December Mortgage Rate Forecast

Mortgage Rate Outlook

Canadian mortgage rates have held steady since the end of the second quarter, and we anticipate they will continue to do so over the next year. The yield on 5-year Government of Canada bonds, a common benchmark for 5-year fixed rate mortgages, remains very low and is forecast to rise gradually over the next year.

 

The last increase in the 5-year fixed-rate came when the 5-year bond yield was roughly 30 basis points higher than it is today. Given our forecast for bond-yields over the next year, the 5-year mortgage rate is unlikely to rise from its current level of 5.24 per cent until early-to-mid 2013. Moreover, Banks and other lenders will likely be in no hurry to raise rates as moderation in the national housing market further intensifies competitive pressures.

 

The 1-year and variable mortgage rates are also likely to stay flat over the next six months while the Bank of Canada remains on the sidelines. We are forecasting that the current 1-year rate of 3.1 per cent will prevail until mid-2013 while the variable rate will hold steady at the current Prime lending rate of 3 per cent.

 

Economic Outlook

 

The Canadian economy stumbled in the third quarter of 2012, growing just 0.6 per cent at an annualized rate. The economy is clearly feeling the effects of still sluggish US economic growth as well as a wider slowdown in the global economy. Canadian exports fell by 2 per cent last quarter, the largest decline since the 2009 recession.

 

Exports may not fare much better next year as the global economy faces ongoing uncertainty. The US economy is at a fiscal crossroads and will likely see sluggish growth for another year. Much of Europe is mired in either recession or near zero growth and even the Chinese economy appears to be slowing down.

 

Against this backdrop, the Canadian economy should continue to produce consistent, if underwhelming, growth near 2 per cent in 2013, before accelerating in 2014. The most significant risk to that forecast is surely the looming ‘fiscal cliff’ in the United States – a $700 billion austerity bomb set to go off in January 2013 unless the US congress can reach a compromise. If not, expiring tax cuts and reductions in government spending amounting to over 4 per cent of US GDP will start impacting growth in the US economy. Every 1 per cent change in US real GDP translates to about a 0.3 to 0.6 per cent impact on Canada.

 

Therefore, failure to avoid the full impact of the fiscal cliff could subtract as much as 1 to 2 per cent off of Canadian GDP in 2013, enough to potentially push Canada into a shallow recession. Of course, as Winston Churchill famously said, “Americans can be counted on to do the right thing, after they have exhausted all other possibilities,” so it is likely that a deal will be reached that avoids a worst case scenario, but not without a lot of political posturing first.

 

Interest Rate Outlook

 

The biggest news out of the Bank of Canada this year had nothing to do with changes in monetary policy, but rather changes in personnel as it was announced that Bank of Canada Governor Mark Carney would be departing to helm the Bank of England. Some have compared the loss of Carney to the tragic memory of Canada losing Wayne Gretzky to the Los Angeles Kings in the 1980s. However, like the powerful Edmonton Oiler teams of that decade, the Bank of Canada and the wider population of Canadian economists is rich in talent and replacing Carney with someone equally qualified should not be a problem.

Moreover, monetary policy in Canada is rules based, guided by a legislated inflation control mandate. Therefore, even the loss of a talented policy maker like Carney will likely have little impact on the path of Canadian interest rates.

 

The outlook for growth and inflation over the next eight quarters suggests that interest rates should start to tick higher around the middle of 2013. However, the Bank has been careful to note that a withdrawal of monetary stimulus will be contingent on a stable global economy as well as the state of household debt burdens. The Bank will likely be cautious in unwinding monetary stimulus if Canadian household debt, which has been growing at a more sustainable rate in the past few quarters, changes direction. We are forecasting that the Bank will leave its overnight rate unchanged through most of 2013 before raising rates by 25 basis points late next year.

 

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Canadian Housing Starts

Canadian housing starts continued to moderate in November, falling from 204K units at a seasonally adjusted annual rate (SAAR) in October, to 196,125 (SAAR).  New home construction in BC urban centres also declined, falling to 22,300 (SAAR) in November from 26,700 units (SAAR) in October.  On a year-over-year basis, multiple unit starts in BC were 14 per cent lower in November while single family starts were 20 per cent lower. Overall,  BC housing starts were 15 per cent lower than in November 2011 but remain 5 per cent higher year-to-date compared with 2011.

