Economic Drivers of Real Estate in Vancouver – DELOITTE

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Real estate market overview and current challenges

October, 2016
Stepping into 2017

Come join me as we learn from Jennifer Podmore-Russell of Deloitte, and her take on where is Vancouver’s real estate marketing heading as we step into 2017. This presentation brought to us courtesy of Wealthminds!

Click here for the full presentation.

I’ve also highlighted below some notable changes in our market which may affect you! Give us a call at (604) 629-7515 or fill out the form below if you’d like to learn more.

Changes in the market – BC’s Foreign Buyer Property Transfer Tax

On July 25, 2016, the BC government introduced legislative changes directed at BC’s residential housing market. The key changes include the introduction of an additional 15% property transfer tax (PTT), effective August 2, 2016, on transfers of residential properties within the Greater Vancouver Regional District (GVRD) to foreign entities or taxable trustees

Government Responses – Preventative Measures for a “Healthy, Competitive and Stable Housing Market”

Legislation release on October 3, 2016 included a “Mortgage rate stress test” for all insured borrowers and closing loopholes for the Principal Residence Exemption.

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B.C. Supreme Court rules in mother-daughter housing dispute

A RECENT B.C. Supreme Court battle should serve as a caveat for relatives thinking of jointly buying property.

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Reblogged from The Georgia Straight | Carlito Pablo

This one pitted a daughter against her mother in connection with a home purchase where they did not put their agreement in writing.

In a July 18, 2014, ruling, Justice Barry Davies reminded us about the pitfalls of “undocumented or under-documented inter-generational ventures entered into amongst family members”.

As Davies observed in his reasons for judgment: “All too often…the best of intentions result in sorrow.”

In the case filed by Catherine Ann Cerenzie and her husband against the woman’s mother, Mary Teresa Duff, “what is lost by all involved…is far more than money.”

“The real loss,” Davies wrote, “is the love and trust which gave rise to the venture in the first place and which likely will never be regained.”

Wading through conflicting testimonies, Davies was able to piece together a narrative around the purchase and eventual sale of 1064 Buoy Drive in Port Coquitlam.

The property was purchased by Duff and her daughter in 2008 out of the younger woman’s desire to have a stable home for her three children. When mortgage financing of $464,000 was first approved, it was contemplated that both Duff and Cerenzie were to be the mortgagors.

“It was only later, after Mrs. Duff advised Mrs. Cerenzie that she would eventually qualify for lower property taxes, that the Buoy Drive Home was conveyed only to Mrs. Duff rather than jointly to her and Mrs. Cerenzie, with Mrs. Cerenzie then becoming a guarantor rather than a co-borrower on the mortgage obtained for its purchase,” Davies recalled.

Duff made a $137,000 down payment, and the Cerenzies contributed $5,000. The Cerenzie family occupied the upstairs of the house, while Duff moved into a suite on the lower floor.

Although there is “insufficient evidence of the specifics of the arrangements”, Davies noted that there was “general agreement” between the parties on buying a suitable home that they could all “collectively afford”.

One aspect of this agreement was that Duff would contribute $500 monthly toward paying off the mortgage and the Cerenzies would shoulder the balance of mortgage payments.

In the spring of 2012, Duff “began to assert sole ownership rights by unilaterally determining to sell the Buoy Drive Home”, Davies wrote.

Davies didn’t go into why there was a falling-out. He noted that there had already been “sufficient discord and recrimination in this litigation to likely irreparably poison the once good relationship between the parties”.

The Cerenzie family was evicted, and Duff sold the house.

During the trial, Duff testified that the Cerenzie family was her tenant, an assertion that the judge rejected. Davies agreed with the plaintiffs’ claim: “In this case, Mr. and Mrs. Cerenzie submit that evidence establishes that they are entitled to a share of the Sale Proceeds both by imposition of a resulting trust or by application of the equitable principle of unjust enrichment.”

The judge determined that the Cerenzies contributed a total of $83,913.86 toward the purchase of the house: their down payment of $5,000 and mortgage payments totalling $78,913.86.

Duff contributed $155,510.66, which is the sum of her down payment of $137,000 and her monthly mortgage payments.

Although Davies agreed that the Cerenzies are entitled to a share of the sale proceeds of $192,682.45, he denied their suggestion that the amount be divided on a pro rata basis or in proportion to overall contributions.

