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Let the credit cards chill and pay cash to 

help retire credit card debt:experts

By: LuAnn LaSalle, The Canadian Press
Posted: 12/29/2011 10:17 AM | Comments: 0 (including replies) | Last Modified: 12/29/2011 10:45 AM

Many consumers can identify with the blues that come from too much holiday shopping and post-holiday sales and knowing what will be in store when the dreaded bill arrives in January. Experts say the trick to defeating post-holiday debt is to let the credit cards chill, pay cash and stop impulse spending. A consumer pays with a credit card at a store Tuesday, July 6, 2010 in Montreal. THE CANADIAN PRESS/Ryan Remiorz

MONTREAL - Armed with a load of presents at the Montreal Walmart store checkout, the tired-looking shopper says she's keenly aware she's going to start the new year with a new credit card debt.

"Yeah, I know I have overspent and have to pay off these gifts," the shopper says glumly, adding she didn't want to give her name, nor admit how much she would owe due to a generous bout of Christmas shopping for seven family members.
Many consumers can identify with the blues that come from too much holiday shopping and post-holiday sales and knowing what will be in store when the dreaded bill arrives in January.
Experts say the trick to defeating post-holiday debt is to let the credit cards chill, pay cash and stop impulse spending.

"When you're coming out of the holiday season, really try to give your credit cards a rest," said Mack Rogers of ABC Life Literacy Canada.

"They're probably pretty warm from the holiday spending," Rogers said from Toronto.
Rogers recommends starting a budget to get out of debt. While not new advice, he has a tip for staying on track.

"The first trick to create a cash economy in your house," said Rogers, who serves as program director at the non-profit organization that helps with all types of literacy, including financial literacy.

"Instead of using your Interac (card) or your Visa to purchase things, buy everything you absolutely can with cash."

Statistics Canada has said average household debt in Canada hit a new record high of almost 153 per cent to disposable income in the third quarter, a sizable jump from 150.7 per cent the previous quarter. That means for every $10,000 consumers have earned, they owed $15,000 or more.

Margaret Johnson of Solutions Credit Counselling Service Inc. says consumers need to "sit down at the kitchen table" and write down how much money comes in versus how much goes out in the form of expenses.

If a consumer owes $2,000 or $3,000 in credit card bills after Christmas, saving $500 a month will mean paying it off in a matter of months, she says.

"If you can't remember the last time your credit card balance was at zero, you started the holiday in trouble," says Johnson, president of the Surrey, B.C.-based organization.
Johnson would like consumers to take one month in 2012 where they only spend money on food
and other necessities.

She advises parents who have children who come home and say, "I want this" to ask them why and to explain what the purchase means for parents in terms of paying for it.
"They don't understand because their parents don't understand. They don't get the concept of credit spending is not like spending your own money."

Bank of Montreal's Janet Peddigrew says credit card statements now tell consumers who make minimum payments how long it will take to retire their debt.

Peddigrew also believes in setting a budget and sticking to it. For those who don't want to do it with pen and paper, BMO has online tools to help with budgeting as well as help over the phone with trained professionals, she says.

The direct approach also works.

"Just come in and talk to your banker," said Peddigrew, district vice-president of personal and commercial banking at BMO. "Our job is to help the consumer."

She noted that holiday sales start in late November and wrap up in January.

"There's so many sales and we're all just human beings and it's very enticing to buy. Don't blow the budget. It's a vicious cycle."

Johnson says she's hopeful that when consumers realize how long it will take them to clear their holiday credit card debt, they will learn from it.

"If you're really lucky, you will be able to pay off this Christmas before next Christmas. Do you know how many people can't do that?"

