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From the NY Times.
The US has raised the Estimate for the 10 year Deficit to $9 Million.
The Obama administration blamed an unexpectedly deep downturn for the higher estimate, which rose from $7.1 trillion.
Tuesday, August 25, 2009
Sunday, August 16, 2009
Buying - As the market flexes
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Looking closer at the "purchase investment formula".
Thinking of using low interest rates to purchase? Mortgages are a two part formula...the rate...and the factor of time. And the factor of time is hinged on the expectation of future conditions...or "speculation".
Let’s run this model....
$310,000 purchase with 5% down ($15,500) = $294,500.
Your $310,000 purchase also includes closing costs expenses. With 5% down your CMHC fees are likely to be about $8,000. (If you’re like most you’ll attach this to your mortgage). $294,500 + $8,000 = $302,500 mortgage.
Land transfer tax and closing costs account for a sizable and unrecoverable expense. First time buyers would be looking at an amount no less than $3,500 in this example. Minimum upfront cost, down payment + closing costs: $19,000
Your $302,500 mortgage @ 4% with a 5 year term = $1,591.21 per month. Balance at the end of the 5 year term $263,338.
Paying down $39,162 of your financed principal seems like you are ahead in the equity game...but let’s not forget that time is a factor in this mortgage formula.
Let’s input what the refinancing would look like if the rates were to change, being reasonable of course, using inflationary figure experienced in the past.
Refinancing the balance of $263,338 with a new 5 year term @ 6% = $ 1,684.85 per month...and at 7% = $1,844.46...and at 8% = $2,009.83
What about falling values?
As rates go up values go down. (Buying power is weakened). Picking through the analogues of the cities (Toronto’s) past reveals definitive examples.
Example #1
2 bedroom + den condo. North York.
xx yonge st. unit #101 List Price: $227,900 Sold Price: $212,500 89.3% of list. SOLD 11/27/1989
xx yonge st. unit #101 List Price: $168,800 Sold Price: $163,500 96.8% of list. SOLD 06/27/1997
xx yonge st. unit #101 List Price: $214,900 Sold Price: $204,000 94.9% of list. SOLD 11/27/1989
xx yonge st. unit #101 List Price: $239,000 Sold Price: $235,000 98.3% of list. SOLD 09/01/2007
In the example above we see that between 1989 and 1997 (through an eight year period) the subject lost 26% of its value. Now the interesting part of this observation is that if you go back through the pages of history, and study the sales of homes and condos throughout the GTA, you will find this pattern of value depreciation repeating, in a more or less similarly remedial measure at this time. Like a distinct "ring of deflation".
Now, going back to the $310,000 purchase. Just to entertain the idea of value depreciation, let’s assume that the depreciation is 15% of its purchase price by the end of the 5 year term. That amounts to a “market value” of $263,500 (or a depreciation of $46,500).
If mortgage rates proved unaffordable to refinance, selling at $263,500 would cost $13,175 + GST (or HST) in commission + mortgage discharge penalties.
The key here is NOT to purchase at the TOP END of your affordability/qualification.
Stay tuned for the next BLOG subject. I’ll be dissecting current conditions and weighing them against past.
.
Looking closer at the "purchase investment formula".
Thinking of using low interest rates to purchase? Mortgages are a two part formula...the rate...and the factor of time. And the factor of time is hinged on the expectation of future conditions...or "speculation".
Let’s run this model....
$310,000 purchase with 5% down ($15,500) = $294,500.
Your $310,000 purchase also includes closing costs expenses. With 5% down your CMHC fees are likely to be about $8,000. (If you’re like most you’ll attach this to your mortgage). $294,500 + $8,000 = $302,500 mortgage.
Land transfer tax and closing costs account for a sizable and unrecoverable expense. First time buyers would be looking at an amount no less than $3,500 in this example. Minimum upfront cost, down payment + closing costs: $19,000
Your $302,500 mortgage @ 4% with a 5 year term = $1,591.21 per month. Balance at the end of the 5 year term $263,338.
Paying down $39,162 of your financed principal seems like you are ahead in the equity game...but let’s not forget that time is a factor in this mortgage formula.
