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No BoC rate hike until Q1 2013: poll

No BOC rate hike until Q1 2013

A deteriorating European economy and weak global growth will keep the Bank of Canada from raising rates for at least another year, though an interest rate cut looks highly unlikely, according to a Reuters survey.

The Reuters poll of 41 economists and strategists released on Tuesday showed the median forecast for the next interest rate hike was pushed back by three months to the first quarter of 2013 from the fourth quarter of 2012 projected in a November poll. The Bank of Canada’s target for the overnight rate — its main policy rate — has been at 1% for more than a year.

“The longer we spend struggling with slower growth and the longer we go without the Europeans coming to some cohesive policy solution, the worse the economic drag will be,” said David Tulk, chief Canada macro strategist at TD Securities.

“You get the sense that growth I think is likely to remain lower for longer, just like interest rates.”

Investors in the first quarter of 2012 are expected to focus on the heavy supply of eurozone debt coming due, with fears about a possible lack of demand at auctions. Italian and Spanish bond sales in particular are viewed as the next big tests.

 

Some Canadian economic data has also been worrisome. A Bank of Canada business survey on Monday showed an increasing number of firms are pessimistic about the rate of sales growth, further reducing pressure for the central bank to take interest rates higher.

The most recent domestic jobs report also disappointed, reversing a trend that saw Canada outperform the United States both during and after the global financial crisis.
Monthly employment data on Friday showed Canada missed forecasts while the U.S. beat them. This gives the Bank of Canada even less impetus to tighten policy before the U.S. Federal Reserve, which has said it expects to keep its key interest rate near zero through mid-2013.

But many analysts expect an even longer pause, and bet the Fed’s next move will be to stimulate the economy, rather than tighten monetary policy.

“If the Fed comes out with its published interest rate forecast at the end of the month and says the consensus points to an even longer hold than the middle of 2013 then that could handicap the Bank of Canada to an even greater extent,” said Derek Holt, vice president of economics at Scotia Capital.

Yet many analysts say the case for an interest rate cut is difficult. Governor Mark Carney has repeatedly warned about the dangers of Canadians borrowing too much as a result of very low interest rates. Data last month showed the level of household debt swelled to another record high in the third quarter.

“A cut in the policy rate anytime in 2012 is extremely unlikely. It would take a global recession of 2008 proportions for the BoC to even consider cutting policy rates,” said Carlos Leitao, chief economist at Laurentian Bank Securities in Montreal. “In our view, 1% is the new, effective, zero-bound.”

Of the 41 contributors, 35 see a rate hike happening after the second quarter of 2012. Five forecasters — BNP Paribas, Capital Economics, Goldman Sachs, IFR Markets and ING Financial — predicted a rate cut across the forecast horizon, up from only three forecasters in the last poll. All five expect the cut by mid-2012.

The possibility of an ease has been anticipated in overnight index swaps for some time, though the timing has been pushed out.

Forecasts for official interest rates at the end of 2012 also dropped from the previous poll — with the median target declining to 1%, from 1.25% in November — indicating one less rate increase next year than was previously assumed.

Interest rate expectations for the four quarters of 2012 have been downgraded continuously in all nine global Reuters polls conducted since last January, with the target for the first quarter of 2012 revised down to 1% from 2.25%.

The poll showed a 99% probability there won’t be a change in rates at the next policy announcement on Jan 17.

 

© Thomson Rerters 2012

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BC Assessment Sends Out 10,000 Extreme Value Change Letters for 2012

A majority of homeowners in British Columbia won’t know what has happened to their property value over the past year until they receive their annual BC Assessment notice in early January 2012.

Each year, BC Assessment sends out Property Assessment Notices on December 31 for nearly two million properties in British Columbia. Local real estate sales determine the property values that BC Assessment reports based on a market value approach with a July 1 valuation date.

However, some BC property owners have received an early indication of what to expect when BC Assessment releases their 2012 Assessment Roll figures on Tuesday, January 3, 2012.

On December 5, 2011, BC Assessment sent out approximately 10,000 “Extreme Value Change” information letters to BC property owners where the assessed value of their property increased by 30% or more above their local area.

These BCA information letters are sent to property owners as part of the pre-roll consultation process for significant value change where the assessed value of a property increases more than the average increase in an area.