Looking at census metropolitan areas (CMA) in BC, Vancouver CMA starts fell 27 per cent year-over-year in November. Both the single-detached and multiples sector fell over 20 per cent compared with November 2011. New home construction in the Abbotsford CMA was off 43 per cent compared to 2011 due to relatively slow activity in multiple starts. Housing starts in the Kelowna CMA rose 9 per cent year- over-year as a jump in multiple starts offset sagging single-detached construction. Housing starts in Victoria were 64 per cent higher than November 2011 as multiple unit starts more than doubled November 2011 levels. Victoria single starts were off 20 per cent year-over-year.

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Canadian Labour Force Survey and USA Non-Farm Payrolls

After a pause in October, Canadian employment surged in November, rising by 59,000.  The increase in jobs was primarily in full-time employment, which grew by 55,200. The Canadian unemployment rate declined 0.2 points to 7.2 per cent.

The BC economy lost jobs for the second consecutive month as payrolls declined by 4,700. Job losses were concentrated in the services sector and particularly in the healthcare and government sectors. The BC unemployment rate edged 0.1 points higher to 6.8 per cent. In spite of recent declines, employment in BC has still grown 1.7 per cent over 2011, a significant improvement in job growth from last year's 0.8 per cent. 

The US economy added 146,000 jobs in November while its unemployment rate fell to 7.7 per cent. However, the November jobs report was particularly noisy due to disruption from Hurricane Sandy.

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Canadian Building Permits

Canadian building permits rose 15 per cent in October, offsetting a 13 per cent decline in September . The increase in permits was largely a result of surging non-residential construction intentions in Quebec and Ontario. In BC, permitting activity sagged 18 per cent with declines in both residential (-17 per cent) and non-residential (-19 per cent) permit volume. However, this follows an outstanding September that saw permit volumes over $1 billion. Averaging over the last three months, total BC building permits were trending over $920 million per month. On a year-over-year basis, total BC permit volume was 20 per cent higher than October 2011.

Permit activity in BC's four major metropolitan areas moderated in October, with the exception of the Kelowna CMA which saw permit volumes spring forward following previous months of slower activity. Kelowna CMA permits more than doubled in October and were 53 per cent higher year-over-year.  The Vancouver CMA saw total permits fall 40 per cent month-over-month but were up 11 per cent year-over-year in October. In the Abbotsford CMA, permits tumbled following a very strong September. Likewise, the Victoria CMA saw permit volumes fall 31 per cent month-over-month in October,  but were 17 per cent higher than October 2011.

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Bank of Canada Pins Hopes on New Year

The Bank of Canada is looking past weaker economic growth, holding to a projection that Canada’s economy will gather pace next year.

Policy makers appear little moved by a report last week that showed Canada’s gross domestic product grew at an annual rate of 0.6 per cent in the third quarter, a poor showing that fell short of the Bank of Canada’s already dim projection for growth of 1 per cent in the July-August period.

The central bank acknowledged Tuesday that the third-quarter number was “weak,” but attributed part of the slump to “transitory disruptions” in the energy industry. Policy makers held to their view that ultralow borrowing costs will stir enough household consumption and business investment in the months ahead to avoid a prolonged slump. The Bank of Canada in October predicted the economy would expand at a rate of 2.5 per cent in the fourth quarter.

“Although underlying momentum appears slightly softer than previously anticipated, the pace of economic growth is expected to pick up through 2013,” the Bank of Canada said in a statement, as it held its benchmark interest rate unchanged at 1 per cent at the end of its latest round of policy deliberations.

The central bank’s response to the third-quarter growth figures suggests Bank of Canada Governor Mark Carney and his deputies on the governing council remain more inclined to raise interest rates than to lower them, although a change in stance is unlikely for some time.

Policy makers left in place their guidance on the likely path for interest rates, reiterating their view that “over time, some modest withdrawal of monetary policy stimulus will likely be required” to keep inflation from topping the central bank’s 2-per-cent target. “The timing and degree of any such withdrawal will be weighed against global and domestic developments, including the evolution of imbalances in the household sector,” the statement said.

Canada’s central bank finds itself in the unique situation of having to confront an unstable global economy while having to look over its shoulder at an uncomfortably large burst of household debt. On the opposite side of the world, faced with a resource boom that appears to have peaked, the Reserve Bank of Australia Tuesday cut its benchmark lending rate to 3 per cent, its level during the financial crisis, in a bid to spark domestic industries, including a lacklustre real estate market.

Canada’s overnight target stayed where it has been for more than two years. That’s an extremely low level, and it’s unusual to leave policy unchanged for such a long period; the last time the central bank left borrowing costs unchanged for this long was the early 1950s. As a result, murmurs that Mr. Carney is fuelling an unsustainable expansion of household debt and a housing bubble likely will persist.

