Borrowing cost – Sharewared http://sharewared.com/ Tue, 02 Aug 2022 17:40:41 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://sharewared.com/wp-content/uploads/2021/06/icon-2021-06-29T134115.656-138x136.png Borrowing cost – Sharewared http://sharewared.com/ 32 32 Borrowers will feel the heat as the RBA hikes rates again, but new customers get cheaper deals https://sharewared.com/borrowers-will-feel-the-heat-as-the-rba-hikes-rates-again-but-new-customers-get-cheaper-deals/ Tue, 02 Aug 2022 17:40:41 +0000 https://sharewared.com/borrowers-will-feel-the-heat-as-the-rba-hikes-rates-again-but-new-customers-get-cheaper-deals/ As the Reserve Bank raises interest rates for the fourth time in four months, home loan borrowers brace for more repayment difficulties. Key points: Banks offer steep discounts to new home loan customers The number of borrowers refinancing their mortgages reaches an all-time high Borrowers are avoiding more expensive fixed-term mortgages The official interest rate […]]]>

As the Reserve Bank raises interest rates for the fourth time in four months, home loan borrowers brace for more repayment difficulties.

The official interest rate is now at its highest level in six years, at 1.85%, from a record low of 0.1% in early May.

Some economists say the RBA is only halfway through its rate hike cycle, with the goal of reaching or even exceeding 3% by the end of the year.

As the cost of money rises, the big four banks have dramatically raised interest rates for existing customers with variable rate loans, and more rate hikes are expected.

RateCity said bank customers could expect to see an average floating rate of 4.61% if today’s RBA rate hike is fully passed on.

He said the 1.75% cumulative increase in borrowing costs that had occurred since the start of May would add an additional $472 per month to mortgage payments for the typical borrower with a $500,000 loan. $ over 25 years.

Borrowers with a $1 million mortgage would have to pay an extra $944 per month.

RateCity’s estimate of the cost of rising RBA rates on monthly mortgage payments. (RateCity: Provided)

Fixed rates increase

The rates offered for new fixed rate loans are increasing significantly.

It comes as new data from the Australian Bureau of Statistics (ABS) shows the proportion of new home loans taken out at fixed rates has fallen to 9% from the July 2021 peak of 46%.

Sally Tindall, research director at RateCity.com.au, said 90 lenders raised rates on fixed-term home loans last month ahead of this latest increase.

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Australian house prices plummet, Sydney suffers worst month in 40 years https://sharewared.com/australian-house-prices-plummet-sydney-suffers-worst-month-in-40-years/ Sun, 31 Jul 2022 23:14:00 +0000 https://sharewared.com/australian-house-prices-plummet-sydney-suffers-worst-month-in-40-years/ FILE PHOTO – Properties can be seen in the Sydney suburb of Clovelly, Australia July 19, 2015. REUTERS/David Gray Join now for FREE unlimited access to Reuters.com Register SYDNEY, Aug 1 (Reuters) – Australian house prices fell for a third month in July and the pace quickened as Sydney suffered its worst decline in nearly […]]]>

FILE PHOTO – Properties can be seen in the Sydney suburb of Clovelly, Australia July 19, 2015. REUTERS/David Gray

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SYDNEY, Aug 1 (Reuters) – Australian house prices fell for a third month in July and the pace quickened as Sydney suffered its worst decline in nearly 40 years amid rising housing costs. borrowing and cost of living crisis.

Figures from property consultancy CoreLogic released on Monday showed prices nationwide fell 1.3% in July from June, after falling 0.6%. Prices were still 8.0% higher for the year, reflecting the huge gains made in 2021 and early 2022.

The weakness was concentrated in the capitals where prices fell 1.4% in July, while annual growth slowed to 5.4% after being above 20% at the start of this year.

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The decline in Sydney accelerated as values ​​fell 2.2% during the month, while Melbourne lost 1.5%. Annual growth in Sydney has slowed to just 1.6%, a far cry from the heady days of 2021 when prices rose by a quarter.

“Although the housing market has only been down for three months, the National Home Value Index shows the rate of decline is comparable to the onset of the global financial crisis in 2008 and the sharp drop in the early 2000s. 1980s,” CoreLogic’s research said. director, Tim Lawless.

“In Sydney, where the downturn has particularly accelerated, we are seeing the biggest decline in value in almost 40 years.”

Other cities also started to see declines with Brisbane at 0.8%, Canberra at 1.1% and Hobart at 1.5%.

Even regions began to cool as prices fell 0.8%, ending a long bull run as people moved to country living and greater space.

The decline partly reflects higher borrowing costs as the Reserve Bank of Australia (RBA) has raised rates for three consecutive months and is seen as certain to raise them again this week in a bid to contain the surge in inflation.

Markets are betting that the current exchange rate of 1.35% could rise to 3.40% by the middle of next year. The big banks have also sharply increased borrowing costs for new fixed-rate mortgages and tightened lending standards.

A sustained drop in prices would be a drag on consumer wealth as the notional value of Australia’s 10.8 million homes rose by A$210 billion ($146.52 billion) in the first quarter to 10, 2 trillion Australian dollars.