One reason is that Duff made a bigger initial investment to acquire the home, and that should “accordingly entitle her to a greater share of the Sale Proceeds”.

After some adjustments, Davies ruled that Duff is entitled to $136,800, and the Cerenzies, $55,882.45.

Davies also dismissed Duff’s counterclaim that the plaintiffs owe her for damage to the home and loans made by her to Mr. Cerenzie.

As in many cases similar to this, Davies noted, when courts are called to sort out issues, the “result will never be totally satisfactory to the parties”.

Read the original article and more here

CMHC Fees Increasing May 1st

2011_mastheadPrintEnFollowing the February 28th announcement by CMHC – Mortgage Loan Insurance premiums will be increasing as of May 1st.  Insuance premiums will affect all owners buying or refinancing who required insured financing. This includes owners of rental properties. Existing insured mortgages are not affected. CMHC estimates the average Canadian homebuyer requiring insured financing will see an increase of approximately $5 to their monthly mortgage payment.  Feel free to ask us more by leaving a comment at the bottom of the page, and read below for the official bulletin!

CMHC to Increase Mortgage Insurance Premiums

OTTAWA, February 28, 2014 — Following the annual review of its insurance products and capital requirements, CMHC will increase its mortgage loan insurance premiums for homeowner and 1 – 4 unit rental properties effective May 1, 2014.

The increase applies to mortgage loan insurance premiums for owner occupied, self-employed and 1-to-4 unit rental properties, including low-ratio refinance premiums. This does not apply to mortgages currently insured by CMHC.

CMHC’s capital management framework is consistent with international practices and Canadian guidelines for mortgage insurers. Increased capital targets are consistent with Canadian and international industry trends and makes the financial system more stable and resilient.

“The higher premiums reflect CMHC’s higher capital targets” said Steven Mennill, CMHC’s Vice-President, Insurance Operations. “CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long term stability of the financial system.”

For the average Canadian homebuyer requiring CMHC insured financing, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact on the housing market.

Effective May 1st, CMHC Purchase (owner occupied 1 – 4 unit) mortgage insurance premiums will increase by approximately 15%, on average, for all loan-to-value ranges.

Loan-to-Value Ratio Standard Premium (Current) Standard Premium (Effective May 1st, 2014)
Up to and including 65% 0.50% 0.60%
Up to and including 75% 0.65% 0.75%
Up to and including 80% 1.00% 1.25%
Up to and including 85% 1.75% 1.80%
Up to and including 90% 2.00% 2.40%
Up to and including 95% 2.75% 3.15%
90.01% to 95% – Non-Traditional Down Payment 2.90% 3.35%

CMHC reviews its premiums on an annual basis and, going forward, plans to announce decisions on premiums in the first quarter of each year. The homeowner premium increase follows changes CMHC made to its portfolio insurance product earlier this year.

As Canada’s national housing agency, CMHC draws on more than 65 years of experience to help Canadians access a variety of quality, environmentally sustainable, and affordable housing solutions that will continue to create vibrant and healthy communities and cities across the country.

For additional highlights please see attached backgrounder and key fact sheet.

Information on this release:

Charles Sauriol, Media Relations
613-748-2799
csauriol@cmhc-schl.gc.ca

Follow CMHC on Twitter @CMHC_ca

Backgrounder

  • Mortgage loan insurance helps protect lenders against mortgage default and enables consumers to purchase homes with a minimum down payment of 5% with interest rates comparable to those with a 20% down payment. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price.
  • CMHC mortgage loan insurance premium is calculated as a percentage of the loan based on the loan-to-value ratio. The premium can be paid in a single lump sum but more frequently is added to the mortgage principal and amortized over the life of the mortgage as part of regular mortgage payments.
  • CMHC reviews its premiums on an annual basis and has adjusted them several times since being commercialized in 1998. Adjustments have included both increases and decreases to the premiums.
  • CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after May 1, 2014. The current mortgage loan insurance premiums will apply for applications submitted to CMHC prior to May 1, 2014, regardless of the closing date. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.
  • The increase applies to mortgage loan insurance premiums for residential housing of 1-to-4 units. This includes owner occupied, self-employed and 1-to-4 unit rental properties, including low-ratio refinance premiums.
  • In 2013, the average CMHC insured loan at 95% loan-to-value was $248,000. Using these figures, the higher premium will result in an increase of approximately $5 to the monthly mortgage payment for the average Canadian homebuyer. This is not expected to have a material impact on the housing market.
95% Loan-to-Value
Loan Amount $150,000 $250,000 $350,000 $450,000
Current Premium $4,125 $6,875 $9,625 $12,375
New Premium $4,725 $7,875 $11,025 $14,175
Additional Premium $600 $1,000 $1,400 $1,800
Increase to Monthly Mortgage Payment $3.00 $4.98 $6.99 $8.98