End of article

~~~
About Synergy Debt Group
Synergy Debt Group enables consumers caught in the, "Minimum Monthly Payment Trap" to become debt free, providing an alternative to bankruptcy and the damages that come with it.

At Synergy Debt Group, we make it possible for our customers to achieve their financial
goals and gain independence from creditors quickly. If you are serious about getting out
of debt, preserving your credit, and saving money; give Synergy Debt Group a call today for
a free consultation.

Canadian Banks Hold More Risk Than Reward

They offer competitive advantages and fair yields, but little upside in a challenging environment.

By Dan Werner | 12-30-11 | 06:00 AM | E-mail Article
We think Canadian banks will continue to benefit from their home country's structurally attractive banking market. However, we think current multiples of 2-3 times tangible book value offer investors little margin of safety. Furthermore, we see dark clouds forming on the horizon and think there is a reasonable likelihood of slower growth and higher loan losses in the near future.

About the Author
Dan Werner is an equity analyst at Morningstar covering the financial services sector.
Contact Author | Meet other investing specialists

Canadian banks have historically traded at high premiums, and five of the six that we cover carry wide economic moat ratings because we think they benefit from structural, sustainable competitive advantages. As a group, the major Canadian banks have outearned their cost of equity for the past decade, and we see no reason for that trend to reverse.

The six largest Canadian banks have extensive commercial and retail operations and large domestic branch networks. Together, they serve 92% of Canada's banking as measured by total assets. Since banks benefit from scale, we believe it is unlikely that new entrants pose a meaningful threat. Morningstar recently identified efficient scale as a new source of economic moat. In the case of the Canadian banks, efficient scale describes a market of limited size that is efficiently served by a small handful of competitors.

Since 1998, Canadian banks have been prohibited from acquiring each other. At that time, the Canadian finance minister rejected proposed mergers between Royal Bank and Bank of Montreal as well as Canadian Imperial Bank of Commerce and Toronto-Dominion Bank. The government concluded that the mergers would result in too much concentration of economic power, reduce competition, and reduce the government's flexibility in addressing future concerns. Furthermore, under the Investment Canada Act, the aggregate holdings of non-Canadian residents and their associates may not exceed 25% of all shares unless reviewed by the government. This law effectively prohibits the sale of any of Canada's domestic banking giants to a competitor outside Canada. Foreign banks can operate in Canada, but they must be separately incorporated and capitalized. With the restrictions on any domestic combinations or foreign acquisitions of any of these banks, the top six banks remain well entrenched.

One reason banks have generally garnered at least a narrow moat is high customer switching costs. It is usually difficult for a retail customer to switch deposit accounts from one bank to another. Corporate customers are often similarly sticky because the lending relationship is bundled with other services, which can make it difficult to compare pricing.

In Canada, customer stickiness is especially pronounced in mortgage lending. Most Canadians typically borrow for a much shorter period, and banks impose large prepayment penalties to discourage borrowers from prepaying their mortgages before they are due. When a mortgage borrower reaches the end of the loan term, he or she typically receives an invitation from the bank with renewal terms. Given a bank's history with a customer, it is usually easier for customers to stay with their original bank to renew their home loans. Furthermore, Canadian banks typically match each other's mortgage terms so it is not advantageous to move on the basis of rates. This oligopolistic pricing has the effect of limiting movement of home borrowers between banks.

There are a number of differences between the regulation of Canadian and U.S. home financing. In general, these regulatory differences discourage excessive risk taking by Canadian banks, and therefore allow them to earn higher returns on capital than U.S. banks. The Canadian national housing agency does not guarantee or purchase high-risk or securitized loans, unlike Fannie Mae and Freddie Mac in the U.S. If a borrower in Canada is unable to make a 20% down payment, he or she must purchase mortgage insurance through the Canada Mortgage and Housing Corporation. Also, mortgage interest is not tax-deductible in Canada. We think this takes away an implicit subsidy to purchase more-expensive housing that the homeowner may not be able to afford. Finally, the home lender in Canada generally has full recourse to the borrower should the borrower fail to make a payment.

With Canadian residential mortgages constituting 40% of total loans in loan portfolios, the reduced risk in these loans can be seen in lower delinquency rates compared with the U.S. As the financial crisis began to develop, the delinquency rate for Canadian mortgages has remained consistently lower. The six Canadian banks we cover reported gross impaired loans (typically loans that are 90 days in arrears) as a percentage of total loans ranging from 0.63% to 1.33% as of year-end 2011. Overall, from a credit perspective, the Canadian banks weathered the financial crisis impressively.

Earnings Are Likely to Come Under Pressure
We think Canadian banks' bottom lines will come under pressure in the next few years.  We expect the flattening of the yield curve will put pressure on net interest margins. Furthermore, a number of factors could lead to slower loan growth and damp earnings growth.

For some of the Canadian banks, loan growth has averaged nearly 10% over the past five years. We think the slower macroeconomic environment along with historically high consumer debt levels will slow loan growth. More recently, investment banking revenue has come under pressure, given the recent turmoil in world markets. While the Canadian banks have little direct exposure to Europe, their trading revenue has not been immune to recent events.
Since the early 1990s, the Bank of Canada has kept interest rates low, which has fueled a credit boom. As in the U.S., the Canadian yield curve has flattened over the past year. Canadian consumers' limited ability to prepay their mortgages has cushioned the impact on banks for now. But we think that if these low rates continue, net interest margins will be hurt.

These low rates are starting to be reflected in the Canadian banks' net interest margins. Flatter yield curves generally negatively affect revenue for banks as they decrease the differential between banks' lower short-term borrowing rates and higher longer-term lending rates. With the yield curve at historic low levels, there is little room for banks to earn yield on loans or fixed income.

About two thirds of Canadian banks' loans are in either home mortgages or personal loans (which usually include home equity lines). While some of the Canadian banks had nearly double-digit loan growth over the past five years, we expect that growth to slow in the near term as the demand for credit declines in a slower economic environment.

In part because of low interest rates, Canada has experienced its own housing boom; the home ownership rate has risen to 69%, similar to the U.S. at the peak of the housing bubble. We think the growth of household debt/disposable income for Canadians is unsustainable, which will result in lower loan growth for the banks.

However, the increasing debt levels do not seem to correspond to the same excessive levels of home price appreciation as experienced in the U.S. The increase in Canadian housing prices was modest relative to the increase in the U.S. Nevertheless, some of the increased debt of the Canadian consumer has been used to fund the purchase of residential real estate. We think there will be downward pressure on prices when the Canadian consumer decides (or is forced) to deleverage.

Although debt levels have increased significantly, Canadian debt service ratios (debt payments/disposable income) have remained fairly stable. Canadian consumers have benefited from a period of low interest rates, which helps keep the debt service ratio low. But given the short-term nature (typically five years) of Canadian mortgages, we believe that in the longer term as interest rates rise, the Canadian debt service ratio will increase as more mortgage loans reprice over the next five years at rates we expect to be higher. Along with historically high debt levels, we think higher debt service ratios will also serve as a long-term damper on loan growth.

Diversification May Actually Increase Risk
Over the past year, we have watched the Canadian banks make various acquisitions in order to increase revenue, especially in their fee-based businesses.  With all of this acquisition activity, particularly in asset management, we think there is an increased risk that banks will destroy shareholder value by overpaying for assets. For example, the soundness of Bank of Montreal's acquisition of M&I Bank in Wisconsin appears to depend on the favorable resolution of problem assets it acquired in the deal. As with most of the asset-management acquisitions, we think this deal further depends on the acquired advisors staying with the new company and not leaving for another firm. While Canadian banks' foreign bank acquisitions offer access to markets with much higher GDP growth, there is increased credit risk, given the higher nonperforming loan levels at these target institutions. We do not think stock market prices fully incorporate this risk. Bank of Nova Scotia's price tag of 3 times tangible book value for its majority stake of Colombia's Banco Colpatria is quite high, given the risk. While acquisitions are small compared with the large size of the Canadian banks, we are concerned about the impact of multiple deals upon shareholder value.

Capital Allocation Is a Key Differentiator
If we had to pick our favorite Canadian bank, it would be Toronto-Dominion (TD). We like its strong internal growth in Canada and the Northeast U.S. along with its increasing return on capital in the U.S. We would also steer investors toward Royal Bank of Canada (RY), as we think it presents a unique value opportunity with its higher dividend yield and its plans to sell its relatively small presence in the Southeast U.S. However, with the divestiture not scheduled to be completed until March 2012, there may be some noise in the next few earnings periods. Canadian bank investors looking for more international exposure should consider Bank of Nova Scotia (BNS), which offers more exposure to high GDP growth countries in Asia and Central and South America. However, we remain wary of the credit risks in those countries, given the bank's higher nonperforming loan levels there relative to its native Canada.

We're less enthusiastic about Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CM), and National Bank of Canada (NA). Bank of Montreal is integrating its acquisition of M&I Bank in the U.S., and we think it will take a long time to resolve M&I's problem assets. We think Canadian Imperial Bank of Commerce will be most affected by any slowdown in the Canadian economy, given its exposure to the domestic consumer. While National Bank of Canada's base in Quebec has generated excess capital, we are concerned about its expansion of wealth management through acquisition, as the bank could easily spend too much on these deals.

Most of the companies we cover are fairly valued, but all have reasonable dividend yields. Canadian banks remain among the safest in world, in our opinion. However, we think various domestic and international factors will make it difficult for the banks to replicate the increase in their stock prices of the past two years. Instead, we think the banks face headwinds that will make it difficult to repeat their past operating performance. While we favor some banks over others as investments, we think the next few years will present challenges to improve upon their past profitability.

end of article