($1 = 1.4333 Australian dollars)

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Reporting by Wayne Cole; Editing by Sandra Maler

Our standards: The Thomson Reuters Trust Principles.

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How to Finance a Fixer-Upper Home » Helpful Wiki https://sharewared.com/how-to-finance-a-fixer-upper-home-helpful-wiki/ Fri, 29 Jul 2022 16:17:00 +0000 https://sharewared.com/how-to-finance-a-fixer-upper-home-helpful-wiki/ As home prices and interest rates continue to rise, many of today’s buyers struggle to keep their monthly mortgage payments affordable. But for those willing to buy a cheaper home that needs a little TLC, there’s a silver lining: New listings advertised as homes for renovation rose 10% a year in June , according to […]]]>

As home prices and interest rates continue to rise, many of today’s buyers struggle to keep their monthly mortgage payments affordable. But for those willing to buy a cheaper home that needs a little TLC, there’s a silver lining: New listings advertised as homes for renovation rose 10% a year in June , according to data from Realtor.com.

Yet buying a repairman isn’t always the transparent business shown on reality TV shows, especially when it comes to financing. Some mortgage programs have strict ownership requirements, which can be a problem for buyers who don’t have the cash to make urgent repairs ahead of time.

For homebuyers who don’t mind putting up some equity, there are several types of home repair mortgages that incorporate the cost of home improvements into your total loan amount. If you’ve decided to buy a diamond in the rough, a renovation mortgage may be the right financing option for your needs.

Types of mortgages for repairers

FHA 203(k) loan VA renovation loan Conventional rehabilitation loans
Maximum renovation costs Up to the purchase price plus rehabilitation costs or 110% of the home’s completion value, whichever is lower Up to 100% of the home’s completion value, as determined by a VA appraiser Up to 75% of the purchase price plus rehabilitation costs or 75% of the home’s completion value, whichever is lower
Building Restrictions Funds can only be used for eligible projects Funds can only be used for eligible projects Funds can be used for any renovation or repair project
Contractor Requirements Must use FHA approved contractors Must use VA approved contractors Contractors must be licensed only when required by state law
Minimum deposit 3.5% 0% 3%
Minimum credit score As low as 500, depending on down payment Not specified by the VA, but some lenders have a minimum of 620 Usually around 620, depending on the lender
Loan fees Origination fee, typically 1.5% of the loan amount, plus closing costs VA financing fees between 1.4% and 3.6% of the total loan amount Fees and closing costs vary by lender
Contingency reserve Up to 20% Up to 15% Up to 15%
Mortgage insurance FHA mortgage loan insurance is required until you sell, refinance or pay off the loan in full Not required Private mortgage insurance is required until your loan-to-value ratio drops below 80%

FHA 203(k) Loans

The Federal Housing Administration’s 203(k) loan program gives mortgage borrowers a way to buy and renovate a repairman. Unlike a typical FHA home loan, it includes the purchase of the property as well as the cost of repairs and renovations in the mortgage amount. There are two types of FHA rehabilitation loans: limited 203(k) loans and standard 203(k) loans.

Limited 203(k) loans are for homes that need minor improvements, repairs and upgrades costing up to $35,000. Small projects can include kitchen remodeling, interior painting or new flooring. However, a limited 203(k) loan does not cover structural repairs such as room additions or basement conversions.

Standard 203(k) Loans are intended for major repair and rehabilitation projects and should be supervised by an FHA-certified consultant. With a standard 203(k) loan, you can tackle bigger improvements like structural repairs, roof replacement, and plumbing work. However, the FHA won’t let you use the financing for luxury projects, like building swimming pools.

The maximum improvement cost of a standard 203(k) loan is limited to the purchase price plus rehabilitation costs or 110% of the home’s value after repairs are complete, whichever is lower. Standard 203(k) loans can only be used for projects costing at least $5,000.

VA Rehab Loans

Active and retired military personnel who meet the service requirements for a Veterans Affairs loan may qualify for a VA home improvement loan. Like a standard VA purchase loan, a VA rehab loan allows you to purchase property with 0% down payment, no mortgage insurance, and competitive interest rates. And like an FHA 203(k) loan, this type of VA loan allows you to build the cost of necessary home improvements and repairs into the cost of the mortgage.

With a VA renovation loan, you can borrow up to 100% of the home’s appraised value after renovation. Funds can only be used for repairs and upgrades necessary to improve the security or livability of the property, such as replacing heating, ventilation, air conditioning, electrical or plumbing systems. VA rehabilitation loans cannot be used to make major structural repairs, such as teardowns and rebuilds.

Classic Renovation Loans

In addition to government-backed home improvement loans, there are a few conventional loan programs that include the cost of repairs in the mortgage amount: Fannie Mae HomeStyle and Freddie Mac CHOICERenovation. For both options, you will need to find a lender that participates in this mortgage program.

At Fannie Mae’s The HomeStyle Renovation Loan is a conventional mortgage that includes home renovation financing at the time of purchase or when refinancing. For homebuyers purchasing a property, the maximum renovation costs are 75% of the sum of the purchase price and rehabilitation costs, or 75% of the appraised value upon completion of the property, depending on the lowest value. Homeowners who refinance can borrow up to 75% of the property’s appraised value upon completion to pay for repairs.

