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Notable News of the Week: June 1, 2012

Every week, delivers the Notable News of the Week. We compile and summarize the most interesting and relevant headlines to keep you informed with the latest from the Canadian mortgage and housing industry. This week, reports emerged declaring home prices are still rising in major city centres, as well as continued growing concerns of a housing meltdown.

The best time for mortgage renewals and payment increases The Globe and Mail

If you bought a home five years ago, chances are it’s now time to renew. And since mortgage rates have dropped considerably since 2007, there are two paths you can take. You can either let todays’ low mortgage rates reduce your monthly payments, or keep your payments where they are and use the differential to pay down your mortgage faster.

Canadian home prices still rising in most big cities — Financial Post

April was a great time to sell as home prices rose for the second straight month in nine of eleven metropolitan markets. However, the pace of growth continued to slow on a yearly basis. Toronto and Montreal experienced gains of 0.8%, matching the national average. However, Vancouver – Canada’s most expensive property market – experienced a small increase, while prices dropped in Victoria and Quebec City. Canada’s major concerns are its robust housing market and high household debt levels. Record-low borrowing costs have sent house prices and sales soaring.

New mortgage underwriting proposal could trigger housing meltdown Calgary Sun

OSFI is concerned that a U.S. style housing meltdown is happening in Canada. It has drafted out new proposals for mortgage underwriting that could potentially cause a housing meltdown rather than prevent it. The proposal includes the following:

  • Requiring homeowners who are renewing their mortgage to re-qualify
  • The cash back element (incentive and rebate payments) of a mortgage should no longer be considered as part of a down payment
  • Limiting home equity lines of credit (HELOC) to 65% of a property’s value

The worst case scenario is that many home owners could be denied at renewal. This could send housing prices plummeting, reduce the number of potential buyers, destroy large contributing employment sectors, while affecting service and retail industries. In addition, limiting HELOC values will reduce investments in capital markets. Despite the proposed changes, CAAMP does not disagree with all of OSFI’s proposals and adds many of the measures are already in practice. However, they argue that a blanket approach would be harmful.

Canada about to face US style housing meltdown?Alaska Dispatch

There are growing concerns that Canadian homebuyers are spending themselves into a financial disaster. With real estate prices taking steep turns, many homeowners are likely to be carrying heavy debt loads. Although some buyers seem convinced that real estate prices can only go up, various economists warn they are already overvalued by as much as 25% and are likely to drop by the same percentage in the years to come. If this comes to pass, it’s possible that the decrease in consumer spending and housing investment would likely be dramatic enough to push the economy into recession.

How would an interest rate hike of 2.25% affect you? The Globe and Mail

The Organization for Economic Co-operation and Development suggested to Mark Carney, governor of the Bank of Canada, to raise interest rates by 0.25% for five consecutive quarters starting this fall, to combat the rising inflation of house prices. The change would increase the monthly payments for variable mortgage rate holders.

Canadian Banks Navigate Treacherous Waters – IPS News

Controversy arose when the Canadian government, between 2008 and 2010, relieved domestic banks of more than $100 billion in unmarketable mortgage securities to maintain liquidity. Most concerning was that CIBC, BMO and Scotiabank received financial support greater than they were worth at the time.

Rosen, a Toronto-based forensic accountant, says “Canadian banks are exposed, but by how much is hard to say. Canadian law allows banks to hide information.” While Jim Stanford, newspaper columnist and writer is worried that Canadian banks are over-lending in hot commodities and causing damage to the “real economy.”