~~~
About Synergy Debt Group
Synergy Debt Group enables consumers caught in the, "Minimum Monthly Payment Trap" to become debt free, providing an alternative to bankruptcy and the damages that come with it.

At Synergy Debt Group, we make it possible for our customers to achieve their financial
goals and gain independence from creditors quickly. If you are serious about getting out
of debt, preserving your credit, and saving money; give Synergy Debt Group a call today for
a free consultation.

Is the debt collector getting your holiday bonus?

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Is the debt collector getting your holiday bonus?

by ROMA LUCIW

Globe and Mail Blog

Posted on Wednesday, December 21, 2011 9:24AM EST

More than half of Canadians who expect to get a bonus this year say they will use the extra money to pay down their credit card bill, line of credit, car loan or mortgage, says a new poll.

The Bank of Montreal survey found that among working Canadians who are eligible to receive a holiday bonus, 53 per cent said they would use the money to pay down household debt, which, as just about everyone has by now heard, has reached dangerously high levels.

Financial planner Rona Birenbaum said the findings are a reflection of the sorry state of Canadian household balance sheets. “It is comforting to see that people want to pay down debt but to be thinking about it at Christmastime is a reflection of the fact that there is a fair amount of over-indebtedness out there.”

A report released last week showed that Canadians have set a new record for household debtand that debt burdens among households here have surpassed those in the United States. Bank of Canada Governor Mark Carney said “our greatest domestic risk relates to household finances.”

His concern is that Canadians have piled on so much debt that any kind of a shock, such as job losses or rising interest rates, will make it difficult for people to meet their debt repayment obligations. Canadians appear to be getting the message - at least some of them.

Among those who will not use their bonus to pay down debt, the BMO survey found that 23 per cent said they would use it for holiday spending, 17 per cent said they would reward themselves with a consumer purchase while 15 per cent said they would take a vacation.

Ms. Birenbaum said that historically, bonuses have been used for consumption, to pay for things like trips. They have also traditionally been used for investment purposes.
“That is what bonuses should be for. The salary you get is supposed to pay for the necessities of life. The bonus is supposed to be just that - a bonus.”

Given the uncertain global economic climate, just how many Canadians expect to get a bonus this Christmas?

