Canada, the best performing among the G7 economies, is officially in recession and there will no growth in 2009, the country's top bank has said in a new report.


The Royal Bank of Canada (RBC), the country's number one bank, said the US downturn and credit squeeze have led Canada's economy into recession.

The economy will grow by 0.6 percent in 2008 and post no growth in 2009, the report released Friday said.

Craig Wright, senior vice-president and chief economist at the RBC, said the US economy has fallen into a deep recession, dragging the Canadian economy along.

"However, we expect the slowdown in Canada not to be as severe as in other countries since the imbalances plaguing other countries are more pronounced. We expect to see a moderate, though sustained, recovery in the second half of 2009," he said.

After six years of solid gain, the report said, falling commodity prices will cut domestic income that has supported consumer, business and government spending for the past several years.

The outlook for 2009 is very bleak as the combination of falling domestic income, credit squeeze, and a rising debt-to-asset ratio will curb consumer spending, it said.

The bank said though negative growth is only expected to last the next two quarters, its impact will be far reaching, with the unemployment rate climbing to 7.4 percent in 2009.

On the economic deterioration in the US which accounts for more than 85 percent of Canada's global trade, the report said the real GDP in America will decline by 1.5 percent in 2009 because of slower export growth and weakening in global economic activity.

Though the Bank of Canada has reduced the overnight rate to 1.5 percent to stimulate the economy, the report expects the rate to be further reduced to one percent as the economy enters the weakest period for growth.

Construction of new housing in Ottawa fell 36 per cent in November, led by big declines in townhouse units, Canada Mortgage and Housing Corp. said Monday.

Despite the big decline, housing starts are still running 7.7 per cent ahead of last year as builders put shovels in the ground for developments that were sold earlier in the year before sales of new units plunged this fall..

CMHC said that construction started on 492 units during the month, down from 769 units a year earlier. The big decline followed an unusually strong October in which Ottawa bucked a national decline in starts triggered by economic problems.

The number of new row housing units fell 61 per cent 108 units and single-family starts declined 31 per cent 266 units.

The declines were partly offset by increased construction of semi-detached and apartment units.

Despite a significandt decline in single-family housing starts to 266 units from 386 units a year earlier, it was still the single biggest generator of housing construction during November — a testamant to the fact that despite rising prices, buying a single-family unit is still more affordable here than in most big Canadian cities.

Sandra Perez Torres, senior Market Analyst at CMHC, said in a statement: “Single-detached construction is a better barometer of the health of the new construction market. After exceptional new construction activity in October, single detached construction still represented over half of total construction in November.

"Total housing foundations for this type of dwelling remained at a very high level, just marginally lower than last year’s numbers”, she said.

Canadian homeowners are green with envy over the fact our neighbours to the south are allowed to deduct the interest paid on their mortgages from their taxes. Is it possible to do the same thing here?

I received an elegant little flyer in my mailbox the other day. It was a small glossy fold-over, and it had a quality look and feel to it. The only text on the front flap of the flyer asked me a provocative question: "Is your mortgage tax deductible?" The inside of the flyer told me that I could learn how to collect tax refunds from my mortgage loan. "Canadian homeowners are entitled to collect Tax Refunds from their mortgage payments under Canada Revenue Agency (CRA) guidelines for 'Cash Damming'.

By following CRA's specific guidelines for borrowing and investing, you will claim thousands of dollars in Tax Refunds every year from your mortgage." The small flyer mentioned "Tax Refund" five more times, and twice pointed out that I could use my Tax Refund to pay off my mortgage faster. That's pretty exciting,

The biggest single expense of many Canadian families is their mortgage payment, and we've all been making those mortgage payments with after-tax dollars. Many a Canadian has looked across the border in envy at the tax deductibility that Americans enjoy on their home mortgage interest. If it turns out that we can be getting Tax Refunds from our mortgage payments too, well, that's just a no-brainer.

As it happens, I am quite familiar with this topic and strategy, so I can spare you the inconvenience of having to leave the comfort of your home to discover how this works. In fact, I'm going to provide you with all the essential information that you really must know about Canadian mortgage deductibility and Tax Refunds, all in the very next paragraph! How can I possibly do that? By using an enhanced information conveyance technology I like to call No Baloney™.

Ready? Here's what you really need to know about Canadian mortgage deductibility and Tax Refunds: In Canada, when you borrow money to buy your home, you can't deduct the interest. When you borrow money to make certain investments, you may be able to deduct the interest. There. Now that we've covered all the really important stuff, let's review some of the details. First of all, nothing about buying your personal residence is tax-deductible. You don't get to deduct your mortgage interest, there are no special tricks that have escaped your notice, and you will not be getting "Tax Refunds" from your mortgage payments. Period.

That being said, when you borrow money to make investments which have a reasonable expectation of income, you may be able to deduct the interest on the debt. So if you use your home as collateral when you borrow money to invest, you may be able to deduct that interest expense from your income taxes. You could, therefore, have a mortgage with interest that is partially or entirely tax deductible.

However, it's very important to remember two things: (1) No matter how you twist it, turn it, or wordsmith-manoeuvre-it, the money you borrow to buy your principal residence is not tax-deductible; (2) The only way the interest on your home mortgage can be tax-deductible is if you borrow against the equity you already own in your home, and use that money to investment.

The reason it's so very important to be clear about this issue is that borrowing to buy a home is something that most people must do in order to buy a home, and as long as they can afford their mortgage payment, they're psychologically comfortable doing so. They generally don't worry that their money is at risk. In fact, they feel a sense of security about the equity they are building as they pay the mortgage down. Borrowing to invest, on the other hand, is not something that anyone needs to do, and most people are not psychologically comfortable with it. In order for borrowing to invest to make sense, the average long-term, after-tax return on the underlying investment has to be higher than the after-tax interest rate on the loan.

That invariably means taking on investment risk. And for most people, tolerating investment risk is already sufficiently challenging without the added stress of knowing that those investments were made with borrowed money. Think about the recent gyrations in the stock markets, and consider how using leverage might change your emotional response to the hysteria. Don't get me wrong - I'm not picking on leverage as a concept. Using "other people's money" is an age-old investment strategy, it absolutely has its place as a financial planning strategy, and I've used it myself.

What I am picking on is the packaging of leverage - a strategy that inherently adds risk to investing - as a clever and heretofore overlooked way to get tax benefits on your home mortgage. Let's be No Baloney™ clear: For some people, borrowing money to invest may be an appropriate investment strategy. But borrowing money and investing it because you can get a tax deduction on the interest expense is a ridiculous tax strategy.

In concept, getting a mortgage quote from 4 or 5 different mortgage companies is a wise decision to finding the lowest mortgage rate you qualify for. Mortgage companies and brokers alike can claim that they have hundreds of lenders and thousands of programs, and I am sure they do, but I have yet to see the one mortgage broker who has that magical lender that can get you a better mortgage then every other mortgage broker out there. The bottom line is, they all have access to the same lenders and same programs, it is just that some mortgage brokers know their programs better then others.

The problem today with submitting your information to an online mortgage lead company is that the demand for your information is at an all time high, and the supply is very low. In order for these companies to stay in business they need to be price competitive with other online mortgage lead companies. The way that they do this is by selling your information to numerous mortgage companies. Just recently I spoke to an individual who received over 40 phone calls from the one application he filled out online.

Sometimes it is not the online mortgage lead companies fault that your information gets oversold. There are other online mortgage lead companies that buy your information from the original lead company where you filled out the application and then they turn around and sell them to their client's base. After all, your information is not cheap and some mortgage companies will pay in excess of $35 for it.

The good news is, you can avoid these headaches by doing some research on your end. Over the years mortgage brokers have realized that the internet is a powerful tool that can generate mortgage applications. It is now easier to locate your local mortgage companies and fill out an application directly with them. It is very unlikely that your local mortgage company is going to sell your information to their competitors, as they are in the business of closing loans.

This is where the research on your end comes in. Using your favorite search engine, type in your city, state or even zip code followed by the word mortgage. This will generate a number of pages full of local mortgage companies that would be more then happy to compete for your business. When visiting these websites, look for quality content and educational information.
There are plenty of dull sites out there that only talk about themselves and the hundreds of lenders and thousand of loan programs with the lowest mortgage rates anywhere in the galaxy.