Let’s input what the refinancing would look like if the rates were to change, being reasonable of course, using inflationary figure experienced in the past.
Refinancing the balance of $263,338 with a new 5 year term @ 6% = $ 1,684.85 per month...and at 7% = $1,844.46...and at 8% = $2,009.83
What about falling values?
As rates go up values go down. (Buying power is weakened). Picking through the analogues of the cities (Toronto’s) past reveals definitive examples.
Example #1
2 bedroom + den condo. North York.
xx yonge st. unit #101 List Price: $227,900 Sold Price: $212,500 89.3% of list. SOLD 11/27/1989
xx yonge st. unit #101 List Price: $168,800 Sold Price: $163,500 96.8% of list. SOLD 06/27/1997
xx yonge st. unit #101 List Price: $214,900 Sold Price: $204,000 94.9% of list. SOLD 11/27/1989
xx yonge st. unit #101 List Price: $239,000 Sold Price: $235,000 98.3% of list. SOLD 09/01/2007
In the example above we see that between 1989 and 1997 (through an eight year period) the subject lost 26% of its value. Now the interesting part of this observation is that if you go back through the pages of history, and study the sales of homes and condos throughout the GTA, you will find this pattern of value depreciation repeating, in a more or less similarly remedial measure at this time. Like a distinct "ring of deflation".
Now, going back to the $310,000 purchase. Just to entertain the idea of value depreciation, let’s assume that the depreciation is 15% of its purchase price by the end of the 5 year term. That amounts to a “market value” of $263,500 (or a depreciation of $46,500).
If mortgage rates proved unaffordable to refinance, selling at $263,500 would cost $13,175 + GST (or HST) in commission + mortgage discharge penalties.
The key here is NOT to purchase at the TOP END of your affordability/qualification.
Stay tuned for the next BLOG subject. I’ll be dissecting current conditions and weighing them against past.
Canadian economics and coffee
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As coffee is the worlds second largest (legally traded) commodity, this news "factoid" has greater significance than would appear on the surface.
Friday August 14. Canadian Press.
"Second Cup reports drop in second-quarter earnings compared with year ago."
Second Cup Royalty Income Fund (TSX: SCU-UN.TO)
...said Friday it expects to close more coffee shops this year than it had earlier expected (to) as it reported (a) drop in second-quarter earnings compared with a year ago, as sales at its coffee shops fell.
In its outlook for the year, Second Cup said Friday it expects to close 25 to 30 cafes this year, compared with earlier guidance of 15 to 20 cafes as part of an effort to close unprofitable company-owned cafes to improve overall earnings.
Second Cup said it expects to open 10 to 15 new cafes in Canada and to renovate 20 to 24 of its cafes.
There were 359 cafes included in the fund's royalty pool at June 30. Hurt by the downturn in the economy, the coffee shop income trust said it earned $2.3 million or 23 cents per unit for the quarter (that) ended June 30, compared with a profit of $2.9 million or 30 cents per unit a year ago.
Sales of cafes included in the fund's royalty pool totalled $46.5 million, down from $49.1 million.
Same cafe sales were down 4.7 per cent compared with 0.9 per cent growth a year ago. Year-to-day, same cafe sales were down 3.9 per cent compared with 1.1 per cent growth in the first six months of 2008.
"While the impact of the economy in Canada continues to adversely affect same cafe sales for Second Cup, we continue to focus on the outstanding quality of our products." Second Cup president and chief executive Stacey Mowbray said.
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As coffee is the worlds second largest (legally traded) commodity, this news "factoid" has greater significance than would appear on the surface.
Friday August 14. Canadian Press.
"Second Cup reports drop in second-quarter earnings compared with year ago."
Second Cup Royalty Income Fund (TSX: SCU-UN.TO)
...said Friday it expects to close more coffee shops this year than it had earlier expected (to) as it reported (a) drop in second-quarter earnings compared with a year ago, as sales at its coffee shops fell.
In its outlook for the year, Second Cup said Friday it expects to close 25 to 30 cafes this year, compared with earlier guidance of 15 to 20 cafes as part of an effort to close unprofitable company-owned cafes to improve overall earnings.
Second Cup said it expects to open 10 to 15 new cafes in Canada and to renovate 20 to 24 of its cafes.