Among those polled by BMO, just under a third, or 29 per cent, of those in the workforce said they expect to get a year-end bonus. Among those who believe that they are likely to receive year-end compensation, half anticipate it will be the same as last year, 22 per cent believe it will be less, and 28 per cent think it will likely be more than last year.
One thing employees lucky enough to get a bonus should remember is that the extra money will be taxed, which means a fair chunk will end up in government coffers. So for an example an Ontario worker earning between $83,000 and $129,000 will have his or her bonus taxed at a rate of 43 per cent.

The BMO survey of 1,542 Canadians was conducted online by LegerWeb in early December.

End of article

~~~
About Synergy Debt Group
Synergy Debt Group enables consumers caught in the, "Minimum Monthly Payment Trap" to become debt free, providing an alternative to bankruptcy and the damages that come with it.

At Synergy Debt Group, we make it possible for our customers to achieve their financial
goals and gain independence from creditors quickly. If you are serious about getting out
of debt, preserving your credit, and saving money; give Synergy Debt Group a call today for
a free consultation.

Paying down debt top priority for Canadians: Poll

 S

ynergy Debt Group

Paying down debt top priority for Canadians: Poll

POSTMEDIA NEWS DECEMBER 28, 2011 6:27 AM

More Canadians are vowing to make debt repayment their No. 1 priority in 2012, according to a new survey.

Facing record levels of debt, Canadians are vowing that getting back in the black is their top financial priority for the new year, according to a new survey.

The poll, conducted for CIBC, found a greater number of respondents saying they're focused on debt-repayment than a similar survey last year.

It follows recent warnings from the Bank of Canada that Canadian households are continuing to borrow more than they can afford.

It also comes on the heels of Statistics Canada data earlier this month that showed the ratio of credit market debt to personal disposable income hit a record high of 150.8 per cent in the third quarter of 2011.

"More Canadians are recognizing the importance of managing debt as a component of their overall financial plan," said Christina Kramer, an executive vice-president with CIBC, in a statement released with Wednesday's survey.

"Canadians are also increasingly seeing the connection between good management of their day-to-day budget and their longer-term financial goals, recognizing that taking smaller steps today as part of a plan can lead to significant benefits down the road."

The top three financial priorities for Canadians were paying down debt (17 per cent, up from 14 per cent a year earlier), budgeting (14 per cent) and retirement planning (11 per cent).
Debt repayment was especially a priority for those age 25 to 44, with 23 per cent of respondents in the age group saying it's their top financial priority.

For those a little older — ages 45 to 64 — 20 per cent cited retirement planning as their top financial priority at the moment, followed by paying down debt, at 16 per cent.
The poll, conducted Nov. 10 to 21 by Harris/Decima, surveyed 2,015 Canadians.
Its stated margin of error is 2.2 percentage points, 19 times out of 20.

© Copyright (c) Postmedia News

End of article

~~~~
About Synergy Debt Group
Synergy Debt Group enables consumers caught in the, "Minimum Monthly Payment Trap" to become debt free, providing an alternative to bankruptcy and the damages that come with it.

At Synergy Debt Group, we make it possible for our customers to achieve their financial
goals and gain independence from creditors quickly. If you are serious about getting out
of debt, preserving your credit, and saving money; give Synergy Debt Group a call today for
a free consultation.




Read more:http://www.canada.com/business/Paying+down+debt+priority+Canadians+Poll/5918541/story.html#ixzz1hrB8i8JA

2011 in Review: Household Debt

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Doug Watt / December 28, 2011 for Advisor.ca

Canadians dug themselves a deeper hole in 2011 as household debt rose to record levels.
The ratio of household credit market debt—which includes mortgages, consumer credit and loans—to disposable income rose to 149% in the second quarter, Statistics Canada reported, the highest level since the agency began tracking this figure in 1990. Household debt was just 50% in 1990 and 110% in 2000.

“Credit market debt of the household sector grew in the second quarter, as a result of both higher mortgage and consumer credit borrowing,” StatsCan said.
The Certified General Accountants Association of Canada estimates that total household debt has reached an all-time high of $1.5 trillion.

“The debt of a typical household is rising,” says Rock Lefebvre, CGA-Canada’s vice-president of research and standards. “And the financial situation of certain groups of households is much worse than average and continues to deteriorate.”

Armine Yalnizyan, senior economist, Canadian Centre for Policy Alternatives, says high and rising debt is a serious problem for working Canadians. “If you look at the last 30 years, people have played by all the rules, they’ve gotten better educated and more people are working, yet median economies have not risen, essentially.

“The formula for prosperity did not bear fruit. Get an education, get a job, work hard, what that did was prevent you from losing more economic ground. But after a generation you have to ask what’s in it for future generations?”

Mortgage debt accounts for about three quarters of the average household debt-load, notes TD Bank deputy chief economist Derek Burleton. However, households have been attracted to lines of credit, he adds, since the variable-rate pricing of these products has enabled consumers to reap the benefits of extraordinarily low short-term interest rates.

“This highlights the growing vulnerability of household balance sheets to unanticipated events,” Burleton says. “While much of the debt has been used to finance an offsetting real estate asset, the truth of the matter is that asset values go up and down in value but debt only declines when principle payments are made.”