More than twice as many Canadians as last year say they expect home prices across the country to fall, according to a new survey by a national mortgage industry association.

The Canadian Association of Accredited Mortgage Professionals (CAAMP) says that 35 per cent of Canadians now believe that home prices will drop, up from 17 per cent last fall.

Jim Murphy, the president and CEO of CAAMP, believes the survey results suggest recent news coverage of the economic crisis may be having an impact on attitudes about the housing sector.

"I think (the numbers are) reflective of the attitudes about the economy overall -- and the media reports that are out there and the statistics that are provided," he said from Toronto.

Here is what the CAAMP survey found:

• Twice as many people as last fall, or 35 per cent, now believe home prices will drop.
• The number of people who thought prices would go up fell from 40 per cent to 20 per cent.
• Residents in the West are most negative. In B.C., 48 per cent said they expect prices to fall.
• Thirty-eight per cent of Canadians believe now is a good time to purchase a house and 32 per cent say it's a bad time. These figures are similar to last year's results.

The survey also found that almost 85 per cent of home owners are satisfied with their mortgages.

"In historical terms mortgage rates are still very low, so when people are asked why they're happy about their mortgages, the number one reason is the rate," Murphy said.

CAAMP's chief economist Will Dunning said the mortgage crisis in the U.S. doesn't appear to have hurt consumer confidence in Canada's housing sector.

"Canada is a financially conservative country where consumers are able to meet the terms of their mortgages and buying decisions are based on affordability," said Dunning in a press release.

"This contributes to a solid real estate market that will not experience the same drop off we see south of the border."

The information for the CAAMP report was gathered by Maritz from an online survey of over 2,000 Canadians in mid-October. Last week, the Canadian Real Estate Associate reported that the multiple listing service (MLS) dropped 14 per cent in October. It was the biggest month-to-month decrease since mid-1994.

While blue skies and picturesque lakes certainly drew people to this valley, its postcard-perfection hasn’t been enough to stave off the effects of worldwide economic trouble.

The first signs came when water-cooler talk changed from estimating real estate gains to lamenting losses in retirement plans and higher costs for just about everything.

Legitimate concerns about the state of the economy made consumers nervous and more thrifty, despite assurances of “strong economic fundamentals” from Canada’s mortgage economists and political leaders.

And then came the more literal signs. For Sale boards started to pop up in front of houses and never left.

Home owners and speculators who once bragged it only took a week or so to sell their houses or condos are now just boasting “reduced” or “new price” on their sale signs.

While economists were slow to acknowledge what most could surmise by a walk through their neighbourhoods, there are now significant rumblings of a slump in prices for houses this side of the border.

Some are going so far as to call it a housing recession, as realtors and sellers are already well into contingency plans that will allow them to ride out the storm.

Where the market is going

A report last month from Central 1 Credit Union said the province’s housing market in a recession, and it’s not expected to be a quick dip.

According to Helmut Pastrick, the bank’s chief economist, housing sales across B.C. will decline by 30 per cent this year, 17 per cent next year and five per cent the year after that. And prices will be in tow.

Prices will continue falling from their March 2008 high into next year, bringing the provincial median sales price down 13 per cent to $310,000 in 2009 and by a further five per cent in 2010—in total nearly an 18 per cent drop.

Things are supposed to look up later that year following a sales turnaround and relaxing credit conditions. “Recession in any industry—housing, auto or lumber—is a period where the industry experienced sustained declines in output and in prices, and that fits what’s happening in B.C.,” said Pastrick.

He noted that the Okanagan won’t be exempt from any downward trend.

“All regions are participating in this to largely the same degree and the trends and conditions are very similar throughout the province, which is usually the case when we have major economic event or factor coming into play.”

That major economic effect is, of course, the financial crisis in the United States, which has put a crimp on the many industries that are finding it difficult to access credit and move operations forward.

In turn, its stagnated economic growth across the U.S., and to some degree, in Canada hypotheque as well.

“As the general economy suffers and slows down, it has feedback into housing sector.”

Over at the B.C. Real Estate Board, chief economist Cameron Muir is on the same page, although his group’s fall forecast projects declines in the area of 10 per cent, as opposed to 18.

According to him, Okanagan home prices should be down to 2006 levels by the end of the year and remain flat throughout 2009.

“Throughout the province there’s quite an imbalance between supply and demand. There are more homes for sale, while home buyers have dropped off considerably from a year ago, and the combination of those two factors has put downward pressure on prices,” he said.

Muir said real estate markets most conducive to recreation and investment buyers— such as the Okanagan—will be a little bit worse off than major markets, like Victoria and Vancouver, simply because of the fact that there are fewer investment and recreation home buyers around now.

Kelowna, he said, is well diversified but part of the responsibility of the downward trend can be placed upon the same group who helped drive up prices.

Just as fast as oil money flowed into the Okanagan, it’s started to dry up in relation to the Albertan housing market flattening.

Calgary, for example, saw their housing prices start to tumble months before B.C. felt any pangs of contraction, said Muir.

Basically, that’s meant those who were leveraging gains in home equity for new home purchases are out of luck and, as a result, no longer looking to buy.

But, that’s not what Kelowna residents will have to worry about.

The real test of how this region will fare is the level to which residents are able to comfortably live and work here, Muir said.

“What we really need to look at is what are the financial conditions and the confidence of people who live work and raise their families there because they are the ones who drive positive demand,” he said.

“Unlike the U.S., the financial condition of households in this province, and in Kelowna, are on relatively strong footing.”

B.C. isn’t seeing a sharp increase in foreclosure activity, the unemployment rate is staying quite low from a historical perspective as are interest rates, Muir said.

“Without a collapse in household financial positions, homeowners are not in a position where they have to sell at any price like they are in the U.S.”

According to Muir, the biggest stumbling block is consumer confidence, which is at the lowest it’s been in 26 years.

Realtors

A lack of consumer confidence is something local realtors are far too familiar with.

Ian Share, of the Century 21 office in Glenmore, has seen a sharp decline in sales, although he said he remains busy. The problem, as he sees it, is that sellers are having a hard time adjusting to the market. A house that may have flown off the market a year ago for a cool $500,000 isn’t going to have the same appeal today as buyers have far more to choose from and are taking their time.

While his focus is on North Glenmore, Lake Country and Phoenix, Arizona, he says only the latter market is seeing eager buyers.

Share tapped into the Phoenix market successfully to pursue an opportunity he saw resulting from the U.S. financial crisis.

“The conclusion you can start to draw is that the real estate market is adjusting and correcting massively and that the buyers that are willing to step up to the plate are few and far between,” he said.

“Generally they consist of investors picking up rental properties and other clients who are relocating here for work.”

Drawing upon some of his office stats, Share also pointed to a much sharper decline than the 10 or 20 per cent the economists are forecasting—and it’s happening now.

Share was the listing agent on one of only two homes that sold in Lake Country (excluding Carrs Landing) last month—118 were listed.

While the lack of sales may be disturbing, Share pointed out it’s actually the pricetag changes that are the most dramatic, citing the two Lake Country listing sales examples.

“One was originally listed for $549,000 and sold for $400,00—that’s a difference of $149,000,” he said.

“The other was originally listed for $449,000 and sold for $351,500—that’s a difference of $97,500.”

In the months leading to the dry spell, Share added only nine single family homes sold and the average price difference from the original list price to the sold price was $37,966, whereas this last month the average price difference was $123,250.

“Even though we’re been reassured that our banking system is solid and that our economy is ticking along nicely…in my opinion we’re crazy to think that Canada is impervious to some sort of significant adjustment in our economy and in the real estate market,” he said.

That said, this is the time for buyers to gather their resources and plunge into the market and time for sellers to start listening to their agents, Share believes.

“Sellers that are in this current market generally dump realtors if they haven’t sold their homes during the listing period, and they probably most likely figure they’ll just get someone else that will get the job done,” he said.

“The majority of time it may not be the fault of the realtor if he or she priced it correctly and aggressively to start with…If it isn’t priced right in this market then both the realtor and the seller get frustrated as they’re simply just spinning their wheels.”

Over at Coldwell Banker, Horizon Realty, Paul Pofpnikoff is also feeling the pinch.