“Generally speaking, for property owners whose 2012 assessments have increased 30% or more above the average increase for their local community, we have provided advanced letters informing them of this change,” said Tim Morrison, Communications Coordinator for BC Assessment, in an interview with BuyRIC.com.

“For example, if the average market increase for a specific property type within a specific jurisdiction was 5% and your property increase was 35% or higher, then you would likely receive an advanced letter.”

This advanced information indicates that approximately 10,000 BC property owners across the province will see a 30% or higher than average increase in their 2012 assessment notices.

The most significant 2012 property assessment increases in British Columbia occurred in Vancouver. BC Assessment sent out approximately 1,800 of these “Extreme Value Change” letters to Vancouver property owners and approximately 800 to the North Shore, including West Vancouver and North Vancouver property owners.

BC Assessment 2012 Roll - Extreme Value Change Property Letters

Morrison added, “We provide impacted property owners with advanced notification in order to make them aware that the change will likely result in an increase in their 2012 property taxes as determined by their local municipality.”

“We want to ensure that people know that they can contact us, so that we can work with them in explaining our market analysis techniques used to assess their properties.”

BC Assessment serves to ensure accurate, fair, and equitable annual assessments throughout British Columbia. Local governments and other taxing authorities are responsible for property taxation and, after determining their own budget needs in the spring, will decide their property tax rates based on the assessment roll for their jurisdiction.

These “Extreme Value Change” information letters are part of BC Assessments “no surprises” focus to engage BC property owners and local governments on changes that might have a big impact on property valuations.

Ongoing audits, reviews, and market analyses are part of BC Assessment’s quality assurance commitment to property owners.

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Why use a mortgage broker?

Buying her first house and getting her first mortgage was an overwhelming experience for Roslyn Judd.

She had signed a deal to buy a new house, she had put down her deposit, and she was pre-approved for a mortgage. Now she had to sign a final deal with her bank to lend her hundreds of thousands of dollars.

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“I had never applied for a mortgage before and I found that [to be] the most intimidating part of the home-buying process, so I was procrastinating,” she says. “I think it was the enormity of the money that you are asking somebody to lend you.”

Then a friend in the building where she works suggested she check out her company’s website, RateSupermarket.ca to compare mortgage rates and talk with one of the mortgage brokers featured on the site.

So she did, and her mortgage broker was able to get her a deal with a seasoned lender whose rate was much better than what her bank had offered.

“It was the best because it was so personal,” she says. “It was like someone was holding your hand all the way through the process.”

Rona Birenbaum, a certified financial planner with Caring for Clients in Toronto, recommends all her clients seek the help of a mortgage broker when it comes time to buy a house, or refinance or renew a mortgage.

“It’s the most efficient way to get the best-priced and best-structured mortgage,” she says. “Bottom line.”

“So rather than shopping at multiple financial institutions and negotiating with each financial institution and arm wrestling them to give you the best deal, it’s one phone call and they do the rest for you.”

Vancouver mortgage broker Jessi Johnson says a mortgage broker can help you with all aspects of a mortgage, from figuring out how much you can truly afford, to determining the best mortgage product for you, to finding ways to save you money and pay off your mortgage faster.

In addition, you should expect your mortgage broker to review your mortgage a few times a year to see how you can pay it off faster, whether it’s still the right product for you, and if it’s still competitive. “It’s very rare that you’re going to get that service from a bank,” he says.

For people who are inexperienced with negotiating, who aren’t sure what the best mortgage product is for them or have a less-than-stellar credit rating, they can save time, money and hassle by using a mortgage broker, says Ms. Birenbaum.

“For the average person who would maybe not feel comfortable negotiating, who might feel as though they are not in the position to ask for a better rate, they definitely will [save],” she says. “A half per cent over a 20-year mortgage, is tens of thousands of dollars. It could be potentially huge money.”

But those interested in using a mortgage broker need to do some research, says Ms. Birenbaum.

The brokers she recommends are people with whom she has developed a professional relationship, and she knows they will do a good job because they’ve worked with her clients.

“There’s a wide range of experience, qualifications and quality in this particular industry,” she says. “So reputation and experience are extremely important.”