“The fear I have going forward is that there’s no way interest rates are going to stay this low for the long term,” says Yalnizyan. “So it means even more indebtedness going down the road because you’re paying more to service your debt.”

Some economists have pointed out that although debt is climbing, the increase is essentially offset by gains in assets and net worth, which rose to $186,900 in Q2, up from $185,300.
“I expect household debt levels will grow more slowly in the next decade as the population ages and the labour force grows more slowly,” said Central 1 Credit Union chief economist Helmut Pastrick in an Advisor.ca commentary. “A rising debt-to-income ratio is not necessarily a bad thing because debt can be good if it is accrued for useful purposes and if it is held by people who can afford to repay it.”

Advisors tend to take a more critical view. Halifax-based Stephanie Holmes-Winton agrees that slowing access to home loans or access to home equity would be a mistake, leaving most Canadians with far fewer and more expensive options, but she adds that a job loss or other sudden life crisis could leave people with no choice but to fail to make additional payments on debt or at worst, default.

“Then, Canadians could find themselves trapped with far too much high interest debt,”

End of article

~~~
About Synergy Debt Group
Synergy Debt Group enables consumers caught in the, "Minimum Monthly Payment Trap" to become debt free, providing an alternative to bankruptcy and the damages that come with it.

At Synergy Debt Group, we make it possible for our customers to achieve their financial
goals and gain independence from creditors quickly. If you are serious about getting out
of debt, preserving your credit, and saving money; give Synergy Debt Group a call today for
a free consultation.

Welcome to 2012: All debt, all the time

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Welcome to 2012: All debt, all the time

NEIL REYNOLDS | Columnist profile | E-mail

From Tuesday's Globe and Mail

Published Tuesday, Dec. 27, 2011 2:00AM EST

Another year older and deeper in debt. You can Google “Canada’s debt clock” for a precise reckoning. Maintained by the Canadian Taxpayers Federation, this clock now ticks off another $1,000 in federal debt every second or, more precisely, $61,454 every minute. The clock hit $550-billion in 2010 and $575-billion in 2011, a one-year increase, in an era of austerity, of $25-billion.

Gift returns

But the federal government reports its debt in a number of ways. The debt clock merely tracks “accumulated deficits,” which excludes other sources of debt. At the end of the fiscal year 2010-2011, for example, the federal government reported its net debt (debt minus assets) at $616.9-billion and its gross debt (debt from all sources) at $920.8-billion.

For our purposes, let’s go with net debt. By this conservative measure, Canada’s public debt – provinces and territories included – reached a milestone in the past fiscal year. With $616.9-billion in federal debt and $434.9-billion in provincial debt, Canada has broken the trillion-dollar barrier with a combined federal-provincial debt of $1.05-trillion.

This isn’t one of Canada’s greatest achievements. In abstract terms, a trillion-dollar debt takes us close to 100 per cent of GDP, putting Canada’s debt right up there, in relative terms, with Greece, Ireland, Spain and Portugal – and, for that matter, with the United States. In absolute terms, a trillion-dollar debt puts every man, woman and child in the country $33,333 in hock without counting credit cards, car payments and mortgages.

In a hypothetical family of four, this debt must be carried by two hypothetical people: mom and dad. Together, they must make the interest payments on $133,333 worth of public debt. With an interest rate of, say, 5 per cent, this means $6,666 a year in public-debt interest payments.

Many Canadians think their country is in good fiscal shape these days because Liberal and Conservative governments, in succession, reduced federal government debt between 1993 (Jean Chrétien and Paul Martin) and 2007 (Stephen Harper and Jim Flaherty). And they are, in part, right. But most of the provinces kept spending. Between 1993 and 2007, the years of Canada’s famous fiscal restraint, federal governments paid down $100-billion in debt; in these same years, provincial governments racked up $140-billion in debt. Canada’s celebrated era of restraint thus ended with the country $40-billion further in debt than when it began.

The provinces and the territories came close to doubling their debt (as a percentage of their respective GDPs) in the generation between 1986 and 2011 – from 15 per cent to 27 per cent. New Brunswick alone (with 750,000 people) holds an oppressive debt of $10-billion, a burden equal to $13,333 per capita. On this basis, a mom and dad in New Brunswick carries a federal debt of $133,333 and a provincial debt of $53,332, for a total public debt of $186,665. Their interest charges approach $10,000 a year.

Ontario is the country’s most indebted province. The Ontario Financing Authority, the agency that borrows the money, puts the province’s 2010-2011 debt at $214-billion and its 2011-2012 debt at $238-billion. Ontario’s debt equalled 15 per cent of its GDP in 1990, 36 per cent in fiscal 2011 – and will rise to 40 per cent by 2014. Thus Moody’s warning the other day that the province is one budget away from a downgrade in its credit rating.

There’s substantial financial risk in managing $238-billion in debt – including the imminent risk of higher interest costs. The Ontario Financing Authority monitors this risk on a daily basis. The agency’s portfolio of derivatives – financial insurance policies – exceeds $200-billion in coverage ($121-billion in interest-rate swaps, $68-billion in cross-currency swaps, $10-billion in forward foreign-exchange contracts, and $1-billion in swaptions, which are options that grant a right to buy more protection still).

Many Canadians appear to regard a dollar’s worth of provincial debt as less important than a dollar’s worth of federal debt. This is a dangerous thing. Canada needs – urgently – a simple mechanism to track, and to report, “all debt, all the time” – as talk radio does, with stock prices, temperatures and traffic.

End of article

~~~~
About Synergy Debt Group
Synergy Debt Group enables consumers caught in the, "Minimum Monthly Payment Trap" to become debt free, providing an alternative to bankruptcy and the damages that come with it.