Like Share, he’s finding a way to leverage the conditions of the current market so they work to his benefit and opened a sideline project.

Focusing on developers who have a property they need to market, he’s created a website—www.propertyexchangekelowna.com—that lures potential buyers from markets as far flung as Europe.

He has to go there “to create opportunities” because he admits things have dried up locally.

“I know realtors have to have this rosy picture, but currently there aren’t many buyers and I am finding many people that could are resorting to renting their place rather than selling it,” he said.

“I have had vendors calling about listing, and quickly changing their mind, saying, ‘The price we’d be getting wouldn’t be good enough—we’ll rent for a year or two until the market gets better.’”

It’s something “everyone” is seeing and he too blames it on the problems in the U.S., the “troubling effect it’s had on the psychology of the buyer.”

Reduce the price, or rent?

For contractor Robert Tissington, building, buying and selling homes has been a way of life for as long as he can remember.

It’s what his dad and grandfather did, and he followed their lead into the local market a few years ago.

His first house—among several properties he owns and can’t currently sell—was purchased in Kelowna’s North End a few years ago for about $200,000.

He added a carriage house to it for about $130,000 and got ready to move into another place.

When he listed his property with a real estate agent, he was told to list somewhere in the area of $700,000, which he thought to be quite high, but competitive. It didn’t move. His price dropped by nearly 10 per cent and it still didn’t move.

With that, he decided to take it off the market.

“A year ago I thought selling it for about $550,000 would have been brilliant, but it’s the type of property you hang onto,” he said.

His property is a good rental—a market that’s not shrinking—and will continue to earn as the real estate market fluctuates.

In the meantime, he didn’t see the point of putting his life on hold waiting for the property to sell.

“The amount of tire kickers you have to go through—the people who want to see all the houses, but aren’t prepared to buy, even if they think they are—just aren’t worth it.”

He’s comfortable with the idea of riding out the changes in the meantime, and as a contractor thinks he sees a lot of opportunity in the current market—if not to sell, to buy.

“You just sort of acquiesce, give it a reasonable chance, and go off in another direction,” he said.

“Now I feel great about the decision, but you have to be moving forward or backward.”

Tissington said that the current market should have been expected, as Kelowna functions on a six-year cycle.

“Prices peak and everybody lists when they sense it’s the end of cycle and then there’s a glut of houses on the market,” he said. “The last one was in 2001, and before that in 1993-94.”

When he bought his house for $212,000, that seemed like an incredible amount of money for an old house, but he pointed out it was worth the investment.

“This whole economic situation is running alongside what may have been a natural price adjustment anyway,” he said.

The good news

Property owners may be in a pinch, but this region has suffered the pains of rising costs for years.

Reports earlier in the year boasted that young buyers were still entering the housing market with “reduced expectations,” while many complained prices became too restrictive for many to enter the market at all.

Now prices are becoming more competitive. Developers trying to unload units are offering bonuses, rent to own incentives and coming out with a product that’s more attainable.

All in all, it’s something Brenda Moshansky, a director with the Okanagan Mainline Real Estate Board, believes will create some opportunities for first-time home buyers looking to get into the market.

“Properties that are marketed competitively will continue to sell, and with the interest rates where they are, it’s a wonderful time for buyers to get into the market,” she said, adding realtors are working a lot harder to draw interest in their listings.

Moshansky said that the Okanagan and its natural allure will ensure that the prices don’t dip too drastically.

“One thing that’s very unique about this region is that it’s a little bit immune to some of the problems because it’s a destination market,” she said.

“Ski hills are expanding, popular resorts as well as accommodations are coming here and we accommodate a lot of recreational consumers for second homes as well as being a retirement market.”

Although Moshansky knows the economic predictions for the next year, she believes that the market is already correcting itself as fewer listings are starting to come out. “Real estate is traditionally very cyclical,” she said.

“Some people say it’s a six year cycle, others say it’s seven…it will turn around. Real estate is not as volatile as the money market.”

When it will end?

Housing is a high reach industry. Realtors, retailers, builders and architects are just a few who will feel the pinch if the bottom falls out of the market.

Construction has become a major economic driver of this region, and job growth has been substantial, with some estimates being in the area of 94 per cent.

“Usually there is a time delay to response in new construction and housing market conditions after sales decline,” said economist Helmut Pastrick, adding that housing starts are likely to drop off by 30 to 40 per cent next year.

But, things will get better.

“It’s not a downward endless spiral,” said Pastrick.

“There will be forces at play to reverse the downturn and some of them are already beginning to materialize.”

It’s still early in the decline of sales and prices, but by 2009, and 2010, things will get better.

“Lower interest rates, lower mortgage rates and lower prices can stimulate demand so that will set the stage for some improvement in housing sales,” he said.

“It’s open to debate how strong that recovery will be—at this time it doesn’t look that strong, but as long as the decline ends…that’s positive.”

The drop in Canadian home prices in September may not be as severe as it seemed, TD Securities said on Wednesday, bolstering the case that the country is not headed for a U.S.-style housing meltdown TD, a unit of Toronto-Dominion Bank, argued in a report that home prices fell 1.3 percent in major Canadian markets in September, not the dramatic 6.2 percent drop that was reported by the Canadian Real Estate Association (CREA) last week.

CREA said the average house price fell to C$315,461 (about $252,000), dragged down by sales declines in Vancouver and Victoria, British Columbia, which offset rebounds in Calgary and Edmonton, Alberta. CREA said the fall came despite year-over-year gains in average home prices in 17 of 25 major Canadian markets.

TD crunched its own numbers and applied a weighting to each major city to fix "compositional shifts", which it said were behind the distorted CREA view. It said the association has acknowledged the problem.

For example, if Vancouver was the only city that reported sales in one month, and the next month Montreal was the only city that reported, then it might seem that prices had fallen in half because Montreal prices are much less expensive than those in Vancouver.

TD fixed the weight of each city to year-earlier sales levels as of September 2007.

"We wanted to get rid of the whole compositional issue. We really just controlled for the allocation. When we did that we ended up with a 1 percent drop instead of a 6 percent drop," said Eric Lascelles, chief economics and rates strategist at TD Securities.

"That's not catastrophically different, but to me that's a number that makes more sense. Yes the housing market is correcting moderately but it does not have the making of a U.S.-style correction."

He said Canadian housing starts may fall below the 200,000 mark, home prices will continue to correct in some inflated cities, but there is no need to brace for big delinquencies or a hard drop in prices.

The TD calculations aren't perfect, Lascelles acknowledged, because they do not eliminate some factors such as type and quality of home in each city.

Canadian housing data has shown signs of softness but nowhere near the slump that hit that United States, stemming from a crisis in the subprime mortgage sector.

Canadian banks are trying to convince consumers to lock in their mortgage rates because more than 20 per cent of the home loans they have negotiated have become unprofitable, according to industry sources.

The push has come after the banks cut the discount they offered to consumers with variable-rate products tied to the prime lending rate. Two weeks ago, a consumer could get a variable rate product at 0.60 percentage points below prime; today it is one percentage point above prime.

"Banks are scaring people and those people are calling asking whether they should lock in.
( hypotheque montreal )

Anybody with a mortgage negotiated in the past two years would be out of their mind to lock in to, say, a five-year term. They would be going from a rate as low as 3.35 per cent to 5.79 per cent. Lines of credit previously negotiated at a rate below prime are also still valid.

"If you've got a mortgage rate negotiated below prime, you have a dinosaur. It doesn't exist anywhere.
You should hold onto until the end of the term. The banks propped up all their rates 160 basis points because they knew the Bank of Canada would be lowering rates."

Last week, the Bank of Canada lowered interest rates by 50 basis points only to see the major banks cut their prime lending rate by half that amount. After some pressure, most of the banks cut their prime lending rate by the full 50 basis points.

Joan Dal Bianco, vice-president of real estate-secured lending with Toronto-Dominion Bank, said the banks were reluctant to pass on the full 50-point rate cut because they were losing money on variable-rate products.

"At the prime minus rates we were basically earning zero or negative. We kept holding off (cutting the discount)," said Dal Bianco, adding that in the past year 50 per cent of her bank's new mortgages were variable-rate products.

With a cost of funds generally above four per cent because of the lack of liquidity in the market, the mortgages previously negotiated ended up below water after the latest rate cut.