The Bank of Canada noted that the housing market is beginning to cool, and the growth of credit is starting to slow. “It is too early, however, to determine whether the moderation in housing activity and credit growth will be sustained,” the statement said.

Some analysts said Canada’s central bankers should stop worrying about a housing bubble and focus on a deteriorating economy. Paul-André Pinsonnault, senior fixed-income economist at National Bank Financial in Montreal, said the economy’s problems extend beyond temporary issues in the energy industry. Corporate profits are declining, and hiring is stagnant. “We continue to see no reason for any rate hikes before 2014,” Mr. Pinsonnault said.

The Bank of Canada isn’t exactly sanguine. It reiterated that weak global growth – accentuated by a recession in Europe and a “gradual” recovery in the United States – is impeding exports.

Predicting where the global economy is headed is extremely difficult right now. The Bank of Canada said the deceleration of China’s economy has “stabilized,” which is a positive sign. At the same time, strained budget negotiations in Washington are holding back the U.S. recovery by making it impossible to predict tax policy. Until that cloud lifts, it also will be difficult to set Canadian monetary policy.

Kevin Carmichael - The Globe and Mail

Bank of Canada Interest Rate Announcement

Following the surprise announcement that Mark Carney will be departing to helm the Bank of England, it was back to business as usual at the Bank of Canada as interest rates were once again held constant at 1 per cent. The statement released this morning in support of the interest rate decision noted that while the global economy appears to have stabilized, it still remains vulnerable to major shocks from the US or Europe. The Canadian economy is growing at a slightly softer pace than the Bank expected, but is forecast to pick up in 2013.   On inflation, the Bank sees core inflation returning to its 2 per cent target over the next 12 months.

The Bank once again noted that a gradual withdrawal of monetary stimulus would likely be required, though the timing of such withdrawal would be weighed against global and domestic developments including the evolution of household imbalances. We continue to forecast a 25 basis point increase in the Bank's overnight target rate occurring in mid-to-late 2013.

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Staging Shockers: 9 of the Worst Staging Decisions Ever Made

By Tara-Nicholle Nelson

 At the end of every year, my mind naturally drifts to what did and didn’t work this year, in an effort to double down on my successes and avoid repeating my mistakes. Occasionally, I’ll take a look back at my whole lifetime in this same way, reflecting on poor past decisions ranging from old high school sweethearts to bad fashion choices, misguided career moves to things I said and wished, instantly, I could take back.

Rather than letting them fester into regrets, it’s best to look at our mistakes as holding lessons - pitfall avoiding, action-inspiring material we can draw on as we move forward in life. In fact, I actually call my painful past mistakes “tuition”: the price I’ve paid to learn a valuable lesson. The keyword here is valuable. In school, tuition is worth paying because the learning you get in return holds economic value or is otherwise worthwhile.

Tuition is a lot like staging, really: they’re both up-front investments with the potential to make or save you money, in your life, your career, or the sale of your home.

As we grow older and wiser, the goal should be to learn not just from the mistakes we’ve committed - but from those that others have committed, as well. Think of them as tuition-free lessons. I say we should try to do the same with staging - let’s take these ten shockingly bad staging decisions that other home owners have made and continue to make every single day, and boil them down into lessons every home seller can use to drive their own home staging success.

1. Bizarre collection overload. Let’s face facts: it is very difficult for almost any collection to look orderly and neutral, two high-level aims of home staging. Unless you have attractive, high-end built-in cases for your collections and target buyers are share your affinity for the objects, even your cool clock collection or the dolls your grandmother gave you can come off as a pile of space-consuming clutter.

But when it comes to shockingly bad staging decisions, the choice to give your taxidermy collection or your gun collection a starring role in your home’s staging ranks up there in the top few. These collections are highly likely to trigger (pardon the pun) ethical and sanitation concerns in the minds of many home buyers, and are completely distracting from the strengths and features your home has to offer.


Source: Miami.Curbed.com

Lesson Learned: Pack up your clown collection and put your bowling trophies in storage before you start showing your home. And if it once ran, flew or swam, think twice before putting its body out on display as part of your staging showcase (unless, of course, your home is a hunting lodge or in an area where hunting is de riguer).

2. Echo chamber staging. In an echo chamber, sounds are amplified because they simply bounce around in that closed space. The same can happen with your thoughts and ideas about staging, if you don’t open yourself up to outside input. And unfortunately, it seems to be the bad staging ideas that get amplified, more than the good ones.