At Synergy Debt Group, we make it possible for our customers to achieve their financial
goals and gain independence from creditors quickly. If you are serious about getting out
of debt, preserving your credit, and saving money; give Synergy Debt Group a call today for
a free consultation.

Canada Housing Mkt Thrives While Prices Surge

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TUESDAY, DECEMBER 27, 2011 - 08:15

Analysis: Canada Housing Mkt Thrives While Prices Surge

By Akhil Shah
--Retransmitting Story Published 12:52 ET Friday
OTTAWA (MNI) - Canada's housing market continues to perform strongly, though its high sales and prices are a mixed blessing because they help underpin the domestic economy but give rise to concerns about growing household indebtedness.

Mark Carney, the governor of the Bank of Canada, terms Canadian household debt the country's biggest domestic economic risk, but says the danger is not imminent and pales behind the foremost risk to Canada's economy, contagion from Europe.

The largest contributor to Canadian household debt also is the largest single contributor to the consumer spending that has been Canada's economic mainstay during the 2008-2009 recession and to the present: the C$1.079 trillion residential housing sector.

Statistics released by The Canadian Real Estate Association (CREA) show home sales in Canada are still on the rise, though the pace of increase is slowing. Data released by CREA in November show the national average house price is C$360,396, up 4.6% from the same month last year.

The hotspots in Canada are the provinces of British Columbia and Ontario, which contain almost 50% of the Canadian population. Average prices in British Columbia have surged 11.0%, while prices in Ontario have increased nearly 9.0%, since November 2010.

The Canada Mortgage and Housing Corporation (CMHC) reports the seasonally adjusted annual rate of housing starts for November was 181,000 units, down from the187,200 units it reported for November a year ago. Mathieu Laberge, Deputy Chief Economist at CMHC's Market Analysis Center see this level to be more consistent with the current economic conditions.

With regard to housing activity, data released by the CMHC show housing starts moderating in 2012 to 186,750 units from the 191,000 units forecasted for 2011.

However, sales of existing homes (through MLS) are expected to increase marginally in 2012 to 458,500 from 450,100 units forecast for 2011.

After significantly slowing in 2011, single detached starts are expected to increase to 83,750 units in 2012 from the expected 82,200 units in 2011. The expectation in 2011 follows an increase to 92,554 units in 2010.

Comparatively, multi-family starts are expected to decrease to 103,000 units in 2012 from 108,800 units in 2011.
The corporation also forecasts the average home price in Canada will reach C$368,200 in 2012, from C$363,900 in 2011.

Considering different categories of households, research released by Royal LePage, a leader in the Canadian real estate market, shows the national average price of a detached bungalow increased 7.8% to C$349,974 on an annual basis in the third quarter. Similarly, prices for standard two-story homes on an annual basis rose 7.7% to C$388,218 and standard condominiums rose 5.7% to C$239,300 in the third quarter.

A report released by the Canadian Association of Accredited Mortgage Professionals (CAAMP), says residential mortgages have increased rapidly during the past decade, averaging about 10% per year, but have slowed since then to less than 7.0% per year.

"Canadians tend to be very careful with mortgage borrowing and we are doing a lot of it in response to low interest rates," said Will Dunning, chief economist at CAAMP in an interview. The Bank of Canada indicates that it's historically low 1.0% policy interest rate likely will remain the same through much of 2012 at least and perhaps well into 2013.

Mortgage debt presently is growing at just under 7.0% per year after increasing at a 7.4% pace in the previous year. It stands now at about $1.1 trillion, as compared with $787 billion four years ago.

Despite the mortgage debt levels today, Dunning believes that Canadians by and large have been prudent in taking out mortgages and have considerable room to absorb the higher interest rates that the Bank of Canada's Carney repeatedly warns will inevitably rise someday.

A CAAMP survey shows 31% of borrowers opt for variable rate mortgages, while 60% hold the more popular fixed rate mortgages. The latter remain protected in the event of interest rates rising by having locked in their rates for a term.

The growth in Canadian mortgage debt is attributed to a strong economy, Dunning writes. A boom in Canada's employment rate in the second half of the past decade delivered a much needed expansion in the housing stock, and remained the primary driver of mortgage debt growth.

"If there is risk it is not about the interest rates, it is about the broader economy," Dunning said.
Diana Petramala, an economist at the Toronto Dominion Bank, said in an interview that "Rising household debt is a concern in Canada, but in spite of being a bit excessive it remains affordable."
She nevertheless is concerned that household debt is growing at double the pace of income, and that the debt-to income ratio is very close to 160%. This is the level that caused trouble in the U.S. and U.K. housing market.
To curb mortgage debt somewhat, the federal government has tightened mortgage insurance rules and has set up constraints on how much one can borrow to purchase a new home. Also by reducing the amortization period to 30 years from 35 years, they have made it a little harder to take out mortgages.

