Canada: The Greatest Banking System in the World

February 16, 2009

Here’s a great article from Newsweek on Canada’s excellent banking system:

NEWSWEEK – Published Feb 2009, by Fareed Zakaria (CNN)

Worthwhile Canadian Initiative-Canadian banks are typically leveraged at 18 to 1-compared with U.S. banks at 26 to 1.

The legendary editor of The New Republic, Michael Kinsley, once held a “Boring Headline Contest” and decided that the winner was “Worthwhile Canadian Initiative.” Twenty-two years later, the magazine was rescued from its economic troubles by a Canadian media company, which should have taught us Americans to be a bit more humble. Now there is even more striking evidence of Canada’s virtues. Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it’s Canada. In 2008, the World Economic Forum ranked Canada’s banking system the healthiest in the world. America’s ranked 40th, Britain’s 44th.

Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn’t grown in size; the others have all shrunk.

So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1-compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada’s more risk-averse business culture, but it is also a product of old-fashioned rules on banking.
Canada has also been shielded from the worst aspects of this crisis because its housing prices have not fluctuated as wildly as those in the United States. Home prices are down 25 percent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for over consumption that the U.S. code does: interest on your mortgage isn’t deductible up north. In addition, home loans in the United States are “non-recourse,” which basically means that if you go belly up on a bad mortgage, it’s mostly the bank’s problem. In Canada, it’s yours. Ah, but you’ve heard American politicians wax eloquent on the need for these expensive programs-interest deductibility alone costs the federal government $100 billion a year-because they allow the average Joe to fulfill the American Dream of owning a home. Sixty-eight percent of Americans own their own homes. And the rate of Canadian homeownership? It’s 68.4 percent.

Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position. The government has restructured the national pension system, placing it on a firm fiscal footing, unlike our own insolvent Social Security. Its health-care system is cheaper than America’s by far (accounting for 9.7 percent of GDP, versus 15.2 percent here), and yet does better on all major indexes. Life expectancy in Canada is 81 years, versus 78 in the United States; “healthy life expectancy” is 72 years, versus 69. American car companies have moved so many jobs to Canada to take advantage of lower health-care costs that since 2004, Ontario and not Michigan has been North America’s largest car-producing region.
I could go on. The U.S. currently has a brain-dead immigration system. We issue a small number of work visas and green cards, turning away from our shores thousands of talented students who want to stay and work here. Canada, by contrast, has no limit on the number of skilled migrants who can move to the country. They can apply on their own for a Canadian Skilled Worker Visa, which allows them to become perfectly legal “permanent residents” in Canada-no need for a sponsoring employer, or even a job. Visas are awarded based on education level, work experience, age and language abilities. If a prospective immigrant earns 67 points out of 100 total (holding a Ph.D. is worth 25 points, for instance), he or she can become a full-time, legal resident of Canada.

Companies are noticing. In 2007 Microsoft, frustrated by its inability to hire foreign graduate students in the United States, decided to open a research center in Vancouver. The company’s announcement noted that it would staff the center with “highly skilled people affected by immigration issues in the U.S.” So the brightest Chinese and Indian software engineers are attracted to the United States, trained by American universities, then thrown out of the country and picked up by Canada-where most of them will work, innovate and pay taxes for the rest of their lives.

If President Obama is looking for smart government, there is much he, and all of us, could learn from our quiet-OK, sometimes boring-neighbor to the north. Meanwhile, in the councils of the financial world, Canada is pushing for new rules for financial institutions that would reflect its approach. This strikes me as, well, a worthwhile Canadian initiative.


RRSP and Buying a Home

February 12, 2009

An increase to the RRSP withdrawal limit to $25,000 from $20,000 for eligible homebuyers. The plan, first introduced in 1992, has not had a withdrawal limit increase. Eligible couples can now withdraw up to $50,000.
The Board estimates indicate that a couple buying a townhome in Metro Vancouver with a benchmark price of $423,338 will save $7,448 on their mortgage (at a five per cent rate amortized over 25 years) as a result of being able to use an additional $10,000 of their RRSPs.

Tax Credits

February 12, 2009

Home Renovation Tax Credit (HRTC): This temporary program provides an income tax credit on eligible home renovation expenses for work performed or goods bought after January 27, 2009 and before February 1, 2010. Homeowners can claim a tax credit for 15 per cent of renovation expenses between $1,000 and $10,000 for a maximum credit of $1,350. There is no tax credit for less than $1,000. New additions, decks, carpeting, floorings, heating systems and landscaping qualify. Furniture, appliances, tools and maintenance contracts do not qualify.

