1. Mark Herman’s
Economic Update August ‘08
The “perfect storm” to buy real estate is before October 15th as:
Interest rates rise at least 1% beginning late 2008 and early 2009
•
40 year amortization periods are reduced to a maximum of 35 years
•
Zero down mortgages are to be eliminated – 5% down payment is the new minimum
•
Minimum credit score to be increased from 550 to 620
•
Home prices continue to hold steady after about a 15% pull back from their top pricing one year
•
ago. The average resale in Calgary for single-family homes in June, 2008 was $471,912.
Interest Rates - Just as the sub-prime meltdown was the story of ‘08, inflation will be the story of ‘09.
• The Bank of Canada (BoC) should keep the prime rate steady at 4.75% until late 2008 and early
2009. Many expect 2 rate increases of ½% each which will in turn increase fixed mortgages at least
1% right after.
• The BoC, the US Federal Reserve, most all European Banks and the Bank of Australia have all
started a “tighter” money policy which means higher interest rates to cool inflation. The “#1 job”
of national banks is to keep inflation under control.
• Most of the inflation is from the US keeping rates artificially low to avoid their massive housing
crisis where 1 in 8 homes could have been foreclosed on. Most of this problem is already past.
• Canada’s domestic credit crunch seems to have passed. The BoC is the first of all major world
banks to close its $1B emergency lending program for overnight loans to financial institutions.
CMHC Rule Changes - The Federal Government, which runs Canada Mortgage and Housing Corp.
(CMHC), is reversing the recent home mortgage insurance rule relaxations on October 15 and:
• Reducing the maximum amortization period from 35 years for 40 years. Today 48% of all home
mortgages are 40 year amortizations. This will increase the average mortgage payment by $75 or
increase the income needed to qualify for the average home by $3,000.
• Eliminating zero down mortgages and requiring a minimum of 5% down payment – gifts are still
acceptable. Less than 10% of mortgages today are zero down mortgages
• Increasing the minimum credit score to 620 from 600 will hurt about 10% of home buyers and
makes careful credit management more important than ever.
Economy
• The rising value of the Canadian dollar and strong commodity prices have insulated us from
noticing the rising cost of food, transportation, and to a lesser extent fuel prices. Look for most
everything that we buy in 2009 to cost more – from houses to food – especially food.
• Alberta and Calgary remain as the shining star for 2 reasons: the fundamentals of Calgary’s
economy are strong, and as greater economic uncertainty around the world increases, Calgary
remains the “bright spot” for real estate investment. Because of this, Calgary has almost past last
year’s record in real estate investment sales volume. The year to date is $1.653 billion and 2007
was $2.199 billion.
Mark Herman; AMP, B. Comm., CAM, MBA Accredited Mortgage Professional
Mortgage Alliance Mobile: 403-681-4376 Toll Free Fax: 1-866-823-1279
7142 36 Avenue NW, Calgary, Ab, T3B 1T8
2. Mark Herman’s
Economic Update August ‘08
Graphs show more than words
Data below shows that Canada chose to ignore this recession and continued to boom due to continued
demand from emerging countries. The USA is no longer “driving the economic bus” and the natural
resource demands of emerging economies will continue to sustain the Canadian economy. Data points
in the March 08 Economic update are still relevant in today’s economy.
Mark Herman; AMP, B. Comm., CAM, MBA Accredited Mortgage Professional
Mortgage Alliance Mobile: 403-681-4376 Toll Free Fax: 1-866-823-1279
7142 36 Avenue NW, Calgary, Ab, T3B 1T8