People ask their financial adviser to recommend a mortgage broker, or they can turn to others who recommend their broker.

Mr. Johnson says you should look for someone with several years experience, who is licensed, and has the title AMP – accredited mortgage professional.

Mortgage brokers are regulated provincially so you can check with your provincial regulator on the website for the Canadian Association of Accredited Mortgage Professionals. The organization also has an online directory that can help your search for a broker.

“Like every industry there are rookies, so be careful when researching your broker, get a good idea about their experience before proceeding,” he suggests.

Many brokers now do the bulk of their work online, Mr. Johnson says, and that’s not an issue as long as there’s enough communication with the client either via e-mail or over the phone – and their online application process is secure.

“To be honest, the majority of our clients don’t leave their living room, and I don’t blame them,” he says.

If a broker asks for a retainer of any sort or any payment made out to them personally, that should be a warning sign, Ms. Birenbaum says.

Mortgage brokers are paid their fee by the lender, not by the person who is using the mortgage broker’s service, says Mr. Johnson. “There’s no cost for the client.”

Be aware though, whether you’re doing a new mortgage, a refinancing or renewal, to ask whether there are any legal or appraisal fees, he says. Legal fees for a new mortgage can be about $1,000, but sometimes a lender may cover both legal and appraisal fees; you just have to ask.

Right now, one of the big questions for those looking for a mortgage is whether to go for a fixed or variable mortgage, says Mr. Johnson. While historically variable mortgages have had better rates than fixed mortgages, that’s not necessarily the case right now.

“Any time the fixed and variable rates are very close I do recommend going fixed and they are close right now,” he says. Up until recently about 90 per cent of the mortgages he arranged were variable, but now more are fixed.

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Mortgage Rates – How to protect yourself when they increase – Video message!

Heres a video I personally did on how to take a proative approach to protect and prepare yourself with rising interest rates in the future and save thousands of dollars! Click below to view video

Inflation Hedge Strategy - Learn to protect yourself from rising rates

Lisa Alentejano

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The Mortgage GameWith rates predicted to rise, should you lock in, or take a risk and how much should first timers spend?

With anticipated interest rate increases on the horizon, many homeowners are wondering whether to lock debt such as mortgages and secured lines of credit into a fixed-rate mortgage or stay variable. Even some who are mortgage free are concerned with how rate increases will impact secured lines of credit, the financing of vacation homes and recreational property.

First-time buyers may be particularly concerned with entering the national capital’s expensive real estate market.

What can you afford?

As a first time home buyer, it’s essential to figure out what you can afford. A quick rule of thumb is that your household expenses should not add up to more than 40 per cent of your pre-tax household income. Household expenses include mortgage payments, property taxes, condo fees, utility and heating costs, and any payments on other loans such as car loans, credit card debt and lines of credit.

Probably the first step should be to get a copy of your credit history from Equifax Canada and/or the credit bureau. As this is what lenders will look at, it’s important to review its accuracy.

Then do a household budget, list your assets and liabilities and meet with a bank or mortgage broker to get pre-approved for a mortgage. Try the monthly payments on for size. Let’s assume that your current rent is $1,000 and your anticipated payment as a homeowner is $2,350 for principal, interest, taxes, hydro, etc. Try putting aside the extra $1,350 immediately. Not only will this help you save some extra money, but it will get you in the habit of allocating this level of payment every month. Consider the maintenance costs as well, from normal upkeep to potentially larger expenses like a new roof or furnace.

It’s important to find out how much you can afford before falling in love with a house.

Start saving before you start shopping — the larger the down payment, the lower the financing costs. Although it’s not always possible for first-time home buyers, try to come up with at least a 20-per-cent down payment. Any down payments below this level must be insured with Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial — another expense to factor in.

To assist with your down payment, consider using the Home Buyer’s Plan, which allows you to withdraw up to $25,000 from your RRSP for the purchase of a qualifying home.

Work with a real estate agent familiar with the area you would like to live in, an experienced home inspector and a real estate lawyer to help draft an offer and ensure that title is transferred properly.

Mortgage options

A recent survey indicated that more than 60 per cent of Canadians expect rates to rise over the next 12 months. With this in mind, here are some mortgage strategies to consider.