Prime is now 4.25 per cent at TD but two weeks ago the bank was offering a variable rate of 60 basis points below prime, meaning the consumer was borrowing at 3.65 per cent.

For those now entering the housing market, the rate is 5.25 per cent for a variable rate product but Dal Bianco said that might not be high enough. "We are not making much money on those if anything." she said.

The move into variable mortgages tied to prime has come in the last five year with many of the banks promoting products that allow consumers to float with prime but lock in a rate at any time during the term of their mortgage.

The Canadian Association of Accredited Mortgage Professionals says, as of 2007, 21 per cent of mortgages were variable rate, 72 per cent were fixed rate and seven per cent were a mix of the two.

Asked whether the banks are actively encouraging consumers to convert variable rate products, Dal Bianco said that hasn't happened. "We are making sure (staff) have the right conversations if people are really nervous and do not want to see their payment moving."

Another key question going forward for consumers will be whether the prime rate at the banks will continue to move with Bank of Canada's rate and nobody is guaranteeing that.

"It's not that (prime) is less meaningful, it just doesn't mean what it used to," says David Wolf, chief economist at Merrill Lynch Canada. "(Prime) is more likely to fall if the overnight lending rate is zero than if it's 2.5 per cent."

New home construction in Canada was nearly unchanged in September as a decline in single-family homes erased a jump in multiple dwelling units, and economists predicted the credit crunch would lead to a slowdown in ground-breaking.

Housing starts inched to a seasonally adjusted annualized rate of 217,600 units from an upwardly revised 217,400 units in August, Canada Mortgage and Housing Corp. said on Wednesday.

The September number beat the consensus expectation of analysts who had called for 203,000 starts. August starts were originally reported at 211,000 units.

While construction activity again stayed above the 200,000 unit mark, some analysts said this level would not likely be sustained in months to come.

"Because residential building permits tanked in August and the credit crunch reached a crescendo in September and into October, this could well be the last starts print north of 200K," Scotia Capital economists wrote in a report.

Canadian housing data has been in stark contrast with the state of the housing market in the United States, hit by a crisis that began in the subprime mortgage sector and spread across other parts of the market and the broader economy.

Economists generally expect the Canadian housing market to ease but not fall into crisis as it has in the United States, largely because risky mortgages are not a large part of the market. Even so, the Canadian economy is also expected to slow, which would likely soften demand for housing.

"This slowdown, however, is expected to be both measured and orderly, and in no way do we expect the extent of the correction to be comparable to that currently taking place in the U.S.," said TD Securities strategist Millan Mulraine.

Gains were reported across the country, except in Ontario and Quebec. British Columbia and the Atlantic provinces both reported 10 percent gains, followed by the Prairies.

Urban single home starts declined 8.1 percent to 70,000 units from 76,200, while urban multiple starts rose 5.5 percent to an annual rate of 122,500 units from 116,100 in August.

Rural starts were estimated at an unchanged seasonally adjusted annual rate of 25,100 units in September.

Merrill Lynch is warning that Canada could be headed for a housing and mortgage meltdown similar to the one that has devasted the United States economy.

A report issued Wednesday by Merrill Lynch Canada economists says many Canadian households are more financially overextended than their counterparts in the United States or Britain.

They say it’s only a matter of time before the “tipping point” is reached and the housing and credit markets crack in Canada.

The Merrill Lynch Canada report by economists David Wolf and Carolyn Kwan acknowledges that the analysis is more pessimistic than the prevailing view.

Many economists have been saying that Canada’s housing and banking sectors are much more stable than their American counterparts and will likely slow down but not crash.

But Merrill Lynch — whose U.S. parent is one of the biggest victims of a crisis in financial markets that is rooted in the American housing and mortgage meltdown — says Canadians should be wary.

Household net borrowing in Canada amounted to 6.3 per cent of disposable income in 2007 — meaning they’re carrying more debt than households in the United Kingdom and not far off the peak U.S. shortfall in 2005 — just before the subprime mortgage crisis erupted.

“These data imply that the Canadian household sector is now overextending itself as much as the U.S. or U.K. ever did, challenging the consensus view that Canadian lenders and borrowers have been far more conservative through the cycle,” the Merrill report says.

It also says housing prices are now falling and inventories of unsold homes are rising sharply in Canada suggesting that this market turnaround will not be a transitory phenomenon.

However, the prevailing view is that Canada’s lenders have issued few of the type of subprime mortgages that sparked the U.S. crisis, which is continuing to ripple through the financial system.

In addition, many observers argue that Canadian residential properties are, by and large, not overvalued — considering the strength of regional economies in resource-rich provinces.

Imminent changes to residential mortgage rules in Canada will affect the majority of homebuyers, including those entering the market for the very first time, new Canadians and seasoned investors.

The federal government announced the changes at the beginning of August, with the new regulations going into effect October 15. The three most significant are: the end of the 40-year amortization; the requirement for borrowers to have a minimum credit score of 620; and the end of zero-down mortgages. “I think there are two reasons why we’re seeing these changes,” says Jim Murphy, president and CEO of the Canadian mortgage Association of Accredited Mortgage Professionals (CAAMP). “First, the federal government was looking at its exposure [to risk] and that of the Canadian taxpayer. Second, I think they were looking at what’s going on in the United States.”

When a homeowner defaults on a mortgage and the mortgage insurer is not able to cover the costs, the Government of Canada is left holding the bag. Says Murphy, “You have a lender – a bank or credit union. If you put less than 20% down, that lender has to have mortgage insurance. The government then provides a guarantee to the mortgage insurer.”

With these new regulations, the government is telling mortgage insurers that only mortgages meeting the above-mentioned new criteria will be backed.

Amortization

Although the 40-year amortization option is gone, 30- and 35-year amortizations are still available and growing in popularity. “These will probably become the norm,” Murphy says. “Between the fall of 2006 and the fall of 2007, 37% of all mortgages taken out had an amortization of more than 25 years. [This year] that number will be much higher.”

Murphy believes there are a variety of reasons for this. For first-time buyers, the issue is affordability. They are willing to pay more in interest over the term of the mortgage as long as it gets them into a bigger or better home than they could afford under more traditional 25-year amortizations. Paying back a mortgage over 35 years means paying less per month. This also allows first-timers the opportunity to get into the housing market sooner.

But just because you start with a 35-year mortgage, doesn’t mean you can’t make changes later on. “Most people will never be in that mortgage for the full 30 or 35 years,” Murphy says. “They may get a promotion or an inheritance and pay [it] down.”

Longer amortization periods are not just for first-time buyers. “We have people who have equity in their homes and for whatever reasons want a longer amortization,” Murphy says, “They may want to put money into investments or want to do other things with it.” If you have a down payment of 20% or more, no mortgage insurance is needed. Nonetheless, finding a lender who will offer a 40-year package won’t be easy now. “There’s nothing that prevents a lender from offering a 40-year amortization, but it will be likely difficult to find,” Murphy says.

Zero down - Taux Hypothécaire

The nothing-down mortgage (available for the past couple of years) is also gone. The new standard is the old standard – 5% down, minimum. “This change will have a bigger impact on the market, we believe," Murphy says, "particularly for first-time buyers and particularly in a place like the GTA, where housing costs are higher.” The good news is that the government will allow buyers to borrow that 5% from any lender or bank.

Credit score

Although a buyer’s credit score was always of concern to the lender, the government never got involved at this end of the transaction. That will change on October 15, when the government will require the buyer (or one of the buyers, if it’s a joint purchase) to have a minimum credit score of 620.

This new guideline may prove to be a problem for immigrants. “We have expressed some concern about this, especially when it comes to new Canadians, who may have a zero credit rating because they have no credit history,” Murphy says. “So how are they supposed to qualify?” Murphy says his association is currently discussing the minimum credit score issue with the government and hopes to see a change or amendment made to this rule.

Existing transactions

If you’ve recently purchase a home and are still awaiting closing, you might be wondering how the new rules will apply to loan commitments issued before October 15 and closing on or after that date. According to a memo issued by the government, “The existing rules will apply to loan commitments for which a mortgage insurance application has been received by the mortgage insurer on or before October 14, regardless of the closing date of the mortgage loan. This includes new construction in which the closing may not occur for more than a year after the initial loan commitment was issued.”

