Bank of Canada Leaves Rate Unchanged

In a move that was expected, the Bank of Canada left the overnight lending rate unchanged at 2.5%. The economy is doing well led by solid consumer spending and employment numbers, which would normally spark inflation concerns at the BOC and the possibility of an upward rate trend. But while the loonie dropped on the news, it's overall strength and 30% surge in value since 2003 serves as the prime impetus for the Bank of Canada to continue toe a cautious line when it comes to raising rates.

"The Bank of Canada sees a much bigger hit from the Canadian dollar and is likely to stay on hold much longer than anyone anticipated," said John Johnston, chief strategist at The Harbour Group in Toronto, a unit of RBC Dominion Securities.

They sent a very clear message that their primary concern is the impact of the Canadian dollar," said Craig Alexander, deputy chief economist at TD Bank Financial Group in Toronto. "It doesn't look like the Canadian economy is facing any dire economic scenario, so the Bank of Canada is taking a prudent decision in holding the line on rates.

"The housing market is going to have another good year," Geoff Mackey, chief executive of Superior Plus Income Fund in Calgary, said Jan. 7. Superior purchased Winroc, a distributor of wall and ceiling construction products last June. - Bloomberg

Bank of Canada Keeps Rate at 2.5%, Cites Dollar Drag [Bloomberg]
Logo: [Bank of Canada]

January 26, 2005 in Money Matters | Permalink

More On The Move

Approximately 110,000 relocations by Canadian companies take place annually at a cost of about $1 billion, according to a recent report commissioned by Royal LePage Relocation Services (RLRS). But beyond the raw data, some trends are apparent that indicate some companies arent managing the process as effectively as they might.

The "Emerging Trends in Employee Mobility" report, an in-depth survey from 100 Canadian-based companies, notes that the average Canadian company invests almost $20,000 to move a single employee to another location in the country, while large companies (over 1000 people) typically spend almost double that figure. Companies with more than 100 employees and multiple locations account for approximately 40,000 relocations a year in Canada. These companies spend a whopping $800 million annually on employee mobility.

One key trend is that relocations overall are on the increase. Almost 35 per cent of the companies in the survey indicated that their transfer volume had increased. However, temporary assignments (short-term assignments in which the employees have a reasonable expectation of returning to their original location) have increased in popularity over the past three years, according to the survey findings, and will likely continue to grow over the next three years. Temporary assignments accounted for about one in every five employee transfers - just fewer than 8,000 relocations a year for companies with more than 100 employees. Almost half of all large companies have used temporary relocations at one time or another.

According to survey respondents, many companies see temporary assignments as less expensive and less stressful on employees than permanent relocations. This is primarily because temporary relocations eliminate real estate costs and avoid the permanent relocation of an entire family.

Canadian companies face challenges in employee relocation [ConnectIT e-News Daily]

January 24, 2005 in Money Matters | Permalink

The Mortgage Or The RRSP?

It's not hard to figure out where Canadians are spending their investment money these days. Real estate sales have hit record levels for several years in a row. The vacation property market is hot. Renovation contractors and building material retailers have never been busier.

With interest rates not expected to rise for some time, Canadians will keep pouring money into their homes for at least the next couple of years. Manulife Financial, which maintains the quarterly Investor Sentiment index, says that investing in their own homes, either through renovations or paying down the mortgage, is the most popular place for Canadians to put their money. In the most recent survey, 65 per cent of respondents said it's a good or a very good time to invest in their own residences, which was up five points from the September survey.

Real estate other than their own homes was the second most popular investment, up three points from September.

Manulife says the leading non-real estate investment vehicle is the Registered Retirement Savings Plan (RRSP). The RRSP index suffered a drop in September, but it bounced back in December. In the most recent survey, 63 per cent of respondents said it was a good or very good time to put money into RRSPs.

RRSPs are popular among Canadians as a retirement "nest egg," because they offer tax breaks as they increase in value. Many Canadians have also taken advantage of the federal government's Home Buyer's Plan, which allows buyers to withdraw up to $20,000 from their RRSP to help pay for a home. The money is tax-free as long as it is repaid within 15 years. More than a million people have taken advantage of this feature since the plan was introduced in 1992.

This is the time of year when companies that sell RRSPs are bombarding consumers with reminders that time is running out to "top up" their RRSP contributions for the 2004 tax year. Homeowners with a little extra money are faced with the question of whether it's better to contribute to their RRSP, thus adding to their savings and reducing their tax load, or paying down their mortgage, which is never a bad thing because it increases the equity in your home.

