Having helped steer Canada’s economy out of recession, Carney and policymakers across the globe are carefully watching for signs that their economies are healing and trying to determine the right moment, and the right pace, at which to start withdrawing the unprecedented stimulus that helped counter the effects of the financial crisis.

While few believe there’s much chance Carney will abandon his “conditional” commitment to keep borrowing costs at a record-low 0.25% through the middle of the year or longer, every piece of economic data over the next few months will be parsed for indications of how quickly rates might rise in the second half of the year and beyond.

Timing is particularly important because no central banker wants a repeat of 1937, when the US Federal Reserve tightened prematurely, snuffing out a tentative recovery and, therefore, prolonging and worsening the Great Depression.
http://www.theglobeandmail.com/report-on-business/economy/mark-carney-enters-crucial-phase-for-recovery/article1434133/

http://shawnselanders.ca/blog

Press: Research shows Canadian mortgage market can manage risks

New data collected by CAAMP indicates homeowners are borrowing less, not more, than they can afford to borrow

Toronto, Ont. (January 14, 2010) – New research using data collected by the Canadian Association of Accredited Mortgage Professionals (CAAMP) from its corporate members strongly suggests that Canadian mortgage lenders and borrowers, including first time home buyers, are being extremely prudent with their borrowing and lending.

Last month, CAAMP surveyed members who issued more than 40,000 mortgage loans totalling $10 billion, which were funded during 2009 (the data is for home purchases only and excludes renewals or refinances of existing mortgages). The dataset represents about one-sixth of total mortgage activity for home purchases in Canada. The research is published in a report titled Revisiting the Mortgage Market – risk is small and contained.

Key findings include:

• 86 per cent of these home buyers chose fixed rate mortgages. This share fell late in the year as variable rates became more attractive (at 2.25 percent compared to 4 percent for fixed rates)
• Among borrowers who chose fixed rates, a significant number opted for longer terms – less than 5 per cent chose terms of two years or less. 20 percent took three year terms, 5 per cent four years, leaving 70 percent with a fixed rate for five years or more
• The vast majority of people who took out their first mortgage last year borrowed less than they could afford to, as their Gross Debt Service (“GDS”) ratios are far below allowed maximums, even at the higher interest rates that are used to qualifying them for their mortgage
• The high share of fixed rate mortgages and low GDS ratios for home buyers are contrary to perceptions that consumers and financial institutions are taking on more risk

“This new research shows that Canadians are assessing their abilities and vulnerabilities,” said Jim Murphy, AMP, President and CEO of CAAMP. “They are being prudent and the vast majority of Canadian mortgage borrowers are not taking on undue risks. They have factored rising interest rates in to their mortgage decisions.”

Will Dunning, CAAMP Chief Economist and author of this new report said that a small minority of homebuyers are cutting it close when it comes to affordability. He stressed that “this dataset is primarily focused on first-time homebuyers who are considered to be most at risk. Each year, about 2.5 to 3 per cent of Canadian households make a first-time home purchase. Our data shows that only a small percentage of them are pushing-the-envelope – about 4,000 households which amounts to a tiny fraction of the 13.25 million homeowners in Canada. For those who borrowed in prior years, risks are even lower.”

Speaking to the stress tests conducted by CAAMP, Dunning said that “the bottom line from the simulations is that even though mortgage payments will probably rise for most borrowers, the increase in their incomes will more than offset the higher payments. All in all, the degree of risk from rising mortgage rates appears to be small and manageable.”

For a copy of the report Revisiting the Mortgage Market – risk is small and contained, please visit: www.caamp.org.

Bond Yields are moving again. When yields go up or down, they affect the three or more year fixed rates. It’s a good time to remind everyone to watch the bond yields daily so you can stay on top of potential interest rate changes.

There are two websites that are very useful in order to have the bond yield information at your finger tips:

1. www.tsx.com Go to “market activity” (top left), then TMX Market Activity and click on “Bonds and Rates”. This website is updated every 15 minutes with the current prices and yields.
2. www.bankofcanada.ca/en/rates/bond-look.html This site will provide daily closing rates, plus historical rates on various bonds and other debt instruments.

Keep both of these websites bookmarked for daily reference. Quickly review the yield fluctuation daily and you will start to see the trends.

Steve Ladurantaye, Tara Perkins and Bill Curry

Toronto, Ottawa — Globe and Mail update Published on Monday, Dec. 21, 2009 6:28AM EST Last updated on Tuesday, Dec. 22, 2009 9:08AM EST

The housing market that led Canada out of recession is now so hot that Ottawa is talking about doing something to cool it off, a move economists say carries risks for the economy.

Fuelled by record low interest rates, residential real estate prices have gained 20 per cent this year. And Finance Minister Jim Flaherty is now warning he will step in if prices get too high by tightening the rules for borrowers, by increasing the minimum down payment and shortening the maximum length of mortgages.

Such a move would have to be done cautiously, economists say, because the real estate market touches all parts of the economy, and anything that caps its growth could also temper the recovery.

Policy makers are concerned homeowners will take on more debt than they'll be able to afford when interest rates rise again, possibly leading to a painful correction later.

The Bank of Canada has vowed to keep lending rates low into the middle of next year, limiting its options for taking the pressure off a hot market.

But since the federal government dictates rules around down payments and amortization periods, it can effectively dampen the housing market without increasing borrowing costs for businesses.

http://www.theglobeandmail.com/report-on-business/flaherty-warns-on-mortgage-rules/article1407223/