Mortgage Market Commentary October 3, 2013

• TSX -8.44 to 12,839.00 (CP) amid rising concerns that a partial U.S. government shutdown in its second day will last longer than thought and impact negotiations over raising the U.S. government's debt ceiling in mid-October.
• DOW -58.56 to 15,133.14 Disappointing job creation data also pressured U.S. indexes. Payroll firm ADP reported that the U.S. private sector created 166,000 jobs last month, lower than the 178,000 that had been expected. It also revised lower its job creation figures for the previous two months. That's likely all the jobs data that traders will get this week as one of the spinoff effects of the shutdown is an absence of government data that usually moves markets.
• Dollar -.06c to 96.79c US as prices for copper,gold and oil advanced.
• Oil +$2.06 to $104.10 US
• Gold +$34.60 to $1,320.70US bullion's attraction as safe haven investment pushed prices higher.

Canadian 5 year bond yields markets -.01 to 1.86. The spread (obtained by subtracting the bond yield above from the industry average 5 yr rate published mortgage rate of 3.79) is centred within the profit range at 1.93. If the increase in bond yield continues upward, the spread shrinks, which could prompt interest rates to rise. The range for investor desired profitability is currently a bit lower than in the past, more in the region of 1.80 and 2.00.



Canada’s love for home renovation wanes: report
Brenda Bouw | Pay Day – Tue, 1 Oct, 2013

Canada's obsession with home improvement is starting to fade due in part to rising interest rates and debt levels, but also because we’re running out of rooms to refurbish, a new report suggests.

After about a decade of redoing kitchens and bathroom, TD Bank predicts renovation activity will slow for the rest of this year and next.

Home renovation spending has grown 7 per cent a year for the past decade, but will fall to half its historical rate for the rest of the year and throughout 2014, the bank says.

“In 2015, the combined effect of higher interest rates, elevated household debt levels and a cooling in housing markets is likely to lead to a modest dip in renovation outlays,” TD Bank economist Diana Petramala said in a note.

Still, she says the $45 billion in total renovation activity expected by 2015 is still more than double its level of a decade ago.

Canadians’ rush to renovate happened alongside a home buying surge over the past decade, driven by rock-bottom interest rates. That also spawned a number of reality shows such as Property Brothers, Holmes on Homes and the Do It Yourself Network, which further fuelled the home renovation frenzy.

The economic importance of the sector has also skyrocketed over the past 20 years, notes Petramala.
Citing Statistics Canada data, she says home renovations account for nearly 40 per cent of total residential investment today, up from 25 per cent in the 1990s.

But that is expected to moderate in the coming years, with the exception of work done to benefit Baby Boomers as they age.

“While home improvements to add quality and value to ones home were likely more popular forms of spending over the last decade, renovations to help make homes more accessible for seniors are expected to be a bigger source of renovation activity over the longer term,” Petramala writes.

For the rest of the population, renovations are expected to slow now that we’ve updated much of what we own.
“There will probably continue to be a significant share of remodeling projects. However, the recent string of new homebuilding and renovation spending has left the Canadian housing stock in the best condition in decades,” Petramala says.

About a quarter of current housing stock in the country still needs minor repairs and maintenance. Petramala says the average age of homes in Canada is also falling, which isn't surprising given the amount of new construction that has hit the market in recent years.

Her report comes as home renovation companies like Rona Inc, Canada's largest home improvement retailer, struggle with falling sales.

Economists are also forecasting Canada's housing market will slow, despite a surprisingly strong summer, particularly in large cities such as Toronto and Vancouver.

We're also saving more, even though our debt-to-household income ratio was at a record late last year. Last month, TD economist Leslie Preston noted Canadians' personal savings rate is near a 16-year high.

"Despite the focus on the high absolute level of household indebtedness, it is apparent that households in Canada have shifted towards greater thrift," Preston wrote. "This trend suggests that households have been taking action to improve their longer-term financial prospects."