This week’s top stories include what to expect from your home inspection, how the U.S. is expected to have slower growth in the up and coming months, how BMO and RBC banks have been blasted for providing mortgages on grow-op houses, how factory sales were up in the month of April, how U.S. home constuction took a nose dive in the month of May, how the real estate market slowed drastically across Canada in May, how Canada’s foreign debt rose in the first quarter of this year and how Canada’s wholesale trade unexpectedly fell in the month of April.
Home Inspections
For the cost of roughly $500 you can buy yourself some piece of mind when purchasing a home. This is what the cost is for a home inspection. Home inspectors can tell you the quality of the home that you are purchasing by identifying repairs that need to be made and at what cost. This helps reduce costly repair surprises that could catch you off guard at a later date.
The home inspector’s role is to analyze the structure and all major systems including but not limited to, the roof, electrical, exterior, cooling, plumbing and heating. They also do thorough inspections of the foundation, windows and check for mould behind the walls. It is in your best interest to arrange a home inspection in advance to you purchasing a home. If you would like to find out more about home inspections, check out our inspection vs. appraisal page or contact me directly.
Slower U.S. growth
There is talk again of a double dip in the U.S. market on the most recent U.S. retail sales numbers. The drop of 1.2% in retail sales was the worst showing since September 2009. More than half of the decline was attributed to a record decline in activity at building materials stores according to Stefane Marion, chief economist strategist at National Bank Financial.
He noted that most material stores are coming off their best two months of sales on record, aided through government subsidy programs. He says that the level of retail sales is now returning to a more sustainable pace. Marion also stated that as long as wages keep growing, sales will have nowhere to go but up. After seeing sales grow at an annual rate of 8% in recent months it was inevitable to see a decline because the pace was not a sustainable one.
Marion now expects growth to decline to roughly 4% annually in the up and coming months. This would be more in line with income growth moving forward. He stated, “There is an important distinction that needs to be made between slower growth and a double dip.” I have to agree but what do you think? Please comment below.
BMO & RBC blasted
Two of Canada’s main banks are under fire from the B.C. government agency that over see’s the hunting of proceeds of crime. It has blamed the banks for being “willfully blind” and reckless by granting large mortgages to a Vancouver man on a property being used as a marijuana grow-op.
This civil case not only has the potential to set legal precedent but will also create embarrassment for the Royal Bank of Canada and the Bank of Montreal. The agency has asked the B.C. Supreme Court for full or partial forfeiture of the banks interest in the mortgages. The Civil Forfeiture Office (CFO) states that the banks were either aware of or willfully blind to the fact that approving the mortgages would allow money laundering through the property and the institutions.
The writ filed by the CFO claims, “All or part of Mr. Le’s income is derived from unauthorized production of cannabis marijuana. BMO and RBC had actual knowledge, were recklessly indifferent towards, or were willfully blind to the fact that the approval of funding of the BMO mortgage and the RBC mortgage permitted the property to be used as an instrument to launder the proceeds of crime.”
Last year in August, Vancouver police raided Le’s home and found large marijuana grow operation. Just two days later, Le sought and received a $70 000 mortgage from RBC on the property. Ten months earlier, BMO refinanced Le’s mortgage for $976 000 just 15 months after he’d bought the home from his grow partner for $980 000. Both times, Le was unable to provide evidence that he could make the mortgage payments legitimately. The RBC mortgage was provided at a point when there was no equity in the home.
The ruling could be a public relations nightmare for both banks but especially BMO, which is currently dealing with a mortgage fraud scam in Calgary worth over $10 million. My question is who authorized a mortgage without provable legitimate income? I think it’s about time that the Financial Services Commission steps in and starts regulating banks. They need to take the ability of the banks, to do whatever they want, away from them and regulate in accordance with Canada’s standards. Not just the ombudsman’s standards, who is on their payroll.
Factory sales up
April saw manufacturing sales reach $44.5 billion, advancing 0.2% according to the latest numbers released by Statistics Canada this week. Sales increased in primary metal, petroleum and coal with product manufacturers being offset by a decline in the food sector.