Freddie Mac’s CHOICERenovation Mortgage is similar to Fannie Mae’s offering, with the same 75% renovation budget threshold. But Freddie Mac also offers a simplified version of this loan, the CHOICEReno eXPress, for buyers with smaller rehab budgets. With the eXPress option, you can borrow up to 15% of the home’s value for renovation costs.

Unlike a government-backed rehabilitation loan, Fannie Mae and Freddie Mac’s renovation mortgage improvement funds can be used for any project, including home additions and non-essential improvements. You can also use any licensed contractor as permitted by state law, without the need for a 203(k) licensed consultant.

Advantages and Disadvantages of Fixer-Upper Mortgages

Advantages

  • There is generally less competition among homebuyers for a home that needs urgent repairs.
  • You gain capital once the work is complete, even after factoring in the cost of renovations.
  • You can choose the fixtures and finishes that suit your tastes.

The inconvenients

  • The process can be complicated, from completing mortgage paperwork to hiring contractors.
  • You may need to set aside a contingency reserve to use in case something goes wrong with the repair work.
  • You risk taking on a more complicated project that exceeds your original budget and construction schedule.
  • Interest rates tend to be higher on home improvement loans than on traditional mortgages.
  • Costs for permits, inspections, contractors and appraisers can add up quickly.
  • Not all lenders offer rehab mortgages, and they can be hard to find.

How to choose the best renovation financing option

There is no one-size-fits-all financing solution for mortgage borrowers buying from a repairer. Here are some things to consider when choosing a loan to repair:

  • Consider the scope of your work. Someone buying a home that only needs minor cosmetic upgrades will have very different financing needs than someone planning to buy a home that needs major repairs.
  • Determine if you meet the eligibility requirements. For example, you will need a Certificate of Eligibility, or COE, to qualify for a VA home improvement loan. If you have a lower credit score, you might have the best luck with the FHA’s 203(k) loan program.
  • Get some quotes for the necessary work. Contact the appropriate contractors, such as plumbers, electricians, and HVAC technicians, to find out how much each project will cost. Once you have a better idea of ​​your total renovation budget, you should be able to narrow down your borrowing options.
  • Compare borrowing costs for each product. Interest rates vary considerably from one type of mortgage loan to another. It is therefore important to consider the long-term cost of a renovation loan. You can find the mortgage rate, monthly payment and closing costs in your loan estimate.

Another way to finance a Fixer-Upper

FHA 203(k) loans and other home improvement loans may be the right choice for some homebuyers, but they’re not ideal for do-it-yourself renovators with relatively small home improvement projects. If you want to buy a repairer without the limitations of a home improvement loan, there is another common strategy to consider:

  • Borrow a traditional loan to cover the purchase of the house. Note: Some government-backed mortgages, like FHA and VA loans, have strict ownership requirements that make closing on a servicer difficult.
  • Take out a home improvement loan, such as an unsecured personal loan or line of credit, to pay for your renovation project.
  • Refinance your original mortgage once the work is complete. This effectively allows you to tap into the increased equity in your home to pay off the rehab loan at a lower rate.

A separate loan can be a good option if you have the skills and equipment to do the repairs yourself or if you plan to live in the house while you renovate it. But if a property is in dire need of expensive professional repairs by a licensed contractor before you can move in, a repair mortgage may be a better option.

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Global banks can take advantage of the Indian dollar crisis in style – Style 2013 https://sharewared.com/global-banks-can-take-advantage-of-the-indian-dollar-crisis-in-style-style-2013/ Thu, 28 Jul 2022 02:17:02 +0000 https://sharewared.com/global-banks-can-take-advantage-of-the-indian-dollar-crisis-in-style-style-2013/ Comment this story Comment Bangladesh seeks bailout from International Monetary Fund; Pakistan is expected to receive its own $1.2 billion bailout soon. Neither wants to end up with another Sri Lanka. The island nation has been dragged into a whirlwind of empty dollar coffers, popular anger over food, fuel and medicine shortages, political chaos and […]]]>

Comment

Bangladesh seeks bailout from International Monetary Fund; Pakistan is expected to receive its own $1.2 billion bailout soon. Neither wants to end up with another Sri Lanka. The island nation has been dragged into a whirlwind of empty dollar coffers, popular anger over food, fuel and medicine shortages, political chaos and ever-worsening economic funk.

Of the major South Asian economies, only India remains standing. But the region’s largest economy is also faltering a bit.

Even after depleting 11% of its foreign exchange arsenal, the Reserve Bank of India has only managed to keep the rupee at an all-time low of around 80 to the dollar. Should New Delhi start applying for an IMF loan? Not so fast.

On the one hand, a strong dollar is not a big problem for balance sheets. Yes, Indian companies are adding pressure on the rupiah as they scramble to buy protection for their $79 billion in uncovered foreign debt. But about half of it – or $40 billion – is the responsibility of state-run borrowers. Their currency risk, as argued by RBI Governor Shaktikanta Das, can be absorbed by the government, although such an eventuality is unlikely to occur. As for reserves falling to $573 billion from $642 billion in October, “you’re buying an umbrella to use when it rains,” he said.