Based on a 5 year term @ 3.49% and a 25 year amortization

*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

85% Loan-to-Value
Loan Amount $150,000 $250,000 $350,000 $450,000
Current Premium $2,625 $4,375 $6,125 $7,875
New Premium $2,700 $4,500 $6,300 $8,100
Additional Premium $75 $125 $175 $225
Increase to Monthly Mortgage Payment $0.37 $0.62 $0.87 $1.12

Based on a 5 year term @ 3.49% and a 25 year amortization

*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

For more information visit http://www.cmhc.ca/en/hoficlincl/moloin/moloin_013.cfm

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Mortgage Rate wars may be coming our way

Mr. Oliver told reporters Thursday in Ottawa. “I listened to [BMO’s] explanation, his reasons. I reiterated what I’ve just stated — the government is gradually reducing its involvement in the mortgage market.”

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Reblogged from The Financial Post

TORONTO • Why did Bank of Montreal risk a (verbal) slap from Finance Minister Joe Oliver for daring to chop its five-year mortgage rate below 3%?

Because they knew the mortgage war is going to be different this time.

On previous occasions when the banks publicized rates below the government’s favoured minimum, they found themselves on the receiving end of angry calls from Mr. Oliver’s predecessor, Jim Flaherty, who resigned on March 18.

Mr. Oliver seems in no mood to quarrel with Bay Street and ready to largely leave the mortgage market to its own devices.

“There’s a market and the bank made its decision, and the chief executive officer of the Bank of Montreal informed me about it,” Mr. Oliver told reporters Thursday in Ottawa. “I listened to his explanation, his reasons. I reiterated what I’ve just stated — the government is gradually reducing its involvement in the mortgage market.”

Asked if the government would take further steps if a housing bubble formed, Mr. Oliver said: “I don’t have to get into a hypothetical negative.”

It’s a big change from Mr. Flaherty who didn’t jump on the banks every time they cut rates to new lows but certainly always let them know he was a coiled spring. He also didn’t mind opining on the “hypothetical negative” of what he viewed as overpriced housing in Toronto and Vancouver.

And, without Finance calling out the banks, there is a dearth of negative voices around this high-profile plunge below 3%.
Home loans are simply products that people buy, and when demand is strong the companies that produce those products — the banks — can charge higher prices, said Peter Routledge, an analyst at National Bank Financial. When demand falls off, prices move in the opposite direction.

“What [the rate cut] tells me is that household credit growth is slowing and BMO has reacted to slowing demand in the way one would expect,” Mr. Routledge said. “It’s textbook economics.”

In fact, other lenders are already providing even lower offers for five-year mortgages, though they’re mostly going about it more quietly.

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How Canadian Mortgage Rates Are Impacted by Continued U.S. Fed Tapering – Monday Interest Rate Update (February 3, 2014)

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The U.S. Federal Reserve continued to taper its quantitative easing (QE) programs last week, announcing on Wednesday that it would reduce them from $75 billion/month to $65 billion/month.

This matters to Canadian mortgage borrowers for several reasons:

  • U.S. and Canadian monetary policies are tightly linked, making it highly unlikely that the Bank of Canada (BoC) will raise its overnight rate at least until the U.S. Fed hikes its equivalent Federal funds rate. Since the U.S. Fed has repeatedly said that it will not even consider raising the Fed funds rate until it has completely unwound its QE programs, the timing of this withdrawal acts as a kind of distant-early-warning system for Canadian variable-rate borrowers.