There were 359 cafes included in the fund's royalty pool at June 30. Hurt by the downturn in the economy, the coffee shop income trust said it earned $2.3 million or 23 cents per unit for the quarter (that) ended June 30, compared with a profit of $2.9 million or 30 cents per unit a year ago.
Sales of cafes included in the fund's royalty pool totalled $46.5 million, down from $49.1 million.
Same cafe sales were down 4.7 per cent compared with 0.9 per cent growth a year ago. Year-to-day, same cafe sales were down 3.9 per cent compared with 1.1 per cent growth in the first six months of 2008.
"While the impact of the economy in Canada continues to adversely affect same cafe sales for Second Cup, we continue to focus on the outstanding quality of our products." Second Cup president and chief executive Stacey Mowbray said.
Thursday, August 13, 2009
some, Euro markets "rebound?"
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Germany and France "exit recession".
BERLIN/PARIS (Reuters) - Germany and France achieved a shock return to economic growth in the second quarter of the year, ending their recessions earlier than many policymakers and economists expected, but failed to drag the euro zone with them.
German gross domestic product rose by 0.3 percent in the second quarter, bringing an end to the country's deepest recession since World War Two.
French GDP also grew by 0.3 percent in the second quarter. The consensus in a Reuters poll of economists had predicted a 0.3 percent quarterly contraction in both countries.
However, in the 16-nation euro zone, GDP slid by 0.1 percent on the quarter, following a 2.5 percent drop in the first quarter. Though this was well above the 0.5 percent fall forecast before the French and German figures were released.
Aside from the euro zone's big two biggest economies, other member nations continue to contract - Italy's economy dropped by 0.5 percent in the second quarter, Austria and Belgium shrank by 0.4 percent and the Netherlands contracted by 0.9.
Greece and Portugal, though, grew by 0.3 percent.
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Germany and France "exit recession".
BERLIN/PARIS (Reuters) - Germany and France achieved a shock return to economic growth in the second quarter of the year, ending their recessions earlier than many policymakers and economists expected, but failed to drag the euro zone with them.
German gross domestic product rose by 0.3 percent in the second quarter, bringing an end to the country's deepest recession since World War Two.
French GDP also grew by 0.3 percent in the second quarter. The consensus in a Reuters poll of economists had predicted a 0.3 percent quarterly contraction in both countries.
However, in the 16-nation euro zone, GDP slid by 0.1 percent on the quarter, following a 2.5 percent drop in the first quarter. Though this was well above the 0.5 percent fall forecast before the French and German figures were released.
Aside from the euro zone's big two biggest economies, other member nations continue to contract - Italy's economy dropped by 0.5 percent in the second quarter, Austria and Belgium shrank by 0.4 percent and the Netherlands contracted by 0.9.
Greece and Portugal, though, grew by 0.3 percent.
US market: retail & unemployement data for July
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WASHINGTON (Reuters) - Sales at U.S. retailers unexpectedly fell in July and the number of workers filing new claims for jobless benefits rose last week, indicating the recession-hit economy faced a bumpy recovery.
A Commerce Department report on Thursday showed total retail sales edged down 0.1 percent after increasing 0.8 percent in June, compared with market forecasts for a 0.7 percent gain.
A separate report from the Labor Department showed first-time applications for state unemployment insurance benefits climbed 4,000 to a seasonally adjusted 558,000 last week.
The retail sales data cast a shadow over an anticipated rebound in consumer spending in the current quarter. Spending, which accounts for over two-thirds of U.S. economic activity has been pressured by high unemployment.
In the United States, the decline in July retail sales was partially caused by gasoline station sales falling 2.1 percent, reflecting a retreat in gasoline prices during the month, after surging 6.3 percent in June.
Excluding gasoline, retail sales nudged up 0.1 percent.
Consumer spending fell at a 1.2 percent annual rate in the second quarter after edging up 0.6 percent in the January-March period. Despite signs the worst recession in over 60 years was winding down, companies have been reluctant to hire, though the pace of layoffs has slowed down markedly.
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WASHINGTON (Reuters) - Sales at U.S. retailers unexpectedly fell in July and the number of workers filing new claims for jobless benefits rose last week, indicating the recession-hit economy faced a bumpy recovery.