With the October 15 deadline looming, Murphy warns prospective buyers not to expect lenders to be eager to offer a mortgage under the old rules. “The government does not want lenders to be providing these products until midnight October 14,” he says. “Lenders have already announced that they are not offering these products anymore, and as we get closer to the deadline, they will be increasingly difficult to find.”

Get the necessary cash to transform your home into a cozy, elegant movie residence. Let your imagination grow wild, sit down with your wife and start designing the new aspect of your old home. Nobody will recognize it… and all thanks to a simple home improvement loan, that will be just what you need to make a new start when life was beginning to get boring.

Living A Comfortable Life At Last

Getting up early when you wanted to go on sleeping, taking the kids to school, going off to work, paying the bills, taking out the trash and Goodness knows what trouble you find during the day, deserve a prize. At the end of the day, you are welcomed by your dream house, soft music, the kids playing in their own room and your sweetie cooking something with a marvelous aroma.

Hey, It Is Not All Dreaming, Eh?

Nope, it is not ONLY about dreaming. Want to make it real? All you need is to take the decision to get it done. Well, start finding out about home improvement loans. There is one just right for you. When something has a determined name, it means that it is a specific product for a specific use. That is what makes it ideal for the purpose.

Is There More Than One Option?

Certainly. Depending on the amount needed for the improvement you want to make, you can take a home improvement loan or a mortgage loan. The mortgage Montreal loan will be great, because the amounts considered are greater, and will give you more than enough to get the job done.

The Downside Of The Mortgage Loan

That is the point… more than enough may be a little too much and what is more, the financing period, too long. Therefore, reducing the stakes a bit, we have a home improvement loan. You are not buying a new one, just improving your old one. Besides, what could be lighter on the family, than staying in the same neighborhood, with the same friends and knowing every single corner?

And Now, It Is The Lender’s Turn

Sift through the options on the Internet, and surely you will make a good deal. The thing here is to get an even better deal out of the lender you have chosen. Build up a folder with graphics in full detail. For this, you can get an architect, or do it yourself with a CAD program.

Next, make a list of the work that will be done, the materials you need and the final sum. Again, a reliable architect will be useful, but there are also little computer programs that do the numbers for you, if you are not willing to pay the fees. Then go to the lender and give them the impression of an organized guy, someone who gets what he wants.

A Good Deal Is More Than Just Being Able To Repay

You can also get insurance for your home, something that many people overlook. So there you have another negotiating factor. The broker you have chosen will surely be able to get you a favorable insurance policy, for your benefit and theirs. (They always have a share of whatever business they participate in)

Getting Started

Yes, you have to get started, put some action into all the thinking and dreaming and preparation. You have already done something by reading this article. Now it is time to start moving the pieces on the board. The best moment is now. You will be surprised with what you will get.

A mortgage is really like a specialized kind of loan that gets issued to individuals that qualify to purchase themselves a home. There are so many different mortgages available for one to choose from at the moment, that is has become very important that you check and compare mortgages before you just choose one.

There might be other ways in which you can borrow money for the finances of purchasing a house but a mortgage is definitely the easiest and most efficient way to finance a new home. You should have a look at a few different mortgages before making a final decision. At the moment because of the uncertainty in the market comparing fixed rate mortgage is certainly an option.

When you are looking at purchasing a house, you will have to look at different mortgages. It can also be rather confusing when you have to determine all the diverse kinds of mortgages and then decide which is best for you; because of this it is important that you compare them carefully.

It is not impossible to obtain a 100% mortgage, this means that you will get the loan for which you applied the full amount of and you will not have to give a deposit for it. This may seem fine at first, but you might be charged for the service by the lender. This amount is not always a very small one either. So in the end, it may not be as good as it seems and this is where you determine what will be best for you. It is so important when comparing mortgages to read the small print.

Sometimes you can even get your mortgage loan at 120% or even higher, this gives you the chance to use money for addition things once you have purchased the house. Like for example if you want to put money away for future references, you may do so. But remember that your houses value will in fact not be as much as the value of your mortgage will.

This is not always much of a solid basis when it comes to borrowing because the only thing you have to fall back on is your home and if something goes wrong, where is that additional 20% going to come from?

Just a few of the different mortgage types that can be considered are self certification, discount, fixed rate, first time buyer, buy to let, capped and there are many more. Most of these are rather easy to understand, but some might be very confusing to some people, especially if they are not very familiar with mortgages and their specifications. One thing for sure mortgage comparisons can save you plenty of your hard earn cash in the long term

If you are purchasing a home for the first time, you would go for the first time buyer's mortgage. This is an easy mortgage and that's why it is directed at first time buyers as it caters for problems that first time buyers might be faced with.

For example, these people are most likely young; therefore they might not have a major history of work behind their names. They also may not have a lot of money saved; this is why the first time buyer's mortgage is great, as it caters for people that aren't really sure of what must be done.

One thing for sure mortgage comparisons can save you plenty of your hard earn cash in the long term, my advice at the moment is to compare the current mortgage rate and then get the best fixed rate mortgage possible.

It will be difficult to choose the right mortgage strategy for your situation and that will save you the most money without understanding what influences interest rates in the first place (taux hypothecaire).

This is a very complicated subject, the topic of any number of books and business school dissertations. We’ll try to keep it basic here by discussing how the Bank of Canada’s fiscal and monetary policy along with the movements of the debt markets influence rates - pret hypothecaire.

Borrowers sometimes think that the banks make the decision to change rates. To a certain extent, this is correct, but they are doing it in reaction to other factors. In regard to mortgage rates, the variable rate mortgage is controlled by the prime rate and the fixed rate mortgage is controlled by the cost of money for the lenders. (hypotheque)

The base rate is the rate the bank of Canada charges banks, and it dictates the prime rate that the major banks of Canada will set and this in turn will determine the variable rate on mortgages.

Variable Rates:

A lot of people look only at the rate they are offered at the beginning of a variable rate loan. They are thrilled that their variable rate is 4.75% when the rate on a fixed rate loan is 5.4%. They do not see yet that their rate can increase every time the Bank of Canada raises the prime rate, which can happen eight times per year. This is because variable rate mortgages are really determined by the prime, so the rate we spoke about above is .75% below the prime. When the prime goes from 5.5% to 6%, the variable rate will go from 4.75% to 5.25%. (pret hypothecaire)

The Bank of Canada sets the prime rate eight times a year at certain set intervals. Depending on a number of factors, it may raise or lower the rate, or leave it unchanged. Then the it remains at this new rate until the next interval.

The prime rate is used by the Bank of Canada to manage growth and inflation. The consumer price index (CPI) and the gross domestic product (GDP) are the benchmarks that BOC uses to determine the prime rate. (taux hypothecaire)

If the CPI is increasing too quickly, the Bank of Canada will want to stifle inflation by increasing the prime rate to slow things down. The GDP indicates the growth of business activity in the country and if it is growing fast it too will have an influence on inflation.

If the economy is growing weakly and has low inflation, the Bank of Canada will tend to lower rates to encourage growth; if it is growing strongly and has high inflation, it will raise rates to slow things down - taux hypothecaire.

FIXED RATES:

Fixed rates are set by each lender and are also determined by many factors, the most critical of which are the lender’s portfolio earnings and its cost of funds.

Lenders such as banks and mortgage companies buy and sell the mortgages they originate on a secondary market. They do this routinely to balance their portfolios and try to get the best return for them.

These investors have a choice between bond portfolios and mortgage portfolios, so if the rate in the bond market goes up, lenders will have to have a higher rate on their mortgages to attract these investors. How do they get the higher rate? By raising mortgage rates. If the bond rates come down, the lenders can decrease their rates. The bond market rates are deeply influenced by the rates fixed by the Bank of Canada. - taux hypothecaire

So the interest rates that the man in the street is paying on his mortgage is determined by decisions made by banks and other lenders, investors in the bond market, the Bank of Canada, the CPI and the GDP. All of this sound complicated? It is. They are all linked together. (pret hypothecaire)

The only solution to complicated issue is to work with an accredited mortgage counselor who understands these factors and can use them to help you. A good mortgage counselor will find the right mortgage strategy for you and then will find the best lender to implement that strategy for you at the best rate available - hypotheque.