Governor Das failed to mention that he also has a raincoat handy against the heavy downpour caused by the relentless tightening of US interest rates. That would be India’s 18 million strong diaspora, the world’s largest community of people living outside their country of birth. Give them a juicy return and they will deposit hard currency term deposits with Indian banks, something they have done tirelessly in the past to get their homeland out of trouble.

Even better, wealthy non-resident Indians, or NRIs, will soon be hounded by their private bankers to take out low-cost loans and invest in India without any currency risk. In 2012, I saw a term sheet from a global bank offering to lend S$900,000 ($650,000) against S$100,000 of client equity. The total amount of S$1 million would be placed with an Indian bank as a non-resident foreign currency deposit. The annual return to the client, after paying the borrowing fee, was guaranteed at 10%, at a time when a Singapore dollar deposit was yielding 0.075%.

Then came fear of the mid-2013 taper and a severe shortage of dollars for India, Indonesia, Brazil, Turkey and South Africa – the economies of the “fragile five”, as Morgan Stanley called them. At the time, the RBI blessed this kind of leveraged dollar raising from the diaspora by offering Indian banks a bargain to exchange their foreign currency funds for rupees. Indeed, India fabricated its own private bailout with a difference: the creditors – the NRIs who act as fronts for the global banks – could only ask for their money; they couldn’t demand that the government spend less or open the economy to more competition, or impose any of those conditions that make sovereign nations resent the IMF.

Looking at the clouds gathering on the horizon, it might not be too soon for Das to start thinking of a similar plan B.

To some extent, the effort has already begun. After touching the patriotic hearts of NRI customers by telling them how their remittances are helping to create jobs and improve health and education facilities at home, the State Bank of India, the country’s largest lender, informs of the 2.85% it offers on dollar deposits. one to two years. That’s already generous: Hong Kong banks pay little more than 0.3% for 12-month US currency funds. The next step, after the 2013 playbook, would be for foreign banks to start funding NRIs so that instead of depositing, say, just $100,000, they could put up $1 million and get effect returns two-digit leverage.

Finally, the RBI could step in and offer to exchange the funds in dollars for rupees at a lower cost for borrowing Indian banks, which made the scheme a resounding success last time around.

India raised $26 billion via this channel in 2013, only a fraction of which was real NRI money, says Observatory Group analyst Ananth Narayan, a former Standard Chartered Plc banker. “The rest was overseas bank money lent to NRIs, coming in as NRI deposits.” From the country’s point of view, it was expensive. As Narayan notes in an article for the Moneycontrol website, India actually recouped three-year dollars at around 5%, a 4.35% spread over US Treasury yields at the time. “It was a high (if hidden) price to pay. A sovereign bond at this yield would have been a public relations disaster. Should the need arise again, it might be best to extend the cheap swap option beyond NRI funds to all dollars raised overseas for a reasonably long period, Narayan said. . This will help reduce the cost of the grant.

The bottom line, however, is that India is not in the same boat as its South Asian neighbors, even though it is in the same choppy waters. Bloomberg Economics raised its forecast for the upper end of the Federal Reserve’s key rate to above the consensus level of 5% by mid-2023. Such a hawkish response to US inflation could easily knock a few more rays from the RBI’s foreign reserves umbrella as it tries to keep the rupee from weakening too fast and too soon. But Governor Das knows the Diaspora raincoat is dry, just in case India needs it.

More from this and other writers at Bloomberg Opinion:

• The RBI is getting its way on rates. So far: Andy Mukherjee

• The follow-up to Lagarde’s “Whatever It Takes” is not yet a success: John Authers

• The Fed must overcome these four failures: Mohamed El-Erian

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.

More stories like this are available at bloomberg.com/opinion

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States’ cost of borrowing slides to 7.90% https://sharewared.com/states-cost-of-borrowing-slides-to-7-90/ Tue, 26 Jul 2022 12:03:52 +0000 https://sharewared.com/states-cost-of-borrowing-slides-to-7-90/ After hitting nearly 8% last week, states breathed a little easy on Tuesday as their cost of borrowing fell slightly to 7.90%. The weighted average cost of state borrowing fell 6 basis points to 7.90% in the latest state development loan (SDL) auction as state debt is known, when nine states collected collectively Rs 18,700 […]]]>

After hitting nearly 8% last week, states breathed a little easy on Tuesday as their cost of borrowing fell slightly to 7.90%.

The weighted average cost of state borrowing fell 6 basis points to 7.90% in the latest state development loan (SDL) auction as state debt is known, when nine states collected collectively Rs 18,700 crore in the markets today.

This is 22% lower than the Rs 24,000 crore originally quoted for the week.

Although the weighted average threshold fell to 7.90% from 7.96% at the last auction, the spread between 10-year SDL and G-secs yields fell to 43 basis points from 39 basis points last week.

While the benchmark 10-year G-sec yield fell to 7.37% from 7.43% last Tuesday, the 10-year SDL weighted average threshold rose to 7.80% from 7.82% last Tuesday. last week.