Fixed rate: If the prospect of rate increases is causing you significant concern, then perhaps you should consider locking in all or some of your debt. With the inflated home equity line of credit rates that consumers have been charged (prime plus 0.5 to one per cent instead of the traditional prime), it’s not that big a jump to a five-year fixed rate, perhaps as little as one per cent more.

If your fixed-rate mortgage is renewing in 2011 and you are interested in another fixed-rate mortgage, it may be worthwhile negotiating with your lender to close out your current mortgage and move into the new lower rate mortgage without penalty. As a strategy to pay off the mortgage sooner, consider increasing the payment and utilize weekly or accelerated bi-weekly payment schedules.

If you would like some level of security but don’t want a fixed rate on all your debt, consider a blend where a portion is at a fixed rate and the balance at a variable rate.

Variable rate: There are many studies that show that despite its volatility, a variable-rate mortgage tends to save more interest in the long term.

Variable-rate mortgages are best for consumers who are financially stable and can financially and emotionally handle the day-to-day fluctuations. One strategy is to benchmark your variable rate payment to that of a five-year, fixed-rate mortgage. Not only will you apply thousands of dollars against the principal and shorten the mortgage term, you will also build a higher potential payment into your budget.

Here are other tips for a variable-rate mortgage:

• Ask for a variable-rate mortgage at below prime. You might even be able to get prime minus 0.75 per cent.

• Negotiate a better rate on your home equity line of credit. Try to get the prime rate or prime plus 0.5 per cent, as opposed to the current prime plus one per cent that you are probably paying.

• Consider moving all of your debt to a combination of these two options.

For consumers who like the variable-rate mortgage option but are concerned about rate increases, ask your financial institution to give you a 120-day rate guarantee at their best discounted five-year rate. Keep the five-year, fixed-rate guarantee as insurance if rates increase significantly and renew it every 120 days until you feel rates have stabilized.

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Suprise: Low interest rates seen sticking around

Interest rates have recently being going somewhere unexpected: down.

At their trough last week, the yields on 10-year U.S. Treasuries, the benchmark North American rate, touched 3.11 per cent, the lowest level in six months and more than half a percentage point below their February peak.

Yields on 10-year Government of Canada bonds have fallen, too, and are now virtually identical to their U.S. counterparts.

The sliding rates have surprised many market watchers. With the United States government bumping up against its debt ceiling, inflation ticking upward, and a growing debt crisis in Europe, most expected interest rates to be increasing.

While predicting the future for rates is notoriously difficult, some observers believe that the current low-rate environment may continue for a while. If so, it will mean pain for savers, but good news for borrowers.

A drop in interest rates is equivalent to a sale on the price of money, and corporations are already rushing to take advantage of the easy lending conditions, even if they’re in no immediate need of funds. A case in point is Google Inc., which has $37-billion (U.S.) in cash and marketable securities on its balance sheet, but raised $3-billion from a bond issue last week anyway. Mortgage rates have fallen, too – good news for homeowners looking to refinance.

But lower rates have not turned out so well for some of the market’s savviest players, including Bill Gross, the founder of Pimco, the world’s biggest bond fund. Earlier this year, he sold his U.S. Treasuries, because he thought interest rates were poised to rocket higher, which would drive down prices of bonds.

It’s difficult to fault his logic: only a few months ago, the case for higher interest rates seemed so compelling.

Governments around the world are carrying bloated deficits and massive borrowing needs. In the United States, politicians have yet to agree on any clear path to deficit reduction, despite more than $1-trillion in annual red ink. Meanwhile, oil has been trading consistently around the $100-a-barrel level, thereby lifting inflation, another bond-market negative.

And the U.S. Federal Reserve is no longer putting its thumb on the scale. In less than six weeks, it is going to end its program of quantitative easing, under which it is buying $600-billion in Treasuries to goose the economy. Many bond-market followers believe the Fed’s massive buying binge has been propping up Treasury prices and keeping yields artificially low.

So what has been pushing rates lower in recent months?

A weaker-than-expected recovery is the major culprit. “The global economy, and the U.S. economy in particular, is not on quite as solid a recovery track as people were imagining in the very optimistic days of six months or so ago,” observes Peter Buchanan, senior economist at CIBC World Markets.