For instance, no matter how great your taste is, if your home is heavily customized around your personal preferences, it can be very difficult for buyers-to-be to envision themselves, their families and their belongings in the place. Echo chamber staging happens when the sum total of your staging team is you, yourself and you - so that the only conversations that take place about your home’s staging plan are those that take place in the echo chamber of your mind.

For that reason, I’m a big believer in professional staging (if you have the budget) and in professionally-assisted staging (if you don’)t. That’s because the sellers who stage with zero external or professional input, are often the sellers who are unable to see:

• that their homes are still significantly cluttered or over-full,
• that their furniture is too plentiful and too large to show how spacious the home truly is, or
• that their sweet feline companions are also rather malodorous to strangers.

The truth can hurt - so many home owners avoid it. Don’t fall into this trap. Bring in some trusted pros who are both invested in your success and willing to tell you the unvarnished truth.

Lesson learned: Get input from the pros - and get out there on the market, to see what your competition is like, from a staging perspective, rather than being your own, sole staging adviser. Read some books on staging. View model homes or professionally staged homes that are on the market. Get input from your real estate agent. If you have a bare bones budget, consider hiring a pro stager for just an hour’s worth of advice - let them come into your home and tell you what they would do, if they were you. (And write it down!)

3. Failure to edit. You’ve heard thirty-somethings who still live at home diagnosed with failure to launch? Well, failure to edit is a close cousin of this syndrom. As the New York Times recently put it, “the job of stagers is to reverse the accumulated creep of hundreds of small and misguided design decisions, and to erase any hints of the messiness of daily life.” You might have a fantastic rug, a beautiful sofa, amazing tchotchkes and the highest-end personal effects are high style. But chances are good that their cumulative first impression to a buyer viewing your home will still fall short of the “one broad stroke of gorgeousness” the Times piece correctly says home sellers should aim for, with their stagin.

The failure to edit is a generalized syndrome which can manifest in all sorts of specific staging woes, from garden variety clutter to disastrous decor style mashups.

Lesson learned: When you think you’ve edited as much as you can edit, edit again. Think of it as pre-packing. The goal should be to remove virtually everything that would allow (or force) a buyer to picture you or your family, or your daily life functions taking place in the home. As well, you want to create as much ‘visual white space’ in your home as possible. If you’re a do-it-yourself stager, ask your agent and your friends to come in and help you decide what still needs to go, once you think you’re done removing furniture and personal effects.

4. Silly scenarios. The difference between staging and interior design is simple: staging is cost-and-time efficient design undertaken with the specific objective of showing a home off to its best advantage, playing up its features and helping prospective buyers visualize the best lives they could possibly live in the home, should they choose it. Unfortunately, this has led some well-intentioned sellers and stagers to believe they should stage one bedroom as a Parisian boulevard (Eiffel tower mural included), another with a full-blown butterfly theme and the third as the beach - complete with umbrella, towels on the wall and sunscreen bottles on the nightstand. I saw this house, folks. With my own two eyes.

Lesson learned: Stage your home to show off its space, light and conveniences, and the best, basic purposes that unusally small or large spaces could be used for. If your backyard is a huge selling point, stage it with outdoor dining or living room furnishings. Or, for example, if you have a very large Master bedroom sitting area and your home is in a school district sought after by new parent buyers, talk with your agent about staging your sitting area as a nursery with a compact bassinet and appropriate decor. Similarly, if your home is a 2 bedroom with a bonus room in an area of 4 bedroom homes, staging the bonus room as a bedroom or home office helps buyers understand the solutions that can minimize the brunt of your home’s challenges.

Staging your home to create “cute” scenarios with no relationship to the selling points or solutions buyers care about is of no value and can create a low-budget feel - which is the exact opposite of your goal.

5. The ‘lived-in’ look. When your home is being shown for sale, it must be immaculate, every single time it’s being shown. It should actually look like no one lives there: no toothbrushes, curling irons, protein shake mixes or paperwork allowed. No bowls of cereal on the counter - actually, nothing on the top of a counter or a table that is not intended to be a design element.

Is this difficult to keep up? Absolutely, especially if you have children or animals living in the home while it’s being shown. But you’d be surprised at how bad an impression just a few personal toiletries or dishes can make, distracting prospective buyers and making them wonder why you didn’t care enough to pick up before you let them in.