First-Time Home Buyers’ Tax Credit: This new tax credit program provides up to $750 in tax relief to eligible first-time home buyers for costs associated with buying their first home, including legal fees and land transfer taxes.
ecoENERGY Retrofit program: This new funding provides home and property owners grants of up to $5,000 to offset the costs of making energy-efficiency improvements.

Most Frequent Problems Found By Home Inspectors

February 12, 2009

1. Improper surface grading/drainage: Results in water penetration in the basement or crawl space.

2. Improper electrical wiring: Includes insufficient electrical service to the house, inadequate overload protection, and amateur, often dangerous, wiring connections.

3. Roof damage: Includes old or damaged shingles or improper flashing which cause water leakage.

4. Heating systems: Includes broken or malfunctioning operation controls, blocked chimneys and unsafe exhaust disposal.

5. Poor overall maintenance: Includes cracked, peeling, or dirty painted surfaces, crumbling masonry, makeshift wiring or plumbing, and broken fixtures or appliances.

6. Structure-related problems: Includes damage to foundation walls, floor joists, rafters, and window and door headers.

7. Plumbing: Includes old or incompatible piping materials, faulty fixtures and waste lines.

8. Exterior flaws: Includes inadequate caulking and/or weather stripping on windows, doors, and wall surfaces which leads to water and air penetration.

9. Poor ventilation: includes over-sealed homes which result in excessive interior moisture that causes rotting and premature failure of structural and non-structural elements.

Source: The Canadian Association of Home and Property Inspectors

Home Buyer Tips

February 5, 2009

Home Inspectors Licensing Good for Consumers

February 5, 2009

Vancouver, BC – February 3, 2009. The British Columbia Real Estate Association (BCREA) is pleased with the BC Government’s recent announcement to license home inspectors, effective March 31, 2009.
“As a REALTOR®, I know it’s important for my clients to have the best property information possible,” said BCREA President Scott Veitch. “An independent inspection is a great starting point for consumers to learn about property conditions.”

Since 1998, the Association has recommended the government license home inspectors. Now, BCREA looks forward to the development of meaningful standards to ensure consumers receive adequate protection.
“Solid information helps consumers have confidence in their home buying decisions,” added Veitch. “And confidence and protection are necessary for the excellent quality of life we enjoy in British Columbia.”

Home Listings Withdraw as Sales Volume Slows

February 5, 2009

VANCOUVER, B.C. – February 3, 2009 – The first month of 2009 saw a continued reduction in the number of homes listed for sale in Greater Vancouver, while sales volumes in January were the lowest for that month since the early 1980s.

The Real Estate Board of Greater Vancouver (REBGV) reports that sales of detached, attached and apartment properties declined 58.1 per cent in January 2009 to 762 from the 1,819 sales recorded in January 2008.

New listings for detached, attached and apartment properties declined 20.9 per cent to 3,700 in January 2009 compared to January 2008, when 4,675 new units were listed. Total active listings in Greater Vancouver currently sit at 13,966, down nearly 6,000 listings from October 2008.

Overall residential benchmark prices, as calculated by the MLSLink Housing Price Index®, declined 10.9 per cent to $489,007 between Januarys 2008 and 2009.

“Home sales and consumer confidence are at a low point at the moment, but the long-term strength and security of our housing market are beyond the reach of the economic clouds of today,” Dave Watt, REBGV president said.

“Today’s short-term conditions are creating long-term opportunities. Buying opportunities have not been this strong in a decade, with low interest rates, broad selection and more affordable prices,” Watt said.

Sales of detached properties declined 54.4 per cent to 292 from the 641 detached sales recorded during the same period in 2008. The benchmark price for detached properties declined 11.2 per cent to $659,638 in January 2009 compared to $742,490 January 2008.

Sales of apartment properties in January 2009 declined 58 per cent to 361, compared to 860 sales in January 2008. The benchmark price of an apartment property declined 11.6 per cent to $334,602 compared to $378,336 in January 2008.

Attached property sales in January 2009 were down 65.7 per cent to 109, compared with the 318 sales in January 2008. The benchmark price of an attached unit declined 8.1 per cent to $425,309 compared to $462,627 in January 2008.