Reblogged from MoveSmartly.com | Dave Larock

  • The U.S. Fed taper is expected to strengthen the U.S. dollar and if the Loonie continues to depreciate against the Greenback, this will provide additional stimulus for our economy, particularly for our export-based manufacturers (which I wrote about last week).
  • The taper’s impact on our economy goes beyond monetary policy and exchange rates. For example, if QE is allowed to continue for too long it could fuel higher-than-expected U.S. inflation, which we would inevitably import over time. This would force the BoC to raise its overnight rate in response. Alternatively, if the withdrawal of QE pushes U.S. bond yields up, Government of Canada (GoC) bond yields, which move in lock step with their U.S. counterparts, would move higher and trigger a rise in our fixed-mortgage rates.

Here are the highlights from the Fed’s press release that included the most recent tapering announcement:

  • The Fed acknowledged the weak December U.S. employment data but expressed confidence in the broader U.S. labour market recovery, saying that “labor market indicators were mixed but on balance showed further improvement.” This implies that the Fed saw the most recent employment data as an anomaly that was impacted largely by seasonal factors, although a poor January jobs report could quickly alter that view.
  • The Fed made it clear that it will respond flexibly to changes in the U.S. economic outlook, saying that “asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.” That means that we should continue to expect bond-yield volatility as markets react to each new economic data release and try to interpret how it will affect the Fed’s QE tapering timetable.
  • “The Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.” Variable-rate borrowers take note: the Fed is reiterating that it will not raise its fed funds rate until well after QE has been completely unwound, and this bolsters my view that your rates shouldn’t be going up for some time yet.
  • “The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.” In other words, Fed policy is still being guided by fears over deflation, which it mitigates with loose monetary policy, as opposed to concerns about higher inflation, which it mitigates with tighter monetary policy.
  • The Federal Open Market Committee (FOMC) vote to continue tapering was unanimous for the first time since June 2011. Some thought that had more to do with giving Federal Reserve Chairman Bernanke a proper send off at his last Fed meeting, as opposed to there being real convergence of FOMC committee member viewpoints. We should get a better idea of where the FOMC’s four newly minted voting stand at the next Fed meeting on March 18.

Now that the Fed has followed through with its second round of tapering, the consensus is that it will continue ratcheting down its QE programs until they are completely unwound by the end of this year. Here are a few reasons why I think that timetable is optimistic:

  • In a recent article, economist and market analyst Greg Weldon estimated that the U.S. treasury will have to issue $500 billion in new debt to cover the U.S. federal government’s budget deficit for this year, to say nothing of the nearly $3 trillion in maturing U.S. government debt that will have to be rolled over in 2014. Today, the Fed buys almost all of the newly issued U.S. treasury debt so when it withdraws (tapers) its support for U.S. bonds, who will become the marginal buyer of new U.S. debt at anything close to today’s low yields? If U.S. bond yields move higher, as I think they inevitably will if the Fed continues to withdraw its support, will the Fed hold firm or will it then choose to reassess “the efficacy and costs of such purchases”?

Does your home office qualify for deductions against household bills?

If you were self-employed this past year, now is a good time to start gathering your paperwork to file your 2013 tax return. And remember some of the expenses you incur for your home may be deductible from business income if you have an office or other work space there.

tax-time

Reblogged from KPMG Enterprise

Your home office expenses may be deductible in two situations: First, if your home is your principal place of business — that is, you do not have an office elsewhere. Second, if you have an office outside your home, your home office must be used exclusively for your business, and must be used on a “regular and continuous basis” for meeting clients, customers or patients.

It’s not always clear how many meetings you need to have in your home office to meet the “regular and continuous” requirement, but it will depend on the nature of your business and your situation.

The Canada Revenue Agency provides an example of a doctor who has offices both outside and inside his home. He uses his home office to meet one or two patients a week. The CRA says this work space would not be considered used on a regular and continuous basis for meeting patients. However, a work space used to meet an average of five patients a day for five days each week clearly meets the requirements. This example clearly shows there is a large grey area in what the CRA considers to be regular and continuous.

If you have offices inside and outside your home and you want to deduct home office expenses, be prepared with enough information to support your claim that you use your home office on a regular and continuous basis for your business.

If your home office meets the requirements, the portion of your house expenses that can be claimed as business expenses will normally be based on the fraction of your home used. You can usually exclude common areas such as hallways, kitchen and washrooms when making the calculation.

