Bank (ECB) has recently intensified its rhetoric about supporting the euro at all costs. If investors believe that ECB President Mario Draghi can and will do whatever it takes to save the euro zone, then the safety premium they are willing to pay for safe-haven assets, like GoC bonds, will be reduced.
2. The Loonie has risen above par with the Greenback. Given that the majority of foreign investors who are buying GoC bonds are American, when our exchange rate with the U.S. rises it makes our bonds relatively more expensive. This reduces their already low yields further and makes them a comparatively less attractive option.
3. GoC bonds have to compete with other forms of investment and there seems to be some renewed investor optimism around equities (specifically U.S. equities) as an asset class. If U.S. investors are more bullish on equities, they will sell bonds and buy stocks. Insofar as this creates more sellers of GoC bonds than buyers, bond yields will drop until the demand/supply equilibrium is restored.
4. Further to that point, investor psychology is a powerful force and CIBC economist Benjamin Tal predicted last week that in the near future, markets would react “more positively to good news and less negatively to bad news” because investor expectations are now so low. If true, that sentiment will give our bond yields an upward bias.
5. Bank of Canada Governor Mark Carney continues to warn Canadians that he may raise the overnight rate and remove some monetary policy stimulus sooner than they expect. Last week in London he said: “Our economy’s almost back at full capacity, the labour market’s been growing, we’re growing above - we had been growing above trend, and the extent to which we continue to grow above trend, we may withdraw some of that monetary policy stimulus.” Investors may be reluctant to bet against statements made by the man in charge of our monetary policies.

While I can see some validity in all of the above arguments, I still believe that our bond yields will fall from their current levels. Here are my counter-arguments to the points listed above:

Condo Act Doesn’t Need Major Revamp

Bob Aaron in Legal, Condo Buying, Toronto Real Estate News

In June, the McGuinty government announced a public consultation process to “modernize” the 1998 Condominium Act to meet the needs of owners, residents and other stakeholders in the rapidly-evolving industry.

The announcement came on the heels of repeated attempts by NDP MPP Rosario Marchese to introduce his badly-flawed Bill 72, the Property Owners’ Protection Act, 2012.

In an interview last month with the Toronto Star’s NewInHomes.com, Marchese provided some background on why he introduced the new legislation and his goals for the act.

He explained that he created the concept of a condo review board tribunal to protect consumers against “shoddy construction.” I may be missing something here, but Ontario already has a superb program in place which gives consumers the best warranty protection in the country. Why waste time reinventing the wheel?

Since 1976, the Tarion Warranty Corp. (tarion.com) has operated under the authority of the Ontario New Homes Warranty Plan Act. As a past board member and current chair of its consumer advisory panel, I believe Tarion is working well to protect consumers. It has a multi-million dollar warranty fund, and its annual consumer surveys indicate a very high degree of approval by new homebuyers.

Tuesday Morning Interest Rate Update (August 7, 2012)

David Larock in Mortgages and Finance, Home Buying, Toronto Real Estate News

It was a strange week for Government of Canada (GoC) bond yields (on which our fixed-mortgage rates are based).

We began the week with most of the world’s advanced economies in the midst of a market rally that was inspired by European Central Bank (ECB) President Mario Draghi’s best John Wayne impersonation on July 26^th in London, when he confidently stated that the ECB would do whatever it takes to save the euro and “believe me, it will be enough”.

I was initially skeptical about how those words would translate into action and expressed concern that the ensuing tide of investor optimism would quickly turn if Mr. Draghi did not follow through with some definitive action when the ECB met last Thursday. Then, after the meeting at the most highly anticipated ECB press conference since the financial crisis began, just as I feared, Mr. Draghi stepped up to the podium and laid a big, fat egg.