A Commerce Department report on Thursday showed total retail sales edged down 0.1 percent after increasing 0.8 percent in June, compared with market forecasts for a 0.7 percent gain.
A separate report from the Labor Department showed first-time applications for state unemployment insurance benefits climbed 4,000 to a seasonally adjusted 558,000 last week.
The retail sales data cast a shadow over an anticipated rebound in consumer spending in the current quarter. Spending, which accounts for over two-thirds of U.S. economic activity has been pressured by high unemployment.
In the United States, the decline in July retail sales was partially caused by gasoline station sales falling 2.1 percent, reflecting a retreat in gasoline prices during the month, after surging 6.3 percent in June.
Excluding gasoline, retail sales nudged up 0.1 percent.
Consumer spending fell at a 1.2 percent annual rate in the second quarter after edging up 0.6 percent in the January-March period. Despite signs the worst recession in over 60 years was winding down, companies have been reluctant to hire, though the pace of layoffs has slowed down markedly.
US market: foreclosures on the rise, still.
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Foreclosures Rose 7% in July.
Foreclosure activity jumped 7 percent in July from June and 32 percent from a year earlier, as one in every 355 households with a loan got a foreclosure filing, RealtyTrac said.
According to RealtyTrac, more than 360,000 households received foreclosure-related notices in July. Banks also seized 87,000 homes last month, up from 79,000 in June.
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Foreclosures Rose 7% in July.
Foreclosure activity jumped 7 percent in July from June and 32 percent from a year earlier, as one in every 355 households with a loan got a foreclosure filing, RealtyTrac said.
According to RealtyTrac, more than 360,000 households received foreclosure-related notices in July. Banks also seized 87,000 homes last month, up from 79,000 in June.
Toronto: Housing Starts, preliminary data from CMHC
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The seasonally-adjusted annual rate (SAAR) of total housing starts dipped down to 19,800 units in July according to preliminary housing starts data released today by the Canada Mortgage and Housing Corporation (CMHC) for theToronto Census Metropolitan Area (CMA).
All low-rise housing segments recorded increasesin July, which brought total starts within 20 per cent of last year’s July figure. Strong demand and a fleeting supply of new resale listings have created a spill-over of buyers into the new home market in recent months.
CMHC’s Senior Market Analyst for the GTA, Shaun Hildebrand, stated in this latest report "Look for this sales momentum and a sizeable backlog of high-rise units nearing the construction stage to boost starts in thesecond half (of the period)”
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The seasonally-adjusted annual rate (SAAR) of total housing starts dipped down to 19,800 units in July according to preliminary housing starts data released today by the Canada Mortgage and Housing Corporation (CMHC) for theToronto Census Metropolitan Area (CMA).
All low-rise housing segments recorded increasesin July, which brought total starts within 20 per cent of last year’s July figure. Strong demand and a fleeting supply of new resale listings have created a spill-over of buyers into the new home market in recent months.
CMHC’s Senior Market Analyst for the GTA, Shaun Hildebrand, stated in this latest report "Look for this sales momentum and a sizeable backlog of high-rise units nearing the construction stage to boost starts in thesecond half (of the period)”
Wednesday, August 12, 2009
Toronto: July Market Watch, "still climbing?"
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TREB’s (Toronto Real Estate Board) July market watch reports resale record in July.
August, 2009 - In July 2009, Greater Toronto REALTORS® reported a record 9,967 sales, up 28 % from July 2008. The average price for July transactions was $395,414. This figure is up by six per cent in comparison to the same month of last year.
* No data is apparent that indicates what the ratio is for sales of homes v. condos.
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TREB’s (Toronto Real Estate Board) July market watch reports resale record in July.
August, 2009 - In July 2009, Greater Toronto REALTORS® reported a record 9,967 sales, up 28 % from July 2008. The average price for July transactions was $395,414. This figure is up by six per cent in comparison to the same month of last year.
* No data is apparent that indicates what the ratio is for sales of homes v. condos.
Monday, August 10, 2009
US economy: banks, earn record fees "cha-ching"
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Banks to collect a record $38 Billion from overdraft fees.