Some financial planners say it's best to contribute to an RRSP and use your tax refund to pay down the mortgage. Mortgage interest rates, while not as good as last year, are still very low by historic standards so you may be able to get a better return within your RRSP than what you'll save on mortgage interest payments.

Others say that depending on the size of the mortgage and your age, you may be better off to put all the money toward the mortgage to reduce the amount you pay in the long term. Toronto real estate lawyer Bob Aaron took a look at almost 200 Canadian websites to get opinions on the matter, and he concluded that many of the sites had misleading or incorrect information. Most are sponsored by companies that earn commissions on RRSP contributions, while no one earns a fee when a homeowner pays down his mortgage.

The best advice is to take a close look at your own financial situation, taking into account the mortgage interest rates versus the expected return of the RRSP; your age and the length of time in the mortgage or RRSP; the availability of RRSP contribution room; your income; whether you are self-employed and/or have a company pension plan; and whether you can capitalize on mortgage prepayment privileges.

Generally speaking, if it's a long-term investment, you may be better off going with the RRSP. But if you are in a low-income tax bracket and are struggling to meet mortgage payments, it makes more sense to put as much as you can toward the mortgage and leave the RRSP contributions for later. Get some unbiased financial advice.

Another recent survey, by The Investors Group suggests that there's a sharp contrast between what baby boomers are planning for their retirement years, and the lifestyles of current retirees.

For example, Investors Group says 28 per cent of baby boomers say they plan to purchase a vacation property, motor home or boat in their retirement, but only 15 per cent of retired Canadians have actually done so, or plan such a purchase.

Investors Group says the boomers will "redefine" retirement and be more active than current retirees. But the poll also found that 56 per cent of baby boomers had not figured out how much income they will need during retirement, or how much they needed to save or invest to reach this target.

The company suggests that as you approach retirement, you should take the time to define your goals for retirement -- such as whether you want to travel or buy a vacation property. Work with a professional financial planner to determine how much after-tax income your savings and pension plans will generate, and then develop a strategy to achieve your retirement goals with specific savings and investment plans. Finally, monitor the strategy annually and make adjustments for any changes in your goals or personal situation.

Canadians' Investment Dilemma: The Mortgage Or The RRSP?
[Realty Times]

January 14, 2005 in Money Matters | Permalink

Urban Home Ownership Pays Off

Owning versus renting is a debate that resonated with a stronger tone when mortgage rates were not tickling 40-year lows as they have been in recent years. Home ownership is still the end-goal for many renters and a just-released Statistics Canada report confirms that owners fared better than renters over the 10-year period examined for the report.

The proportion of owned accommodation in Canada increased from almost 63 per cent in 1991 to nearly 66 per cent 10 years later. The largest increase during the decade occurred in Calgary where home-ownership rates jumped 10 per cent, but still fell short of the highest proportion of home ownership: in Oshawa, Ontario, more than three-quarters of all households owned their own home.

Households that rented were much less likely to live in affordable housing than property owners, meaning that they were more likely to spend 30 per cent or more of their total before-tax household income for shelter. Lower household incomes among these renters meant they could not qualify for "cheaper to buy than rent" mortgages that converted more financially-sound tenants into owners.

The net effect over the decade was that the proportion of owners living in affordable housing rose, while that of renters declined. As property values increased in the following years, these owners have benefitted financially from their initial investment. - PJ Wade: Realty Times

Canadian Urban Home Ownership Rising [Realty Times]

January 12, 2005 in Money Matters | Permalink

2005 Outlook: Signal vs. Noise.

Just a few short months ago, the Bank of Canada was raising rates in response to a surging economy and impending inflation concerns. However, when your dollar spikes 40% in value in the short span of two years and you're an export country, there are bound to be some consequences. These are the early signals;

Despite the apparent health of the economy this year, experts say trouble is brewing beneath the surface. That was becoming much more apparent by December. The Bank of Canada, which initially feared strong growth would trigger inflation, raised rates in September and October to 2.5 per cent. But by December, it suddenly noticed the dollar's drag on the economy and took a break from raising interest rates. Analysts now predict the central bank could leave its key policy rate at 2.5 per cent through the first half of 2005.

The noise on the street is resonating a calmer tone for the 2005 market as compared to the feverish pace we've seen in recent years. However, with the vital signs that drive the market continuing to look favourable to start the year, 2005 is shaping up to be another active year in residential real estate in the Lower Mainland.

December 29, 2004 in Money Matters | Permalink


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