In an interview with MNI, Emanuella Enenajor, an economist with the Canadian Imperial Bank of Commerce (CIBC), says: "Resale data for unit sales activity over the past year has remained relatively flat."
She adds that prices had been trending upwards in the past but the trend has slowed in recent months, as evidenced in a report by CIBC, which states, "overall household credit is now rising at the slowest year-over-year pace since 2002."

The report also says that, when adjusted for inflation, mortgage debt outstanding is expanding at the slowest pace in eight years.

Benjamin Tal, managing director and deputy chief economist at CIBC, dismisses the debt-to-income ratio as being almost meaningless. He prefers a measure of the extent to which growth in credit outpaces growth in income, and finds that ratio has been rising by an average of 0.5% per quarter since early 2010. Tal calls this a much softer pace than the average increase of more than 1.2 percentage points per quarter since the early 2000s.
The past decade saw real household credit growing at a phenomenal average of 8.2%, well above the traditional norm of increasing between 4-5% for the year.

With home prices rising 28% from its cyclical low in January 2009, Tal believes the real household debt problem is a mortgage debt problem and not consumer debt problem.

Statistics released by CIBC show mortgage outstandings are increasing at a 7.0% pace on a year-over-year basis, slowing from the 12% pace it recorded prior to the recession and remains 5 percentage points about the rate of growth of income.

The ratio of sales to new units indicates the market remains balanced, but Tal cautions it could switch quickly with little warning.

What is worth noting is that the increase in mortgage borrowings has increased the total number of mortgages that have a low equity and high debt-service ratio to 4.5%, increasing nearly 2 points in the past five years. Even in this 'vulnerable' category, history shows the default rate well below 1.0%.

Looking ahead, Tal does not see prices nosediving, but does expect to see prices leveling off in the next year or two. Added to that, a rise in interest rates is also expected to see prices decline modestly.

Pedro Antunes, director, national and provincial forecast at the Conference board of Canada, told MNI the housing market has been doing very well given the rates are very low. As a result he sees equity and mortgage debt to have built up over the past years.

"The situation isn't perfect but it isn't till late 2012 early 2013 we perhaps start seeing a problem. How much of a problem it is remains hard to answer," Antunes added.

To echo this concern, the International Monetary Fund, in its latest assessment of Canada has asked CMHC to remain vigilant of mortgage debt levels.

However, research released by Bank of America Merrill Lynch paints a more bearish scenario. The report released on Monday sees home prices falling by 5.0% in the first half of next year on weaker economic growth and an oversupply of condominiums, a "pretty modest contraction by historical standards," Bank of America economist Sheryl King said.

A combination of tough job and income growth environment is expected to reduce housing demand in the first half of 2012, only to end the year flat as economic activity picks up. The bank predicts unemployment rate will hit 8.0% next year.

Spurred by low mortgage rates, Canadian housing prices seem to be overvalued by as much as 10.0%, the report said King sees most of the correction taking place in the Toronto area, where an abundant supply of condominiums is expected to bring prices lower. The report added, "We estimate there are already enough units in the pipeline to satisfy fundamental demand for the next five years."

** Market News International - Ottawa **

End of article

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Debt levels, house prices prompt alert

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Debt levels, house prices prompt alert

IMF predicts moderate growth for Canada, but says targeted measures may be needed

BY SANDRINE RASTELLO, REUTERS DECEMBER 23, 2011


Canadian authorities may need to take more measures to rein in the rising level of household debt, which along with high house prices poses a risk to the nation's economy, the International Monetary Fund staff said.

"Adverse macroeconomic shocks, such as a faltering global environment and declining commodity prices, could result in significant job losses, tighter lending standards, and declines in house prices, triggering a protracted period of weak private consumption as households reduce their debt," IMF staff wrote in the annual assessment of the country's economy.
Canadian household debt rose to a record 153 per cent of disposable income in the third quarter as borrowing increased, Statistics Canada reported last week.

The Bank of Canada said this month that high consumer debt is the main domestic risk to financial stability, and predicted the burden will keep reaching records as income growth lags behind borrowing.

House prices in some regions are "above levels consistent with economic fundamentals," IMF economists said, citing an average of 10-per-cent overvaluation. A 15-per-cent decline in house prices accompanied by a severe downturn in construction activity "could result in a GDP decline of some 2.5 per cent over a period of two years relative to the baseline," IMF staff economists
said in the report.

Finance Minister Jim Flaherty tightened mortgage lending rules earlier this year. The authorities are ready to consider additional measures if the slowdown in the growth of mortgage debt is temporary, according to the IMF report.

Potential measures the IMF suggested include larger down-payments requirements for new mortgages and a lower ratio of debt service to income.
Canadian officials are not ready to consider targeting specific provinces where prices have increased faster, according to the report.

The IMF also recommended a review of Canada Mortgage and Housing Corporation, the largest provider of mortgage insurance in Canada, even though stress tests showed that it can weather a severe economic downturn.