As an indicator of how people are reaching for assistance and falling further behind doing so...the Financial Times reports US banks stand to collect a record $38 billion in fees for customer overdrafts this year. The bulk of the fees will be paid by the most financially stretched consumers. At Bank of America, a customer overdrawn by as little as $6 could trigger a $35 penalty. If the customer does not realize they have a negative balance and continues spending, they could incur that fee as many as ten times in a single day, for a total of $350.
As a further example of the marketplace of debt servitude, there are more "payday loan" operations in the US today than there are franchises of McDonald's and Starbucks combined. These operations are usually situated in poor urban neighbourhoods, perpetuating a cycle of debt servitude with entrapping interest rates.
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Banks to collect a record $38 Billion from overdraft fees.
As an indicator of how people are reaching for assistance and falling further behind doing so...the Financial Times reports US banks stand to collect a record $38 billion in fees for customer overdrafts this year. The bulk of the fees will be paid by the most financially stretched consumers. At Bank of America, a customer overdrawn by as little as $6 could trigger a $35 penalty. If the customer does not realize they have a negative balance and continues spending, they could incur that fee as many as ten times in a single day, for a total of $350.
As a further example of the marketplace of debt servitude, there are more "payday loan" operations in the US today than there are franchises of McDonald's and Starbucks combined. These operations are usually situated in poor urban neighbourhoods, perpetuating a cycle of debt servitude with entrapping interest rates.
Saturday, August 8, 2009
US market: property values "predict 2 year slide"
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Study says: 48% of homeowners headed to owe more than the home’s (market) value.
...in the United States, a new study says the number of Americans owing more than their home is worth will see a major rise in the next two years. According to Deutsche Bank, 48 percent of homeowners will have mortgages surpassing their home value by 2011, up from 26 percent this year.
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Study says: 48% of homeowners headed to owe more than the home’s (market) value.
...in the United States, a new study says the number of Americans owing more than their home is worth will see a major rise in the next two years. According to Deutsche Bank, 48 percent of homeowners will have mortgages surpassing their home value by 2011, up from 26 percent this year.
Tuesday, July 28, 2009
US market: government foreclosure remedy "failing to provide"
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Efforts to Reduce Foreclosures Falls Short
The Wall Street Journal reports an Obama administration effort to reduce home foreclosures by lowering the mortgage payments of struggling borrowers is failing to help as many people as expected.
Administration officials have summoned executives of twenty-five mortgage-servicing companies to Washington today to discuss efforts to help borrowers. Bank of America is only this month beginning to implement the Obama plan for all at-risk borrowers. Wells Fargo didn’t begin offering some at-risk borrowers loan modifications under the Obama plan until early June. Meanwhile, the Washington Post reports government initiatives to stem the country’s mounting foreclosures have also been hampered because banks and other lenders in many cases have more financial incentive to let borrowers lose their homes than to work out settlements.
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Efforts to Reduce Foreclosures Falls Short
The Wall Street Journal reports an Obama administration effort to reduce home foreclosures by lowering the mortgage payments of struggling borrowers is failing to help as many people as expected.
Administration officials have summoned executives of twenty-five mortgage-servicing companies to Washington today to discuss efforts to help borrowers. Bank of America is only this month beginning to implement the Obama plan for all at-risk borrowers. Wells Fargo didn’t begin offering some at-risk borrowers loan modifications under the Obama plan until early June. Meanwhile, the Washington Post reports government initiatives to stem the country’s mounting foreclosures have also been hampered because banks and other lenders in many cases have more financial incentive to let borrowers lose their homes than to work out settlements.
Thursday, July 23, 2009
US market: banks set aside $74 Billion for bonuses
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Top Banks set aside $74 Billion for bonuses...
...new figures show some of the top beneficiaries of the Wall Street bailout are increasing their employee bonuses from the previous year. According to the Washington Post, the top six US banks have allotted $74 billion to pay their employees, up from $60 billion at the same point last year.
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Top Banks set aside $74 Billion for bonuses...
...new figures show some of the top beneficiaries of the Wall Street bailout are increasing their employee bonuses from the previous year. According to the Washington Post, the top six US banks have allotted $74 billion to pay their employees, up from $60 billion at the same point last year.
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