Pre-Approvals: A Dying Breed?

• Is it time to lock in your mortgage?
• Confidence in housing market a ‘good sign’: economist
• U.S. house construction rises in May

This Week’s Quotation:

“The only limit to our realization of tomorrow will be our doubts of today.” – Franklin D. Roosevelt (1882 – 1945)

This Week’s Highlights:

• Housing starts perk up
• It was the worst of times
• Is the end in sight?

WEEKLY ARTICLES OF INTEREST

Is it time to lock in your mortgage?

One mortgage broker seems to think so. Here’s why

Jas Grewal’s reaction to the recent runup in interest rates was to abandon a sweetheart of a variable-rate mortgage in favour of a safer, but more expensive, fixed-rate mortgage. Mr. Grewal, you should know, is a mortgage broker. A mortgage broker who sees the potential for much higher rates in the future. “read more….”

OTTAWA — Despite a stream of negative economic news, most Canadians who’ve recently bought a home have confidence in their decision, according to a survey by the Canada Mortgage and Housing Corporation. A national consumer survey released Tuesday said 90% of recent home purchasers believed that a house is a good long-term investment. Almost 70% of respondents also said they felt that this is a good time to buy a home.“read more….”

Construction of new homes in the United States jumped in May by the largest amount in three months, providing an encouraging sign that the nation’s deep housing recession was beginning to bottom out. The Commerce Department said Tuesday that construction of new homes and apartments jumped 17.2 per cent last month to a seasonally adjusted annual rate of 532,000 units. That was better than the 500,000-unit pace that economists had expected and came after construction had fallen in April to a record low of 454,000 units. “read more….”

“THIS WEEK’S HIGHLIGHTS”

Housing starts perk up

Housing starts showed welcome signs of improvement in May, rising to 128,400 annualized from April’s 117,600. The increase was broadly based across building types. Both urban singles starts and urban multiples starts rose 11.1% to 60.900 annualized and 46,900, respectively. Rural starts remained unchanged at 20,600 annualized units. The improvement was reasonably broad-based, with all regions posting gains except British Colombia. Ontario enjoyed the largest percentage gain, up 22%, with gains in the Prairies posting a 16.8% increase. Quebec and Atlantic Canada enjoyed more muted gains of 3.3% and 7.3%, respectively. British Columbia suffered a 5% decline in urban starts during May. The pick-up in starts is broadly in line with the forecast of an improvement during the latter half of the year compared to the weakness in the first half. It is expected that Canadian housing starts will average 141,000 in 2009 overall. As growth in the economy picks up in 2010, starts should improve modestly to 173,000, although this represents activity well below levels seen earlier this decade.

It was the worst of times

To be sure, the data reported for the first quarter of 2009 was dismal. Canada’s recorded its largest output loss since 1991, the U.S. economy registered its third consecutive quarterly decline with activity in the European and U.K. economies also shrinking substantially. To top it off, Japan’s economy shrank at a 15.2% annualized rate. In spite of the rash of bad news, investors gravitated toward the better news being reported. U.S. housing statistics showed stability in the pace of sales, the pace of job cuts moderated and consumer confidence picked up. In Canada, confidence rose as did the pace of home sales making the first quarter’s slump feel like old news. U.K. house prices have increased in two of the past three months, auto incentives appear to have put a bottom on sales and confidence has improved. Eurozone data proved a mixed bag with the unemployment rate hitting a 10-year high, but business confidence improving and order books growing. Investors took these reports as a signal that it is the beginning of the end for the Great Recession of 2009.

Is the end in sight?

The consensus is that the global recession began to lose momentum in the second quarter but still expect another round of negative growth rates to be reported. The global manufacturing ISM index recorded its fourth consecutive monthly increase in May and the services index averaged 45.3 in April/May, well above the first quarter’s 40.4. The levels remain unimpressive but signal a turnaround in sentiment, suggesting that the pace of contraction will be slower in the second quarter and that, if this trend persists, the global economy will likely be expanding in the second half of this year.

When it comes to language like credit ratings, mortgage terms and amortization, we can get a little hazy on the details . . .

It’s probably both your biggest liability and your greatest asset, but how much do you really know about your mortgage and whether you’re making the best decisions possible about it?

According to a survey by Genworth Financial Canada, most of us could use a little more education around mortgages and the home-buying process.

It conducted a national online survey with 1,500 first-time homebuyers last fall and found only 25 per cent could correctly answer more than seven out of 10 questions in a mortgage quiz – and only 1 per cent got them all correct.

When it comes to language like credit ratings, mortgage terms, variable or fixed interested rates, amortization, default insurance and debt-service ratio, we get a little hazy on the details.

Part of it could be complacency brought on by contentment. A survey by the Canadian Association of Accredited Mortgage Professionals (CAAMP) last year found 84 per cent of Canadians are “satisfied” with the terms of their mortgages, with 26 per cent saying they are “highly satisfied.”

Just 12 per cent are neutral and 5 per cent are dissatisfied to some degree, the survey found.

The high scores are partly driven by the fact we’re enjoying the lowest interest rates in decades. The same survey taken in the 1980s when mortgage rates hit 18 per cent probably wouldn’t elicit such high levels of satisfaction.

Read the full story here

Mortgage rates are expected to remain within 25 to 75 basis points of their current level for the remainder of 2009, according to CMHC’s second quarter Housing Market Outlook, keeping them “very low in a historical context.”

“Movements in mortgage rates are difficult to predict due to volatile economic conditions,” the report stated. “Nevertheless, rates are expected to remain steady this year and edge higher in 2010.”

Along with mortgage rates, CMHC listed employment, net migration and low birth rate as having key effects on residential construction, and forecast housing starts to decline to 141,900 in 2009 (most notably in Alberta and Saskatchewan) before rebounding to 150,300 in 2010.

Read the full story here