The marginal easing in yields is partly due to the weighted average duration falling to 14 years from 15 years last week. The overall debt sale fell by 22% as seven states – Maharashtra, Uttar Pradesh, Punjab, Kerala, Madhya Pradesh, Uttarakhand and Goa did not participate in the auction, despite indicating they would borrow 9,800 crores of rupees this week.

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)

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Airdrie House and Home: how interest rates will affect the housing market https://sharewared.com/airdrie-house-and-home-how-interest-rates-will-affect-the-housing-market/ Sun, 24 Jul 2022 16:00:00 +0000 https://sharewared.com/airdrie-house-and-home-how-interest-rates-will-affect-the-housing-market/ Last month I wrote about the Airdrie property market still strong despite headlines that the market is collapsing. There is still a lot of fear, and with the Bank of Canada raising the benchmark rate by one percentage point last week, that fear in many people’s minds is justified. Last month I wrote about the […]]]>

Last month I wrote about the Airdrie property market still strong despite headlines that the market is collapsing. There is still a lot of fear, and with the Bank of Canada raising the benchmark rate by one percentage point last week, that fear in many people’s minds is justified.

Last month I wrote about the Airdrie property market still strong despite headlines that the market is collapsing. There is still a lot of fear, and with the Bank of Canada raising the benchmark rate by one percentage point last week, that fear in many people’s minds is justified.

Here are my thoughts. The rate increase means that people with adjustable rate mortgages will see one of two things happen. The first is an increase in their mortgage payments. The second is that less money goes to the principal amount owed and more goes to paying interest. The impact of this with the first scenario is that it will reduce people’s purchasing power of goods, as they have to budget more for home payments. In the second scenario, it may take them longer to pay off their mortgage. At worst, it could put some people living at the peak of their means in foreclosure because they can’t afford the extra amount needed for payments.

The reason for increasing the interest rate is to fight against inflation. Inflation is a decline in purchasing power; or, in other words, the rising cost of goods. With inflation at an all-time high, we are seeing extremely aggressive measures to combat it (a 1% increase has not been made since 1998). It’s a delicate balance to try to manage that. Generally, low interest rates are intended to stimulate purchases. This is usually done in recession-like times (as we have seen over the past five years). When interest rates start to rise, it means the economy is getting stronger. People spend. Although borrowing rates are rising, the economy, in general, seems to be improving.

For people with fixed rate mortgages, their payments will not change. However, at the time of renewal, they might be quite shocked by the higher payment amount. For people in this scenario, it is important that they start planning and budgeting for this in the future. Having an excellent mortgage broker is essential. They can guide a person through their best options and prepare them for any outcome.

What does this mean for the housing market? Well, people currently buying homes qualify for higher interest rates. This may mean that their purchasing power is not as high. Someone who qualified for a $600,000 home at 2% can now qualify for a $525,000 home at only 6%. Some people like to jump to the conclusion that $600,000 homes will now drop to $525,000. But that doesn’t make sense. The cost of goods is still high. You can’t build a $600,000 house for less right now. So what you might see happen instead is that the buyer of a $600,000 home will now be considering a semi-detached home for $475,000. Or a small house.

If you continue down this path, you’ll likely see that apartment-style condos (a sector that has seen the slowest growth in recent years in our area), will now start to really catch the eye and demand will likely start to exceed the offer. . Urban areas that have been hit hard by COVID-19 will now start to gain popularity as gasoline prices soar. Many people will also start looking for rentals instead, which will create greater demand for investment properties.

The consensus around interest rates was that this latest jump should cool inflation somewhat. Interest rates are not expected to continue to rise steadily without end. In fact, rates are expected to stabilize and perhaps begin to decline over the next year. So while this may be a very difficult time for some families right now, all is not bleak. There are also good things happening right now. And guess what? Since homes don’t often see multiple offers, buyers can be a bit more discerning and really focus on what they want. For sellers, as always, having a great pricing strategy and a solid marketing plan is important when it comes time to put your home on the market. Having a great real estate agent is the best way to protect your interests and get you moving (pun intended, my friends).

Take advantage of this beautiful weather we have and make the most of our short but mild summer.

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Nowhere to live: Rents in Canada rise as house prices fall https://sharewared.com/nowhere-to-live-rents-in-canada-rise-as-house-prices-fall/ Fri, 22 Jul 2022 22:39:00 +0000 https://sharewared.com/nowhere-to-live-rents-in-canada-rise-as-house-prices-fall/ OTTAWA, July 22 (Reuters) – Home prices in Canada are falling rapidly after surging during the coronavirus pandemic, but that offers little relief to consumers who are dealing with soaring rents and the power to buying down as interest rates rise. Desperate potential buyers have found themselves caught in a frenzy of real estate bidding […]]]>

OTTAWA, July 22 (Reuters) – Home prices in Canada are falling rapidly after surging during the coronavirus pandemic, but that offers little relief to consumers who are dealing with soaring rents and the power to buying down as interest rates rise.

Desperate potential buyers have found themselves caught in a frenzy of real estate bidding wars during the pandemic, when home prices in Canada have risen more than 50% in just two years.

Now the competition has shifted to rentals, with landlords demanding months of rent upfront and sometimes even pitting tenants against each other to see who will pay the most, according to estate agents and the media.