Nearly one-quarter of Canadians do not agree with the federal government's mortgage lending crackdown, a proportion that rises to nearly a third among non-homeowners, survey results done for a mortgage lending firm suggest.

And only 45 per cent agree with the tighter mortgage lending rules and that the federal government needs to protect Canadian homeowners, a level of support for the changes that falls even further to just one-quarter among non-homeowners, according to the online survey conducted by pollster Angus Reid for ResMor Trust Co.

In an effort to avoid a U.S.-style housing market meltdown, Finance Minister Jim Flaherty last month tightened up the rules governing mortgage lending practices in Canada, including limiting the amortization period for government insured mortgages to 35 years from 40 years, requiring a minimum down payment of five per cent for such mortgages, virtually eliminating zero-down mortgages, and requiring that anybody with an insured mortgage have a minimum credit score.

Those who disagree with the measures said they reduce options for people wanting to buy a home.

However, the results also indicate that 17 per cent do not understand the changes, including 25 per cent of non-homeowners.

Further, the findings suggest that the higher the level of understanding, the lower the level of opposition to the new rules.

"I was surprised that 23 per cent do not agree with the measures," Darren Thompson, vice-president of lending for ResMor Trust, said in an interview.

"This survey clearly demonstrates a need for industry professionals to educate Canadians about the new measures, specifically those entering the market for the first time," he said, adding that's something that the federally licensed trust company is doing.

"The measures are not seriously impacting the ability of consumers to get a mortgage," he said, citing as an example an industry finding that more than half of those who took out 40-year mortgages would have qualified for a 25-year mortgage. "It was just enabling them to get a lower monthly payment but at a much greater interest cost."

Thompson also disagreed with critics of the measures who have warned that the tighter rules will put an added chill on an already cooling housing market.

"There's still lots of financing out there," he said, adding that the measures protect the Canadian taxpayer from having to foot a large bailout if the market goes south as it has in the U.S.

The survey, meanwhile, also revealed a regional divide in the level of support for the tighter rules and the level of understanding of the rules.

Agreement with the new rules in the heated housing markets of the Western provinces and in Ontario is significantly higher than in the Eastern provinces and Quebec, the report said, noting support for the crackdown was 64 per cent in British Columbia, 56 per cent in Alberta, 47 per cent in Saskatchewan and Manitoba, 46 per cent in Ontario, but only 35 per cent in the Atlantic provinces and 34 per cent in Quebec.

The proportion indicating a lack of understanding of the new rules was highest in Quebec and Atlantic Canada, at 23 per cent in both markets, and lowest in British Columbia at only seven per cent, followed by 13 per cent in Manitoba and Saskatchewan, 18 per cent in Alberta, and 16 per cent in Ontario.

The online survey of at least 1,000 adults conducted last month following the release of the new rules is considered accurate within 3.1 percentage points 19 times out 20.

As home prices tumble down all over the country, many renters are looking longingly at the real estate listings and wishing that they'd paid more attention to their credit rating. After several years of real estate BOOM, the bubble seems to have burst – or at least started to deflate. In May, the median single family home price was an astounding 12% lower than just one year earlier, and that trend was reflected around the country. While that's bad news for anyone who bought their home a year ago with the expectation of turning a profit, the falling price of real estate is very good news for those who have been waiting for prices to come down.

If you've been weighing the difference in price between renting and buying, the market has shifted enough in favor of buyers that the time to buy is now. Interest prices are down as the Feds try to stimulate the economy and encourage people to buy. Home prices are down as sellers have their homes revalued for the realities of the current market and willingly accept far less than they would have last year at this time. When you combine the two, you'll find that the cost of a mortgage PLUS taxes is actually less than what you're paying in rent.

Unfortunately, there's another reality at work in the falling market prices as well. New regulations surrounding the sub-prime mortgage market and the recent rise in defaulted mortgages and foreclosures have made lenders more wary of handing out bad credit mortgages – and made it far harder for prospective home buyers to secure any mortgage at all. The meaning of "bad credit mortgage" has changed significantly in the new home buying market, with a 'bad credit rating' being considerably higher than it used to be.

Still, all is not lost for those whose credit scores disqualify them for a traditional mortgage from a bank. Many finance companies are still quite willing to make loans to people whose credit is less than stellar, and most will offer you advice on how to get your credit into better shape, or what you need to do in order to be accepted for one of their bad credit mortgages. If your mortgage application has been turned down by a bank or major home finance company, here are some suggestions that may help you quality for a bad credit mortgage.

1. Shop around beyond the banks.
Banks are traditionally "safe" lenders. They don't take chances with their money, and lower credit scores are risky. While they'd started taking chances as the housing market exploded, the sub-prime mortgage collapse has sent them skittering back to their safe little ledge.

There are exceptions, though. If you have a long-term relationship with your bank and maintain multiple accounts with them, by all means check with your banker first. You may get consideration based on your history with the bank despite other credit snafus. Most people, however, will do better with finance companies and mortgage companies.

2. Increase your available down payment.

Lenders may be willing to make a loan to someone with lesser credit if they are seeking a smaller loan. The best way to reduce the amount that you need to borrow is to provide a larger down payment amount. If you can put down 10-20% of the total house price as a down payment, most lenders will take you far more seriously.

One of the recommended strategies for raising the amount of your down payment is to borrow or get it as a gift from family or friends. Be aware that many lenders are now looking at how long you've had that down payment money when they do credit checks. Obviously, money that you've saved is evidence that you're able to manage money, and will be a persuasive argument to lenders that you're a better credit risk than your credit score suggests. On the other hand, a large enough down payment may bring you down to a monthly payment that the lender is comfortable offering.

3. Get multiple quotes for a bad credit mortgage.

Another part of shopping around is comparing interest rates and terms. The best way to do that is to get quotes from several different finance companies, but there is a danger in doing that – multiple requests for your credit report can put a ding in your credit rating and make it even harder to get a loan. When you contact a finance company to ask about a loan, make it clear to them that you are shopping for the best possible interest rate and ask them to do a quote credit check, which will show up differently on your credit report than a full credit check.

Don't get discouraged if you can't get even a bad credit mortgage right now. Talk to the Montreal Mortgage broker about how to improve your credit score in the eyes of their company. In many cases, you can follow their advice and reapply in as little as four months with better results.

Too many housing starts means crunch 'may come soon,'Lost amid concern over United States government agencies moving in to support mortgage lenders Freddie Mac and Fannie Mae plus IndyMac Bankcorp, was a warning that Canada could soon face its own mortgage crisis.

Peter Hall, vice-president and chief economist with Export Development Canada, said in a report that in addition to U.S. housing woes, housing starts were down 56 per cent year-over-year during May in the United Kingdom, 18 per cent during the first quarter of the year in Spain and 17 per cent year-over-year in May in France.

Hall noted that housing starts in Canada are "soaring on the strength of the domestic economy and a huge dollop of very well-timed fiscal stimulus," and that a continuing excess of housing starts over requirements means "Canada's turn may come soon" for a housing crisis.

The report came in the wake of the Canadian government's attempt to avoid a housing crisis by no longer insuring mortgages with more than 35-year amortization periods and less than five-per-cent down payments as of Oct. 15.

Homebuyers with less than a 20-per-cent down payment are required to have their mortgage insured through the Canada Mortgage and Housing Corporation -- a Crown corporation -- or a handful of private firms that have entered the mortgage-insurance market.

In 2006, the government extended the maximum amortization period from 25 to 40 years, adding hundreds of thousands of dollars in interest costs. Last year, 37 per cent of mortgages taken out were for longer than 25 years.

Soon after the Canadian changes were announced, the United States Federal Reserve Board tightened up its mortgage-lending policies. As of Oct. 1, the Fed will require lenders to verify a borrower's income in determining repayment ability, to take a lender's ability to repay a loan from income into consideration, to establish escrow accounts for property taxes and homeowners insurance in certain cases, and basically to advertise rates and payments with clear notice if a rate isn't fixed.

One reason why U.S. lenders were willing to give mortgages to people with an unproven ability to make payments was that the lenders were able to package the loans with others and sell them to other institutions. Had the lenders been forced to hold the debt themselves, which is somewhat the case in Canada, lending would have been less reckless.