Lesson learned: Work with your agent to set up ideal showing windows, and to come up with a reasonable advance notice requirement they can communicate to buyers agents. And work with your family to set up a system for putting everything away and wiping down all kitchens, bathrooms and other daily mess hot spots every single time your home is going to be shown.

6. Paraphernalia gone wild. Similar to collections, any sort of paraphernalia that is allowed to take over a space has the potential to create an instant turnoff for buyers-to-be viewing your home.

This can include:

• work-at-home electronics, supplies, cords and paper clutter
• pet supplies like litter boxes, cages and food
• children’s toys and sporting goods
• cooking and crafting supplies
• books, magazines, notebooks, piles of mail and writing implements.

Lesson learned: See #6, above. If you’re going to live in your home while it’s on the market, create a system for putting all your paraphernalia and supplies entirely out of view every single time your home is going to be shown.

7. Closet cramming. If you have years worth of personal belongings of multiple family members that need to be out of sight, but not discarded, it can be very tempting to cram everything in a closet, shove the door shut and call it good. Problem is, home buyers today are desperate for storage space, so will undoubtedly open those same, crammed-tight doors in an effort to evaluate how your home ranks for storage.

Beautifully organized closets with ample room create an impression in the buyer’s mind that they, too, can have an orderly life in your home, a life where there is a place for everything - and everything has a place. And even huge closets, if crammed to the gills, make buyers wonder how they’ll ever get by with so little closet space. (Closet cramming also makes some buyers wonder what else you might be hiding, whether or not that concern is justified.)

Lesson learned: Use the exercise of staging as an opportunity to sell, donate or throw out things you no longer need - then consider moving as much as possible of what remains to storage for a few months, if your closets are too full. Your agent can help you decide whether your closets show well, vis-a-vis what local buyers are looking for.

8. Failing to stage for all the senses. A house that smells like pet mayhem or smoke or has a noisily defective heater is a tough house to sell, no matter how beautifully it is staged. Unfortunately, smells and sounds are very easy to get acclimated to, when you live with them. Buyers, though, will detect them the second they walk in - and the moment they do is the moment we in the business call “turn-off time.”

Lesson learned: Ask your agent to reality-check you on how your home smells and sounds. And don’t get offended if they have bad news - work with them to fix it, for your own good.

9. Not to. Ultimately, the most shockingly bad of all staging decisions is the surprisingly frequent decision not to bother staging your home at all. This explains homes like the one I once viewed which had residents still sound asleep in their beds, in the dining room, as the listing agent walked myself and my mortified buyer clients through the property. On the less bizarre end of the non-staged spectrum, this is how lovely homes with vast potential - and vast, overstuffed 80’s couches and 60’s decor - end up selling at a discount, as cosmetic fixers at a discount. This is a particular tragedy in cases where the owners could have painted, spruced, moved loads of things out and a few newer things in and made much, much more money on their homes.

Lesson learned: Not staging at all - not even bothering to do DIY staging - happens every day, and it costs more than the costs of putting some time and effort into getting your home ready for the market. If you’re on a budget, talk with your agent, get some books and, again, consider hiring a stager just for a brief advisory session. It will, I assure you, pay off.

Homebuyers Road Map

The average price of a home in Canada is $358,000. The average family income is about $77,000. 

Buying a property is clearly a significant commitment and REALTORS® have a critical role to play advising clients about the biggest financial decision of their lives.

For these reasons, CREA collaborated with the Government of Canada and the Financial Consumer Agency of Canada (FCAC) to produce a pamphlet and online widgetto help consumers make informed financial decisions when buying property. The pamphlet is entitled "Homebuyers' Road Map" and takes the consumer from assessing financial readiness to buy a property, through six other critical steps, concluding with closing and related costs.

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Canadian Real GDP Growth

The Canadian economy expanded just 0.6 per cent in the third quarter of 2012, falling just short of our already low expectations of 0.8 per cent growth.  The economy was held back by the largest decline in exports since the second quarter of 2009, along with falling business and residential investment. On the plus side, household spending grew at its fastest pace so far in 2012.

While real GDP growth was rather weak last quarter, that weakness was anticipated and growth is widely expected to pick-up in the fourth quarter. It is unlikely that the disappointing third quarter will have much of an impact on the Bank of Canada's interest decision on December 4th. Given a continuation of modest growth and stable inflation, our expectations remain that the Bank will hold its overnight target rate at 1 per through the remainder of 2012 before testing the water with a 25 basis point increase mid-to-late 2013.

Copyright BCREA - reprinted with permission