Manufacturing sales have increased in eight of the last ten months. Sales gains were reported in 11 out of 21 industries, which represents 67.8% of total sales. A 3.3% rise in prices has aided manufacturing sales of primary metals, rising to 3.6%. The transportation equipment sector rose 0.7% with the aerospace product and parts sector reporting a 7.1% rise and the motor vehicle industry dropping 1%.
U.S. home construction dives
U.S. home construction took a nose dive in the month of May as it reached lows not seen since December of last year. Builders began to scale back production as the U.S. federal tax credit of up to $8000 expired. Further signs that the economic recovery will not be fuelled by construction were a decrease in building permits.
Construction of new homes and apartments dropped 10% from the previous month to a seasonally adjusted annual rate of 593 000. April’s figures were revised down to 659 000. There was a 17% drop in the single family market as well. This was the largest drop seen in the single family construction sector since the beginning of 1991. Application for new building permits dropped 5.9% to an annual rate of 574 000, which is the lowest figure in the last year.
The latest report seemed to have missed Wall Street expectations by mile. There was previously predictions that housing construction would fall to a seasonally adjusted annual rate of 650 000 and that building permit applications would increase to an annual rate of 630 000. The same analysts now predict that home sales will slow in the latter part of this year as high unemployment remains unchanged and mortgage lending in the U.S. tightens up. What do you think? Please comment below.
Real estate sales slow
After witnessing more than a year of solid gains and multiple offer scenarios on properties, May saw Canada’s resale housing sales slip and price gains come to a halt. The Canadian Real Estate Association (CREA) stated that sales dropped 9.5% in the month of May when compared to April’s numbers.
The average resale price in Canada was up 0.5% to $346 881 with prices still 8.2% higher than last year’s May numbers. CREA stated that the drop in sales is not part of the normal sales patterns of the month and was attributed to tighter mortgage regulations and the threat of higher mortgage interest rates. The average sale price high’s have also priced many out of the market, especially in Ottawa, Vancouver and Toronto.
May was the first month that was effected by these changes and was reflected in the sales activity. The numbers of new listings were also down month over month, with fewer Canadians listing their homes. Listings saw a 4% decline, which are signs that the hot market is beginning to finally cool. At the end of last month there was 6.1 months of inventory on the market and noted to be the highest level on record since April of last year.
CREA economist, Gregory Klump, commented by stating, “The number of months of inventory may rise further in response to easing sales activity and a further rise in the number of active listings. However, the number of newly listed homes will ultimately retreat in response to a more competitive sales and pricing environment in a number of local markets. The outlook for the Canadian economy, employment, and mortgage market trends remain upbeat, so supply and demand will remain balanced on a national basis. Canada will avoid a U.S. style home price correction.”
Canada’s foreign debt rises
Statistics Canada reported yesterday that a stronger currency has lowered the value of investments in other countries and has led to a rise in Canada’s net foreign debt by $40.6 billion to $193.8 billion in the first quarter of this year. International assets dropped by 1.1% to $1.4 trillion in the January to March period.
Statistics Canada commented by saying, “The downward revaluation effect of a rising dollar on the value of Canadian foreign currency denominated assets was $51.1 billion. This effect more than offset the addition of $41.5 billion in Canadian investments abroad in the quarter.” Foreign liabilities were up 1.6% to $1.59 trillion. Most of Canada’s international assets are denominated in foreign currencies, with less than half of our international liabilities in other countries.
Wholesale trade drops
Statistics Canada reported yesterday that lower vehicle sales led to Canadian wholesale trade falling unexpectedly in the month of April. Overall sales were down to $44 billion with a drop of 0.3% after seeing a 1.2% increase in the month of March. Economists had previously expected to see a gain of 0.3% in April.
Statistics Canada stated, “April’s drop in sales was mainly attributable to lower sales in both the motor vehicle and parts sub sector and the miscellaneous sub sector. These declines were partially offset by increased sales of personal and household goods. The other four sub sectors registered slight fluctuations in sales in April.”
Prime Rate: 3%
You Can Also Find Me Here:
Paul Sidhu: Vice President of National Sales
Useful Information: Mortgage 101
Learn More About Your Mortgage:
Now that you know what it takes to get a Canadian mortgage, check out our other handy reference articles filled with Useful Mortgage Tips.