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The average rent for a one-bedroom apartment in Canada has risen 13.7% since the start of the year, according to data from Rentals.ca, with annual rents jumping 18.5% in Toronto and 19.2% in Vancouver.

The shift from frenzied demand for homes to buy to homes to rent highlights a broader problem with Canadian housing: that there simply isn’t enough of it, said Dan Scarrow, president of Macdonald Realty. in Vancouver.

“Higher (interest) rates don’t destroy housing demand, they just shift demand from buying to renting,” he said. “Demand oscillates between tenants and buyers, depending on rates, as long as supply is limited.”

The Bank of Canada has raised its key rate to 2.5% now, from 0.25% at the start of the year, to tackle inflation, which has hit a nearly 40-year high of 8.1% in June.

The rapidly rising cost of borrowing has cooled the real estate market, sending the average Canadian home price down 18.5% from its peak in February, according to data from the Canadian Real Estate Association.

But lower prices don’t appear to be helping potential buyers, who can no longer get loans due to much higher mortgage eligibility rates. And that, in turn, drives up rental demand.

“Rents have gone crazy because people have to have a place to live,” said Paul Eviston, a Vancouver-based real estate agent. “Demand in the rental market has really taken off as a lot of people who were potential buyers are now forced to rent.”

That strong rental demand has put a floor under condo prices in major cities, real estate agents said, with investors feeling confident enough to wait out price drops and some even looking to pick up more investment properties.

Toronto agent Imran Khan has just sold a loft to an investor who was able to rent it out a few days after closing.

“I’ve listed properties for rent…and we’re getting multiple offers, haven’t we. Like straight away,” Khan said.

Rising immigration and a post-pandemic return to urban centers will further boost demand for urban condos, Khan said. Landlords, for their part, are pushing for higher rents when housing turns over, agents said.

The shift from owned to rented accommodation is also starting to show up in Canadian inflation data, with the increase in homeowners’ replacement cost falling sharply to 10% from 13% in April, while rents remain close to the 32-year high reached in April.

Mortgage interest charges, which have fallen sharply as the pandemic took hold and rates were cut, are now rising. Homeowners who have taken out variable loans or those whose mortgages are up for renewal are the most affected.

“Right now is actually one of those once-in-a-lifetime times where buyers, sellers and renters are probably all struggling,” Scarrow said. “Usually there’s a winner. But I think this time it’s really a fight for everyone.”

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Reporting by Julie Gordon in Ottawa and Shreya Jain in Toronto, editing by Deepa Babington

Our standards: The Thomson Reuters Trust Principles.

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Will the next Federal Reserve rate hike bring us closer to a recession? https://sharewared.com/will-the-next-federal-reserve-rate-hike-bring-us-closer-to-a-recession/ Tue, 19 Jul 2022 11:32:25 +0000 https://sharewared.com/will-the-next-federal-reserve-rate-hike-bring-us-closer-to-a-recession/ Image source: Getty Images Here’s why it might. Key points The Federal Reserve will likely raise interest rates again at its end of July meeting. If borrowing becomes too expensive, it could trigger a general economic downturn. It’s no secret that inflation has been hitting consumers hard for a year. And the Federal Reserve wants […]]]>

Image source: Getty Images

Here’s why it might.


Key points

  • The Federal Reserve will likely raise interest rates again at its end of July meeting.
  • If borrowing becomes too expensive, it could trigger a general economic downturn.

It’s no secret that inflation has been hitting consumers hard for a year. And the Federal Reserve wants to put an end to that.

So the Fed has raised interest rates this year, and last month it implemented its biggest rate hike in nearly three decades. Meanwhile, the Fed is expected to meet again later this month, when it’s fair to assume it will raise interest rates again.

But while higher interest rates could help calm inflation, they could also lead to a full-scale recession. And that’s something Americans will have to prepare for.

Why higher interest rates could lead to a recession

The Federal Reserve does not directly set consumer borrowing rates (such as mortgage rates and personal loan rates). Rather, it sets the federal funds rate, which is what banks charge each other for short-term borrowing.

But when the Fed raises the fed funds rate, consumer borrowing rates tend to move in the same direction. So after the next Fed meeting, we could see a slight increase in credit card interest rates, auto loan interest rates and home equity lines of credit, to say nothing of name a few.

That’s not entirely a bad thing, as it could lead consumers to start spending less at a time when the cost of goods is so high. If consumer spending declines, this will reduce the gap between the supply of available goods and their demand. And that, in turn, could finally bring down the cost of living.

But if borrowing becomes so expensive that consumers cut back on spending, it could trigger an economic recession. And that could mean widespread layoffs and other adverse consequences.

How to prepare for an economic decline

If the Fed’s actions eventually trigger a recession, it could be mild or prolonged; there really is no definitive way to know. That’s why it makes sense to prepare as well as possible for a recession.

If you don’t have a full emergency fund — enough to cover at least three full months of essential living expenses — spend the next few months increasing your savings rate. It is important to have enough cash reserves during a recession in case your work hours are reduced or you are laid off.