"Since CMHC is now one of the largest financial institutions in Canada and the key backstop to the housing market it would be useful to undertake a review aimed at ensuring that CMHC has a modern and effective governance structure and supervision, and assessing the scope for further strengthening its risk management," the IMF said.

The IMF expects growth in Canada to slow to 1.9 per cent next year from 2.2 per cent this year, before accelerating to 2.5 per cent in 2013.

The European debt crisis poses a risk to Canada, even though direct financial and trade links are small, according to the report.

The Canadian dollar is "on the strong side of fundamentals," the IMF staff estimated.
The IMF said it is appropriate for the central bank to keep interest rates "exceptionally low for some time." The Ottawa-based central bank this month left its target for overnight loans between commercial banks at one per cent, where it has been since September 2010.

"On the other hand, should the recovery be accompanied by further sustained increases in mortgage debt as a share of disposable income spurred by low interest rates, a tightening of macro-prudential policies by the government may be needed," it said.

Should the economy weaken, most directors on the IMF executive board, when meeting on the staff report, also added that "there is scope for further monetary easing."

© Copyright (c) The Ottawa Citizen

End of article

~~~~~

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Read more:http://www.ottawacitizen.com/business/Debt+levels+house+prices+prompt+alert/5901953/story.html#ixzz1hMdNv0cR

CIBC’s Gibson Sees Canadian Equity Rally as Europe Averts ‘Armageddon’

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CIBC’s Gibson Sees Canadian Equity Rally as Europe Averts ‘Armageddon’

Q

By Matt Walcoff - Dec 21, 2011 1:11 PM ET

Canadian stocks will gain 19 percent next year should European leaders spend as much as 2 trillion euros ($2.6 trillion) to solve the region’s debt crisis, says Peter Gibson, the Canadian Imperial Bank of Commerce strategist.

The Standard & Poor’s/TSX Composite Index may climb to 14,000 from yesterday’s close of 11,716.88, provided that world leaders spend enough money to reassure investors. Failure to do so may lead to a new financial crisis, a breakup of the euro region and a recession in the U.S., said Gibson, who has been named Canada’s top quantitative analyst 21 times in annual Brendan Wood International surveys of money managers.

“We continue to believe that Europe is ultimately going to do what they have to do,” Gibson, 54, said in a telephone interview from Toronto. “If Europe does the right thing, you’ve got a shot at a two- or three-year recovery. If Europe fails to act, it’s Armageddon.”

Canada’s benchmark stock index fell 13 percent this year through yesterday, led by raw-materials and energy stocks, on concern Europe’s debt troubles will limit economic growth. The two industries make up 48 percent of Canadian equities by market value, according to data compiled by Bloomberg. Gibson estimates there is about a 70 percent chance 2012 will see a resolution of the European debt situation and a delay in what he sees as an inevitable real estate and banking crisis in China.

Infusion Needed

It will take the infusion of 750 billion euros to 1 trillion euros into German and French banks and another 1 trillion euros for economies in the European periphery for the crisis to subside, according to Gibson, who said in 2004 the euro might face a breakdown by 2010.
“It has to be a big and overwhelming strategy,” said Gibson, whose bank is Canada’s fifth-largest by assets.

Italian government-bond yields below 4 percent would indicate market acceptance of a debt-crisis solution, Gibson said. Ten-year Italian debt yielded 6.61 percent yesterday. The yield
was last below 4 percent in November 2010.

Should that scenario occur, energy and materials companies, which are sensitive to economic growth, will outperform after lagging behind more-defensive stocks in 2011, Gibson said. Smaller equities would also rally after the S&P/TSX Smallcap Index tumbled 19 percent this year through yesterday.

As energy and materials companies’ share of Canadian stocks is almost three times their proportion of U.S. stocks by market value, Canadian equities would outgain their U.S. counterparts, Gibson said. CIBC’s Investment Strategy Committee forecasts the S&P 500 will advance to 1,260 next year, which would mark a 1.5 percent increase from yesterday’s close.

Currency Rally

“If the right thing is done, oil probably rebounds to over $100 a barrel,” Gibson said. “You would expect the Canadian dollar would be back above parity. You would expect the TSX to outperform.”

The CIBC strategy committee recommends investors have most of their holdings in equities. Its model portfolio for more- risk-tolerant investors has 65 percent of its holdings in Canadian stocks and none in U.S. equities. The committee’s 2012 estimate for the S&P/TSX is 13,000.
Gibson agreed a case could be made for investors to hesitate, considering the 30 percent chance the S&P/TSX could face a plunge like that of the bear market from June 2008 to March 2009, when it slumped 50 percent.

“The two outcomes in front of us are very, very different,” he said. “It’s just a classic binary decision.”

To contact the reporter on this story: Matt Walcoff in Toronto at mwalcoff1@bloomberg.net

End of Article

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About Synergy Debt Group
Synergy Debt Group enables consumers caught in the, "Minimum Monthly Payment Trap" to become debt free, providing an alternative to bankruptcy and the damages that come with it.

At Synergy Debt Group, we make it possible for our customers to achieve their financial
goals and gain independence from creditors quickly. If you are serious about getting out
of debt, preserving your credit, and saving money; give Synergy Debt Group a call today for
a free consultation.