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Notable News of the Week: October 12, 2012

Mortgage trends on Google – Canadian Mortgage Trends

According to David Resnick, Head of Financial Services at Google, “mortgages are the fastest growing (search) sector in the financial services by far.” Resnick offered Canadian Mortgage Trends some interesting insight into mortgage-related searches on Google. A mortgage broker that ranks high in Google means that that broker is active in search engine marketing and takes their online business seriously.

The mortgage-related keywords searched most in 2012 so far have been:

  • “mortgage calculator”
  • “mortgage rates”
  • “new mortgage rules”
  • “BMO 2.99%” *

*Following the release of BMO’s Low Rate 5-year fixed mortgage at 2.99 per cent that incited the mortgage rate wars earlier in the year

IMF warns that the government may need to tighten rules again – CBC News

The International Monetary Fund (IMF) sent a warning to Ottawa that the state of the housing market presents a significant threat to the national economy, noting that the government may need to step in again if household debt levels continue to increase.

“Thus far, mortgage credit growth has slightly decelerated in response to the measures taken by the authorities, including tighter mortgage insurance standards. If household leverage continues to rise, additional measures may need to be considered.” – IMF

Finance Minister Jim Flaherty has already tightened the mortgage lending rules three times in the same amount of years, including the most recent new mortgage rules which went into effect July 9th, 2012.

The double-sided nature of Canada’s conservative nature – The Economist

The conservative philosophy within Canadian government policies and corporate culture is one reason why this nation weathered the financial crisis better than any other G7 member. However, that conservative caution now appears to be holding back the Canadian economy from full growth potential. For the last two years, the key interest rate has been at 1.00 per cent, keeping Canadian mortgage rates at historic lows. The low cost of borrowing has many consumers taking advantage of it by piling on more and more mortgage debt. A lower interest rate increase a borrower’s affordability, allowing them to purchase more expensive homes. This has forced the Bank of Canada Governor Mark Carney to call on Canadians to reign in on their debts.

That leaves business as the last potential source of continued growth. However, businesses are not as eager to ‘put money to work’ having felt the repercussions of the recession. The government is trying its best to convince Canadian companies to spend their money to help kick start the economy, but is finding difficulties dealing with their conservative nature.

Potentially flawed data used by banks have inflated house prices – The Globe and Mail

CMHC’s Emili application is under fire, as documents obtained by The Globe and Mail suggests that the system may not be accurate enough as a home appraisal tool. Emili is an automated value model (AVM) that estimates whether or not a mortgage or refinance is risky, and eliminates the need for in-person appraisals. However, the database is a generalization based on listings in the surrounding area and not based on the property specifically. This margin of error can cause homebuyers to overpay or borrow too heavily and, for banks, it could mean that the collateral they have against a mortgage is not worth as much as they think. The margin of error is less of an issue when the housing market is hot. However, if the market beings to fall, as some economists expect, the accuracy of appraisals becomes detrimental.

Mortgage Press:

Last week, Canadian Mortgage Professional (CMP) Magazine featured in their coverage of mortgage rate comparison websites.

Notes from the article:

  • 71% of consumers are using online sources in 2012, up 6% from last year
  • A “mortgage interest rate” is what the average consumer understands the easiest (as opposed to features and service)
  • Rate comparison websites funnel traffic away from the big banks and back towards mortgage brokers

(Click to enlarge)