Next, try to reduce unhealthy debts, like your credit card balance. With rising interest rates, that debt is likely going to cost you more in the short term. But also, the less debt you have over your head, the less stress you might feel if you end up losing income during a recession.

Finally, consider offloading some unnecessary expenses. This could mean canceling the gym membership you rarely use or pausing a membership box. These moves could free up more cash for savings and debt repayment purposes.

While a recession isn’t guaranteed to hit this year or next, the Fed’s moves to calm inflation could lead to one. It’s a tough reality to face, but it’s better to be prepared for a downturn than to be caught off guard by it.

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Three Waters IT System Project Could Top $500 Million, National Warns https://sharewared.com/three-waters-it-system-project-could-top-500-million-national-warns/ Sun, 17 Jul 2022 19:41:58 +0000 https://sharewared.com/three-waters-it-system-project-could-top-500-million-national-warns/ A new project merging local councils’ water utility IT systems as part of the three water reforms could blow past the upper limit of $500 million indicated by officials, according to National. Photo: Goodluz / 123rf The project must be feasible by July 1, 2024, when four specially designed entities will take over the management […]]]>

A new project merging local councils’ water utility IT systems as part of the three water reforms could blow past the upper limit of $500 million indicated by officials, according to National.

Photo: Goodluz / 123rf

The project must be feasible by July 1, 2024, when four specially designed entities will take over the management of drinking water, waste and stormwater services for 67 municipalities.

Department of Home Affairs (DIA) chief executive Paul James told a select committee late last month that a business case was being developed to reduce the cost and design of the project.

He said the department is in “trade conversations” aimed at the “high tens of millions” on the low end, but utility projects of this type and size typically cost between $300 million and $500 million.

Local Government Minister Nanaia Mahuta said the business case would be informed by examples such as Auckland’s Watercare.

“We are taking our time to ensure that the business case and evaluation is done to give us the best insight on how to proceed – how to consolidate the architecture needed for the four water service entities,” she said.

“There will be incremental spending over the design period of the feature.

Nanaia Mahuta


Photo: RNZ / Samuel Rillstone

“It’s a lot of money and that’s why we’re doing the business case…the business case would give us a solid base to land on a number. We’re just not there yet.”

The executive director of the DIA’s Tri-Water Transition Unit, Heather Shotter, told RNZ that no decision has yet been made on funding mechanisms, but “ultimately the cost of this investment will be borne by the new water service entities as owners of the assets”.

This means that it will be the residents who will pay the water tariffs under tariff schemes which have not yet been decided by the new entities under the supervision of the water regulator Taumata Arowai.

National’s Simon Watts said it was not fair to taxpayers and costs could rise further.

“There is significant downside risk to these rising IT costs – if the range is what it is right now…it’s not inconceivable to think that 12 months later these numbers could be bigger and that is again a significant concern.”

Watts said the mere fact that the project is still at such an early stage was a “significant red flag”.

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Photo: Provided

“After four years of planning and preparation, the fact that they don’t know what this key element will cost brings up the fact that they are not above the details, that they haven’t done the planning and the preparation.

“This government is clearly driven by an ideology with a drive for centralization – practicality and implementation are always an afterthought. And this is just the latest evidence to show that this three-water reform program has been poorly thought out, not prepared, and has a huge exposure to risk in terms of the costs taxpayers will fund.”

He said it would only add to the government’s previous spending on three-water reform, including $26 million for consultants, at least $3.5 million for a heavily criticized advertising campaign and $2.5 billion. dollars for the government “no worse” and “better”. off” funding for advice.

“At the end of the day, this important reform package from the minister has been sold to Kiwi taxpayers as something that will cut costs – well, they’re already $2 billion in debt before day one,” Watts said.

Porirua Mayor Anita Baker supports the reforms and said she understands why IT spending is necessary.

“I think all taxpayers want everything to go into our assets – so it’s all the infrastructure on the ground that gets fixed – but I understand why they have to.

“If they want to continue with the model as it is, they really have to – they really have no choice.”

no caption

Anita Baker, Mayor of Porirua.
Photo: RNZ / Dom Thomas

Porirua’s three water systems are managed by Wellington Water, and Baker said the council is banking on the entities’ greater borrowing power.

“We don’t face our three waters as they are, and we hope that the investment that can be made by the larger entity – because we can’t, we’re fixed on our borrowing rates so that we cannot borrow more.”

The costs of this project also pale in comparison to government estimates of $120-185 billion that would be needed over the next 30 years to bring Taumata Arowai’s water infrastructure up to new standards and prepare for future challenges like climate change. .

Watts disputes these figures.

“I don’t believe it. We know that the big numbers that were traded – between $120 billion and $180 billion – are unsubstantiated numbers that basically couldn’t be confirmed.”

Time is running out, advice under pressure

Regardless of the cost, there is strong pressure to complete the project within two years. Shotter said the business case had yet to be considered by Cabinet and that while decisions were “still a long way off”, the system needed to be at least minimally operational by the start date of the new service entities. some water.

“The design of these systems will be reviewed on a case-by-case basis, but the key is the requirement to have a minimum IT capacity in place to support operating entities on July 1, 2024,” she said. in a written response.