For example, if your home office is a 200 square foot room (or 18.5 square metres) and the total area of living space in your house (bedrooms, living room, dining room and the office) is 2,000 square feet (186 square metres). As long as your home office qualifies, you can claim 10% of your eligible costs.

The expenses you can claim include rent, if you are a tenant, mortgage interest if you own your home (but not the principal portion of blended mortgage payments), property taxes and home insurance. You can also claim expenses for utilities such as electricity, heat, water and gas.

But there are also some less obvious expenses that can be claimed, such as garden service, driveway snowplowing and minor repairs. You will need to keep receipts on file; do not simply estimate your expenses.

You can claim capital cost allowance (CCA) on the appropriate fraction of your home, but this is often not advisable. If you do, the CRA will take the position  that fraction of your home is not part of your principal residence and it will disallow your claim for the principal residence exemption from capital gains tax for that portion of the home when you sell. Any CCA you claimed can also be “recaptured” into income when you sell your home.

Keep in mind home office expenses can only be claimed against income from your business. As such, you cannot use home office expenses to produce an overall business loss that is applied against other income. However, losses disallowed because of this rule can be carried forward and used against income generated from the same business in another year.

Of course, supplies that relate exclusively to your home office are fully deductible and not subject to these restrictions. Those expenses would normally include a separate business phone and Internet connection, printer paper, printer or photocopier toner cartridges, computer repairs (assuming your computer is used only for your business), and so on.

Since many of the requirements for deducting home office expenses depend on your individual circumstances, it’s important to carefully document your claims so you can back them up if the CRA asks you to.

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Getting rid of risky property play will improve retirement

Situation: Couple has retirement portfolio with high risk investments that could fizzle
Solution: Get out of speculative investments, then invest for reliable income

fp1116_familyfinance_c_ab

Reblogged from Andrew Allentuck

In Alberta, a couple we’ll call Frank, who is 57, and Ella, who is 51, emigrated to Canada decades ago to find work and build secure lives.

Starting with nothing but their will to work, Frank in a municipal civil service job, Ella in health care, they have built up about $705,000 of net worth, most of it in their $490,000 home. They worry, however, that their income from about $184,000 of financial assets plus two civil service pensions at 65 plus CPP and OAS may not be enough to sustain their retirement. The irony is that their Canadian assets would make them very wealthy in their countries of birth. In Canada, though, they worry that their liabilities could sink their retirement.

It is a legitimate concern, for they have a $70,000 line of credit to pay off at $1,200 a month, about 18% of their $6,500 combined monthly take-home pay. The line of credit was taken out to buy into a speculative land development in which they are co-owners of undivided land rather than sole owners of a defined parcel. It is a risky investment that produces no current income. Moreover, they have $37,500 in a mortgage fund in their RRSPs which yields 10% a year. That yield implies the mortgages carry more risk than banks and credit unions accept.

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Frank and Ella, who still have a daughter at home attending university.

“The good thing about the couple’s financial affairs is their dedication to their work and their home,” he says. “The not so good thing,” he notes, “is that they appear to have made investments in land and mutual funds on the basis of trust in advice.”

The interest on the loan to buy the property is not tax deductible, though it can be added to the adjusted cost base of the property, eventually reducing the taxable capital gain. Best bet: sell the land to pay off the line of credit and capture a capital gain which the couple believes to be about $30,000 or $20,000 after costs. We’ll assume they just get their money back, then invest in low fee mutual or exchange traded funds focused on producing dividends.

Read More … 596 more words

Five things to do if you are over-extended on your mortgage

five-things

Reblogged from Financial Post, Andrew Allentuck

Mortgage default may be rare in this country, but nearly 9% of indebted households need 40% or more of their gross income to pay their debt service charges, says the Bank of Canada Financial System Review.

If you can see problems coming, then you can take action to avoid foreclosure, which happens when lenders run out of other alternatives and borrowers can do no more to pay their debts. Here are five options to consider when you are being crushed by mortgage payments:

1. Extend amortization: If the mortgage has been paid down to 10 or 15 years, then extending it to 20 to 25 years or even to 30 years will decrease payments. In a lot of cases this will work, says Elena Jara, director of education for Credit Canada Solutions, a Toronto-based non-profit organization which offers free credit counselling.

