By The Canadian Press             

TORONTO – Moody’s Investor Services is renewing Canada’s debt rating at triple-A, the highest possible.

The firm said the AAA rating was warranted due to the country’s high degree of economic resiliency, efforts by Ottawa and the provinces to deal with their debt ratios over the coming years and other factors.

Moody’s says the state of Canada’s housing market and Quebec’s sovereignty issues do pose some risk, but the risks are low.

The housing market also poses some risk because many mortgages are insured by a federal Crown corporation.

But Moody’s says it considers a major downturn of the housing market as unlikely and, even in an extreme case, Ottawa’s extra costs would be relatively small.

Similarly, Quebec’s sovereignty movement doesn’t seem to pose a significant risk since the issue doesn’t appear high on the political agenda

OTTAWA— Home prices measured by a major national index surged for a sixth straight month to new highs in May but are expected to ease in the months ahead.

The Teranet-National Bank Composite House Price Index, which measures price changes for repeat sales of single-family homes in six metropolitan areas, rose 1.3% in the month, the second consecutive month in which it gained more than one per cent and the largest gain since July 2010.

The month-over-month gains were spread across all six cities covered, with all but Halifax reporting gains of 0.5% or more.

May gains were led by the Vancouver and Toronto markets, ahead 1.6% and 1.7%, respectively, and followed by Montreal (0.7%), Calgary (0.6%), Ottawa (0.5%) and Halifax (0.1%).

“The well-above-one-per-cent monthly rises of the composite index in April and May were fuelled by the Vancouver market,” said the report’s author, senior economist Marc Pinsonneault.

“Given the time lags between home sales and their entry in public land registries, it is possible that the large April and May rises of the composite index were due to front-loading of sales to beat the March effective date of an announced shortening of the maximum amortization period for insured mortgages.”

“This spike in activity is now behind us. Therefore, the recent large monthly rises in home prices in Canada should not be a lasting trend.”

On an annual basis, prices rose 4.4% in May, the same pace of advance as in May.

TABLE

Composite House Price Index for May

Metropolitan area / Index level /m/m change / y/y change Calgary / 153.72 / 0.6 % / -4.1 % Halifax / 134.26 / 0.1 % / 4.8 % Montreal / 141.36 / 0.7 % / 6.3 % Ottawa / 133.30 / 0.5 % / 5.6 % Toronto / 128.72 / 1.7 % / 4.6 % Vancouver / 164.92 / 1.6 % / 6.2 % National Composite / 142.27 / 1.3 % / 4.4 %

Source: Teranet-National Bank

Posted in: Economy, Real Estate Tags: home prices, Teranet-National Bank Composite House Price Index, Toronto, Vancouver

With the very real possibility of a rate hike in the near future, for many in the lending business, particular attention is going need to be directed towards due diligence and, for some clients, on the business of debt management. 

According to a new report released from BMO Economics, “interest rates are likely to increase in October and again in December, before pausing next summer. This will leave the Bank of Canada’s benchmark rate at 2.5 per cent by the end of 2012, meaning Canadians would benefit from looking for ways to reduce debt before rates go up. The latest numbers show consumers have started to do that, with Canadians’ debt growth slowing.”

So then, there is no time like the present to prepare for the future, and the same can certainly be said for debts and borrowing.

In the same report, BMO suggested that lenders take a proactive approach with their clients in tackling strategies that consider ways in which to make debts manageable as the cost of borrowing is about to rise.

With an eye to keeping affordability in view, they recommend several steps to advise clients on how to keep debt under control:

Have a budget and stick to it: The best way to manage debt is to identify spending patterns and determine what people can afford.  Also, budget setting must take into account possible rises in interest rates, and include things like an emergency cushion-so that the bounds of affordability are not stretched to the outside limits. Beyond setting out a budgetary plan, borrowers must live it daily. Now is a good time to test drive a budget, given the still low interest rate environment.  It is kind of like a dress rehearsal for the real thing.

Eliminate or curb credit card debt. Some of the real problems with debt management lie in high interest credit card debt- that is often easier to qualify for, and support many impulse purchases that threaten budgetary plans.

Really look at wants vs. needs.  With an interest rate hike on the horizon, it makes good sense to really examine want vs. need, and to make these hard decisions now. Obviously, needs come first- and wants are items that can be purchased over time, when the budget allows.

Become debt free as soon as is reasonably possible. Of course, people would love to immediately be debt free- but debt management takes a sustained effort over a period of time. Start with higher interest rate debt, and then work on mortgage debt by taking advantage of things like shorter amortization and prepayment options.