Rather than abating, the U.S. housing problem grows worse by the day, with foreclosures expected to flood the market with homes for sale early in 2009.

Things have deteriorated so badly in the U.S. that the Treasury Department will extend credit if needed to prop up Freddie Mac and Fannie Mae, two government-sponsored enterprises that hold nearly half of all American mortgages.

The GSEs each include a debt component and an equity component, with the latter falling in value as investors sold off shares due to concern over rising mortgage defaults.

Famed U.S. commodities investor Jim Rogers called the Treasury plan an "unmitigated disaster." Mortgage lenders are "basically insolvent," and taxpayers will be left footing the bill, according to Rogers.

At the same time, U.S. government agencies stepped in to take over IndyMac Bankcorp, after helping to bail out Bear Stearns. That leaves about 90 financial institutions -- out of about 7,500 -- set to go under.

Meanwhile, portfolio manager Adrian Mastracci of Vancouver-based CKM Wealth Management offers sound tips for homebuyers:

- Consider a condominium or townhouse as a starter home.

Remember that in addition to the purchase price of a home, you may have legal and realtor costs, expenses for moving, renovations, furniture, repairs, maintenance, property taxes, insurance and utilities.

- Save 20 per cent for a down payment to reduce extra fees, consider taking money from your registered retirement savings plan through the Home Buyers Plan, and forego making non-registered investments because you would need an 8.9-per-cent return to do better than paying down a 5.75-per-cent mortgage if you're in the 35-per-cent tax bracket.

The strong housing market of the last few years has now cooled down as supply and demand have come more into balance, but prices will still rise this year, though not by double digit figures of the past, says CEO Phil Soper of Royal LePage Real Estate Services.

Through the rest of this year and into next, he said, Royal LePage's second-quarter statistics released Thursday suggest that average prices will creep up by about 3.5 per cent.

"When you're looking at the real estate market, it's important to look at not just house price changes, but also the changes in activity levels," he said.

"There are significantly fewer homes trading hands now than there have been in the boom years of this decade," he said. "It's a moderate market."

Royal LePage's report followed one from the Canadian Real Estate Association on Tuesday indicating that average house prices in June fell 0.4 per cent compared with a year ago for the first time since early 1999.

CREA's figures suggested that house prices were "basically flat" in June, said Soper, adding they were somewhat skewed by the fact that the association was unable to include Montreal in their results due to a reporting foul up.

He estimated Montreal is about 10 per cent of the country.

"If you look at our numbers, Montreal had a price increase year-to-date in the four per cent range," Soper said.

While prices are forecast to move higher, the country's largest real estate company predicts the number of transactions this year will fall by 11.5 per cent to 461,000 units.

Along with an easing of pent-up demand, it also attributed the slowdown to jitters among prospective buyers because of economic uncertainty following layoffs in the manufacturing and forestry sectors due to the subprime mortgage fiasco in the United States and worldwide credit crunch.

Avery Shenfeld, senior economist at CIBC World Markets, said earlier this week that there has been a noticeable softening of the housing market over the past few months.

"Some of that is coming in cities where prices had gone through the roof in the previous one or two years," he said.

In the second quarter, the average price of detached bungalows rose by 5.6 per cent from a year earlier to $351,587. Two-storey properties increased 5.2 per cent to $418,943.

"After several years characterized by a persistent shortage of listings, home buyers have felt the pressure of bidding wars and take-it-or-leave-it counter offers ease during 2008," Soper said.

"Home sellers have had to come to grips with the longer time it is taking to sell properties, but can take comfort in a market that continues to support reasonable price increases."

The survey of 17 cities across the country found lower prices in two major markets - Edmonton and Calgary.

In Edmonton, the average price for a bungalow dropped 14.5 per cent while an average Calgary two-storey dropped six per cent.

The greatest price increase was in Regina, which has seen home values surge as higher commodity prices have driven the regional economy.

In Regina, all types of housing saw higher prices, even though inventory of homes increased five-fold, the survey said.

Across the country, said Soper, some regions are slightly oversupplied right now with houses, in particular Calgary and Edmonton. Meanwhile, supply shortages are still being reported in Regina, Saskatoon, St. John's and Winnipeg.

For most of Canada, however, the number of people looking for homes is approximately equal to the number of homes available for sale.

"The housing market is a cyclical one," said Soper. "We've gone through an extended period of excess demand which has caused prices to rise at an unusually high rate."

"What we're seeing at the end of the cycle is that there are fewer numbers of new buyers in the market because they've got their homes."

TD Canada Trust (TSX:TD) changed its mortgage offerings Wednesday to bring its lending rules in line with regulatory changes set to take affect in October.

The bank said effectively immediately the maximum amortization period for new mortgages will be 35 years and will require a five per cent down payment.

TD said it will continue to process those mortgages with a longer amortization period or a lower down payment that have already been approved.

TD joins Bank of Montreal in changing its lending rules ahead of the Oct. 15 change in regulations

Ottawa moved to tighten the rules for government-guaranteed mortgages this week in a bid to prevent a meltdown like the one in the U.S. subprime mortgage market.

Starting Oct. 15, the Finance Department said it will no longer guarantee 40-year mortgages and will require a minimum down payment of five per cent of the value of a home.

Government-backed insurance is currently available on mortgages where the loan-to-value ratio is up to 100 per cent - in other words the buyer has borrowed all the money to buy a home and then gets insurance coverage on the whole amount.

With so much interest rate uncertainty in the market borrowers are facing a dilemma as to whether they should fix their home loan interest rate or not by applying for a fixed rate mortgage. A Montreal fixed rate mortgage will provide absolute security against interest rate rises ensuring that monthly repayments remain constant regardless of what the money market is doing.

The interest rate, and therefore the interest payments, on the fixed rate product will remain stable for the fixed rate period. This period is predetermined and is usually set between one and five years, although it can be for longer.

Fixing home loan repayments can help considerably with household budgeting which is why this type of product is popular with low income earners and first-time-buyers. Montreal Mortgage payments usually account for about a third of a household’s disposable income so it is important to ensure that rising interest rates do not make the home loan unaffordable. Locking in the interest rate at an acceptable level can reduce this risk considerably.

Borrowers should be aware, however, that fixed interest rates are usually higher than variable rates offered on the same products. Additionally, as a general rule, the longer the fixed rate period is, the higher the interest rate will be. This is because lenders must provide themselves with a profit margin on the money they lend. If they are expecting interest rates to increase in the future, their costs will increase and their profit margin will decrease.

Lenders therefore need to build in a larger profit margin for this type of home loan product when compared to variable rate products. Mortgage products that have a variable interest rate should provide a profit to the lender for the entire term of the loan. Borrowers should therefore keep in mind that they might pay over the odds for a fixed rate home loan however the reduction in risk should make up for this.

Another factor that borrowers should consider before applying for a home loan product of this kind is early repayment charges and arrangement fees. Although a fixed rate mortgage can save money over the long term if interest rates rise, borrowers should take into account any fees that may be payable on an existing home loan if it is redeemed and switched to a new product.

Additionally, fixed rate products may attract an arrangement fee. The cost of the arrangement fee should also be taken into account when calculating whether this type of home loan product is worth applying for. Also, home loan products typically come with early repayment charges during the fixed rate period. This means that if the borrower wishes to redeem the loan or remortgage to another product they will have to pay a fee to the lender. Early repayment charges can be as high as five percent of the balance of the loan.

If you are unsure on whether you should apply for a fixed rate home loan, contact a qualified independent financial advisor for expert advice. An independent advisor will be able to assess you borrowing needs and suggest the most appropriate mortgage products for you to consider for your home.

Commute is costly. Off-island residents are having trouble selling their homes.

Single-family homes off the island of Montreal are becoming harder to sell, in part because of high gas prices, and some homeowners are throwing in free cars and SUVs to entice potential buyers.

Montreal mortgage brokers and real estate agents say most buyers are looking for homes on the island.

"Off-island houses, like in Hudson or in the swank neighbourhoods of St. Lazare, are not selling,". "People don't want to commute all the way to downtown and pay for soaring gas prices." To sell their houses faster, some homeowners are offering buyers the keys to their SUVs to "seal the deal." A Canadian Real Estate Association survey made public in March found that "the distance to work is the biggest 'driving' factor in consumer consideration of buying a home." And the survey, by IPSOS Reid, was conducted before gas prices spiked in April.