2. Seek better terms: You can go for lower interest rates with the same or a different lender but with a potential penalty, says Bill Evans, a mortgage broker with Mortgage Architects in Winnipeg.“If you are having trouble with payments with one lender, another may not want to take you on. But if you can present a case for a new income, you can go to a so-called specialty lender such as Home Trust or Optimum Trust for a fresh look at your problem and potential solutions,” Evans says. “If you just want to alleviate the problem, timing is crucial.”

3. Renew at a floating rate: There is more risk but lower interest cost in floating rate mortgages. If you are on a fixed rate mortgage with relatively high rates and want to go to a lower floating rate, perhaps by taking the mortgage to another lender, then there may be relief when it is time for loan renewal. The present lender may add a penalty, but over time, floating rates and the often attractive rate on a one-year closed loan can offer relief, Mr. Evans says.

4. Sell it and rent: In markets with high home prices as a result of speculative building, absentee owners will often rent at relatively low cost. That makes for good deals for renters.

5. Discuss a consumer proposal
The homeowner can avoid outright bankruptcy and foreclosure of the home by talking to creditors, suggests Bruce Caplan, trustee in bankruptcy for BDO Canada Ltd. in Winnipeg. “The homeowner can make a consumer proposal in which a settlement plan is devised for the creditors. Secured creditors such as the banks or private mortgage lenders can work out new terms such as reduced payments or a payment bridge for a period of time with the homeowner,” he suggests.

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Calgary business school introduces new centre for real estate education

westman

Reblogged from The Financial Post, Dan Ovsey

With home prices on the rise in Calgary and a steady stream of construction projects on the go, real estate observers have been keeping a close eye on the Canada’s energy heartland and how it develops.

Now, a new centre at the University of Calgary’s Haskayne School of Business is aiming to groom the next cohort of real estate leaders to meet the city’s future needs in a sustainable and responsible way.

The school announced this morning that the new Jay Westman Centre for Real Estate will offer academic and research programs to students and faculty while also serving as a partner to the city’s thriving real estate industry.

The Centre is being launched with a $5-million donation from Jay Westman, owner and co-founder of Jayman, one of western Canada’s largest home builders.

“The industry has really come of age here,” said Mr. Westman in a press release. “I am committed to its ongoing strength through the development of responsible business leaders, and I believe the Haskayne School of Business is the place to make that happen.”

Almost 60,000 homes have been built in Calgary since 2011, which remains below the pre-recession boom years of 2005-2007 when more than 70,000 homes were built. In addition, approximately 4 million square feet of downtown commercial real estate is currently under construction in Calgary.

Jayman has built more than 21,000 single and multi-family homes in western Canada over more than three decades and has diversified its business to include financial, design and development divisions.

While Haskayne has offered elective courses in real estate in the past to business undergraduates and MBA students, the donation from Mr. Westman will allow the school to offer a full undergraduate concentration in real estate in the next two years.

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Bank of Canada may not hike rates back to ‘normal’ even when economy recovers

Deputy Governor John Murray reminds markets in an article published Thursday that there is no precise check list when it comes to monetary policy.

Deputy Governor John Murray reminds markets in an article published Thursday that there is no precise check list when it comes to monetary policy.

Monetary Policy according to the BoC is much different than predictions made by the OECD which estimates Bank of Canada may need to start hiking its trendsetting interest rate within the next year and steadily push it to 2.25 per cent by the end of 2015, according to an international think-tank representing the world’s leading economies.

Reblogged from The Financial Post, Reuters

OTTAWA — The Bank of Canada does not necessarily need to raise interest rates to “normal” levels even if the economy is running at full speed and inflation is close to the target level, Deputy Governor John Murray said in an article published on Thursday.

Murray addressed what he called five common misconceptions about Canadian monetary policy in the institution’s quarterly Bank of Canada review.

One such idea is the view that when inflation is nearing the central bank’s 2% inflation target and the economy is at full capacity, that benchmark rates should be “neutral,” a level much higher than the current 1%.

“Headwinds and tailwinds are often present, threatening to push economic activity and inflation higher or lower,” Murray wrote. “Monetary policy needs to lean against these forces with opposing pressure from higher or lower interest rates to stabilize the economy and keep inflation on target.”

The comment is a reminder to markets that there is no precise check list of factors the Bank of Canada needs to see before raising or cutting rates.

Read More … 146 more words

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