A slew of recent statistics underlines that weakness, ranging from the poor state of U.S. home sales to the slowing pace of U.S. manufacturing growth. Meanwhile, the Japanese economy, the world’s third-largest, is shrinking and creating a further drag on global commerce, although few foresee a double-dip recession.

“We’re looking ahead toward a bit of a cooling in economic growth,” said Paul Dales, senior U.S. economist at Capital Economics, who foresees output in the U.S. rising about 2 per cent this year.

That level of growth won’t be “anything to celebrate but it’s nothing like the recession we saw previously,” he said.

Another factor driving rates lower has been the early May rout in commodities, which dampened some of the worry on the inflation front. In addition, the recent sluggish performance of the stock market suggests that investors are getting nervous and growing more willing to buy super-safe government bonds.

Mr. Dales believes the current trends have room to run, and that rates will surprise to the downside.

He predicts U.S. 10-year Treasury yields could slip to 2.5 per cent in the low-growth, less inflation-spooked environment he foresees ahead.

If growth continues to be slow, lower rates might be staying around for a while.

Mr. Buchanan says the most likely scenario, given the poorer economic outlook, is for the Fed to hold off on raising rates until 2013. He believes the yield on Treasuries will rise gradually, instead of falling further, getting back to 3.4 per cent by the end of this year and to 4 per cent by the end of 2012.

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Canadian consumers expected to remain cautious as interest rates set to rise

Higher food and gasoline prices and hefty debt loads likely to be made worse by interest rate hikes will impact consumers’ buying habits going forward, say those who track retail spending.

It’s going to be tough for consumers who have depended on a low interest rate environment, said TD Bank economist Francis Fong, adding that rates are expected to go up this summer.

“The rising interest rate environment, this high household indebtedness situation — that’s all going to impede the ability of consumers to spend going forward,” Fong said Thursday from Toronto.

Statistics Canada said retail sales increased 0.4 per cent in February to $37.3 billion, giving retailers some relief after declining sales at the start of the year.

Consumers filling their tanks with higher-priced gas, along with those buying furniture and clothing, pushed sales higher in February.

But Fong said consumer spending will no longer be the same driving force going forward as it has been throughout the economic recovery.

The Retail Council of Canada said consumers are “still hanging back a little bit,” especially now that they have to spend more of their incomes on food and gas.

“Clearly, if they’re going to have spend a little bit more on basic necessities, they may pull back a little bit on the nice-to-haves, but not on the need-to-haves,” said spokeswoman Anne Kothawala.

Consumer confidence is soft and that mirrors spending, she added.

“Gas and food prices are actually very closely related. It costs more to transport goods,” Kothawala said.

Statistics Canada said the largest contributor to February’s increase in retail purchases in dollar terms was gasoline sales, which increased 1.3 per cent.

Gasoline prices have been surging along with crude oil, which began rising sharply in February with the outbreak of unrest in Libya, an OPEC member that accounted for about two per cent of the world’s crude output before civil war there.

As of Thursday, the Canadian average price compiled by GasBuddy.com was 129.6 cents per litre, up from about 118 cents per litre at the end of February.

But lower retail sales in Quebec — a 0.8 per cent decline — contributed the most towards the dampening of national retail sales, Statistics Canada said.

“The decline reflected, in part, lower sales of new motor vehicles in the province,” the federal agency said. “This was the second decline in retail sales in Quebec following six consecutive monthly gains.”

Quebec also increased its provincial sales tax to 8.5 per cent in January, up a percentage point.

Sales at clothing and clothing accessories stores were up 2.5 per cent, offsetting a decline in January. Sales at furniture and home furnishings stores grew 2.1 per cent in February, helped by gains in real estate sales.

Prof. Ken Wong of Queen’s University business school said once consumers pay down debt and spend more money on food and gas, there isn’t much left for anything else.

“You have to ask yourself what can be delayed and what can’t be delayed,” Wong said of consumer purchases.

“We cannot rely on interest rates remaining as low as they are as long as they have been going forward,” said Wong, who teaches business and marketing strategy.

Geographically, retail sales in February gained in six of 10 provinces, powered by Ontario where sales increased 0.7 per cent after two consecutive monthly declines.