Montrealers might be interested in moving closer to where they work because of gas prices, but the evidence is anecdotal.

Homeowners willing to commute into town will make up for the price of gas with the lower real estate taxes, off-island home owner Dan Loiselle said.

"The taxes here (in St. Lazare) are a fraction of what you'd be paying in Beaconsfield or Kirkland," Loiselle said.

His 4,000-square-foot home in St. Lazare, complete with an in-ground pool, has been on the market since 2005. The price has fallen to $795,000 from $925,000.

"It's the quality of life in St. Lazare that will sell the house," said Loiselle, who plans to keep living in the off-island town. "There are parks, beaches, sand dunes, trails - things you would not find close to downtown." Loiselle said he knows someone in the neighbourhood who threw in a BMW 325 to close a deal on his house.

"I'm not giving away a car. If someone can afford an $800,000 house, I don't think a used car will make a big difference. But I have included a $2,500 gas card on top of the normal commission for the agent who sells my house,"

"If we're having trouble selling, it's because less people are buying homes priced above half a million," . "Many new development projects are building houses (priced) between $350,000 and $400,000. That's the bread-and-butter market of construction now." David Meyers, a real-estate agent with Remax who is responsible for several homes in the St. Lazare area, said the cost of gas will start affecting the housing market only once it reaches $2 a litre.

"At the moment, I don't see any clear trends," Meyers said. "But consumer confidence in Canada is at an all-time low" because of the ripple effects of the sub-prime mortgage crisis in the United States and other economic factors.

But I think it's too soon to tell if high gas prices have hit the housing market." Experts say gas prices won't ease any time soon: CIBC World Markets predict gas will hit about $1.86 a litre within the next two years.

Gas prices might influence not only how far people are willing to commute to work, but also how far they'll travel on vacation.

A poll made public Thursday by Royal LePage in Toronto found that one in five cottage owners in Ontario would consider selling their vacation property if gas prices continue to rise.

The Toronto Stock Exchanger's main index fell more than 200 points on Friday as financial issues were hurt by inflation fears and worries over more mortgage-related problems, while consumer stocks also weakened.

The S&P/TSX composite index <.GSPTSE> fell 209.48 points, or 1.42 percent, to close at 14,580.67.

Inflation worries weighed on both financials and consumer stocks, after Bank of Canada Governor Mark Carney said late on Thursday that strong energy prices could lead to higher inflation.

"There's some worry that interest rates may not fall any further, and may even start to rise, which in turn would squeeze the banks' margins," said Gavin Graham, chief investment officer at Guardian Group of Funds.

The heavily-weighted financial subgroup fell 2.34 percent, while the consumer discretionary and consumer staples groups fell 2.61 percent and 2.46 percent, respectively.

Also hurting bank shares were rumors that U.S. commercial bank Merrill Lynch may issue a profit warning and take additional writedowns on its mortgage holdings.

Among financials, Canadian Imperial Bank of Commerce fell C$1.87, or 2.9 percent, at C$61.63, while insurer Manulife Financial dropped C$1.12, or 2.9 percent, to C$37.13.

The cost of borrowing for a home is going up and, in some cases, by quite a bit.

Several of Canada's biggest banks are raising most of their mortgages, effective Friday, while hikes of up to 85 basis points have already kicked in.

TD Canada Trust (TSX: TD) hiked its residential mortgage rates today by up to 85 basis points, effective today, while Bank of Montreal (TSX: BMO) is hiking its residential mortgage rates by up to 85 basis points for some terms on Friday.

Not all Montreal mortgage rates at all banks are rising by such a jump, but virtually all of them – including Royal Bank (TSX: RY), National Bank (TSX: NA) and CIBC (TSX: CM) – are pushing through increases of at least 25 basis points to their posted rates.

That will add to homeowners' interest payments, with short-term mortgages becoming especially pricey.

For instance, a one-year open mortgage at Royal will rise by 50 basis points to 8.8 per cent, a one-year open at TD rises by 80 basis points to 9.1 per cent and CIBC's one-year open mortgage will cost 9.24 per cent.

In contrast, rates for five-year closed mortgages – the most popular in Canada because of the certainty it provides, especially to first-time buyers – is much lower. CIBC's posted rate for five-year Montreal mortgages was the lowest among the majors, at 6.95 per cent.

The commercial banks' moves follow the Bank of Canada's surprising decision Tuesday to leave its benchmark overnight rate unchanged at three per cent, rather than lowering it by a quarter-point as most bank economists had expected.

The central bank's overnight rate influences the commercial banks' cost of raising short-term funds, which are then used by them in their lending businesses. Longer-term funds tend to be affected more directly by the bond market than by the central bank.

Earlier in the year, central banks were worried about slowing economic growth, but in recent weeks the focus has shifted to inflation, suggested Bank of Montreal economist Doug Porter.

"We have seen some very extreme moves in market interest rates in recent days and recent weeks. Basically the bond market is swinging wildly between a possible U.S. recession and global inflation," Porter said.

Central banks around the world have faced the prospect this week of oil prices hitting sustained record highs.

On Tuesday, the Bank of Canada defied expectations by putting a stop to the downward trend of its key interest rate, while saying that inflation is becoming a threat to the economy.

"The expectation is that rather than (mortgage) rates staying where they are right now or going down, the consensus is rates are going to be back up," said Warren Jestin, chief economist at Scotiabank.

"In our view, we're probably going to see in the next couple of months more concern about inflation, more of a back-up in interest rates, although by the end of the year they're going to come back down again."

In general, bank rates tend to stay relatively in swing with each other, but the sudden change in the outlook for interest rates may have thrown some of the banks for a loop.

But Jestin suggests that eventually the Canadian banks will fall in-line with each other on their mortgage rates.

"The sea change in the market has been so sudden that you may well find that the adjustment in mortgage rates occurs over a period of a few days or perhaps a few weeks," he said.

One of the most confusing parts of getting a mortgage in Montreal and buying your own home can be the interest rates. From the myriad of choices available to how the interest is actually worked our, it can quickly become confusing if you’re not sure what it all means. However, understanding what each type of interest means can help you make the right decision when it comes to choosing the mortgage you want to go with.

Variable Rate

This is one of the most common mortgages in Montreal and probably the one that people relate to the most. It simply means that your monthly payments will be dictated by whatever the current interest rates are – so, if the housing market is good, you’ll probably see your monthly payments rise, whereas if the market’s in a slump, your interest rates and payments will be lower.

Tracker Rate ( just for UK )

Similar to a variable mortgage but with one big difference – the interest rate is tied directly to the Bank of England, so whatever decisions are made there, you’ll find your interest rate is slightly above or slightly below, dependent on current rates.

Fixed Rate

The other most popular type of mortgage, since this keeps your interest rate fixed for a set period of time (usually between 2-5 years). This ensures that you know exactly what you’re paying month in and month out. Of course, the downside to this type of mortgage is that if bank rates fall, you won’t benefit from the lower mortgage payments that people on variable rates will enjoy. You’re also usually penalised if you decide to switch lenders throughout your mortgage term, often as much as 3-4 months worth of interest.

Capped Mortgage ( mostly UK )

Often seen as a mix of variable and fixed rate, a capped mortgage means that your interest rate will only go so high for a set amount of time. So, if your cap is 10% and the housing market crashes through to 10½% or more, you won’t pay the extra rates. However, there’s the added bonus that if the interest rates fall, you’ll make the savings that a variable rate mortgage would give you.

Discount Mortgage

Just as it suggests, this will offer you a discount on your variable interest rate for the first couple of years on your mortgage. However, although it helps reduce your early monthly payments, you still pay the same overall amount that you would if you take out a standard mortgage.

Cashback Mortgage

Excellent for the first time buyer especially, this offers you a cash rebate at the start of the mortgage, calculated as a percentage of your overall mortgage. You receive this cash instantly, and simply pay it back at the end of the mortgage. This is an ideal solution for anyone just starting out on the property ladder, or for anyone on a limited budget.

There are other types of mortgage as well as these ones, including current account mortgages and offset mortgages, which a specialist advisor would be able to discuss with you. Just knowing what’s available and whether it’s suitable for you or not can make a big difference in the long run.