“Future ICT investment decisions (after July 1, 2024) will be made by water service entities.”

Watts said the project would add pressure on a sector that was already struggling.

“A lot of these councils, their systems aren’t broken today, it’s reform for reform’s sake,” he said.

“There are significant levels of fatigue and burnout across the country in local government and people are leaving because of the resulting pressure and stress.”

Baker confirmed that the councils – and Wellington Water in particular – were struggling to retain staff.

“Obviously they’re moving from Wellington Water to the new water entity, and we’re all struggling to get people on the ground…we already know there’s a shortage in the water business. water and road.”

Porirua City Council Building

Town hall of Porirua.
Photo: RNZ / Rebekah Parsons-King

She also had concerns about the timing of the IT project.

“They also linked this to the local government review… I think residents and councils are on the consultation, and I think it will be difficult for them to meet their deadlines.

“I think 2024 was supposed to be the start but… I don’t know how quickly they can turn things around then.”

She said the upcoming local body elections in October would cause further disruption, with councils unable to make major decisions for three months.

“It’s going to be very tight, I think, for the next couple of years for the boards and the staff – a lot of pressure there.”

Select committee submissions on the first Three Waters Bill close Friday.

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The big flaw? The dozen countries in danger zone https://sharewared.com/the-big-flaw-the-dozen-countries-in-danger-zone/ Fri, 15 Jul 2022 17:21:00 +0000 https://sharewared.com/the-big-flaw-the-dozen-countries-in-danger-zone/ LONDON, July 15 (Reuters) – Traditional signs of a debt crisis, falling currencies, 1,000 basis point bond spreads and depleted foreign exchange reserves indicate that a record number of developing countries are now in trouble. Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default, Belarus is on the brink and at least a […]]]>

LONDON, July 15 (Reuters) – Traditional signs of a debt crisis, falling currencies, 1,000 basis point bond spreads and depleted foreign exchange reserves indicate that a record number of developing countries are now in trouble.

Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default, Belarus is on the brink and at least a dozen others are in the danger zone as rising borrowing costs , inflation and debt are fueling fears of an economic collapse.

Totaling up the cost is mind-boggling. Using bond spreads of 1,000 basis points as a pain threshold, analysts calculate that $400 billion of debt is at stake. Argentina has by far the most with over $150 billion, while next are Ecuador and Egypt with 40 to 45 billion dollars.

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Crisis veterans hope many can still dodge default, especially if global markets calm down and the IMF lends support, but those are the countries at risk.

ARGENTINA

The sovereign default world record holder looks likely to add to his tally. The peso is now trading at a discount of almost 50% on the black market, reserves are extremely low and bonds are trading at just 20 cents on the dollar – less than half of what they were after the restructuring of the country’s debt in 2020.

The government has no substantial debt to repay until 2024, but it escalates thereafter and concerns have crept in that powerful Vice President Cristina Fernandez de Kirchner could push to give up the International Monetary Fund. Read more

Reuters Charts

UKRAINE

Russia’s invasion means Ukraine will almost certainly have to restructure its more than $20 billion debt, heavyweight investors such as Morgan Stanley and Amundi warn.

The crisis comes in September when $1.2 billion in bond payments are due. Aid money and reserves mean Kyiv could potentially pay. But with state-owned Naftogaz this week asking for a two-year debt freeze, investors suspect the government will follow suit. Read more

Ukrainian bonds brace for default

TUNISIA

Africa has a group of countries going to the IMF, but Tunisia seems to be one of the most at risk. Read more

A budget deficit of almost 10%, one of the highest public sector wage bills in the world and it is feared that it will be difficult to obtain, or at least to stick to, an IMF program due to President Kais Saied’s efforts to strengthen his grip on power and the country’s powerful and incalcitant union.

Tunisian bond spreads – the premium demanded by investors to buy debt rather than US bonds – have reached over 2,800 basis points and, along with Ukraine and El Salvador, Tunisia is on the list of the top three defaulters likely from Morgan Stanley. “An agreement with the International Monetary Fund becomes imperative,” said the head of Tunisia’s central bank, Marouan Abassi. Read more

African bonds suffer

GHANA

Furious borrowing has pushed Ghana’s debt-to-GDP ratio to almost 85%. Its currency, the cedi, has lost nearly a quarter of its value this year and it was already spending more than half of tax revenue on debt interest payments. Inflation is also approaching 30%.

Reuters Charts

EGYPT

Egypt has a debt-to-GDP ratio of almost 95% and has seen one of the largest outflows of international cash this year – some $11 billion according to JPMorgan.

Fund firm FIM Partners estimates that Egypt has $100 billion in hard currency debt to repay over the next five years, including a large $3.3 billion bond in 2024.

Cairo devalued the pound by 15% and asked for IMF help in March, but bond spreads are now above 1,200 basis points and credit default swaps (CDS) – a tool for investors to hedge risk – evaluate at 55% the probability that he will fail on a payment. Read more

Francesc Balcells, CIO of emerging debt at FIM Partners, however, estimates that around half of the $100 billion Egypt needs to pay by 2027 is earmarked for the IMF or bilaterally, mostly in the Gulf. “Under normal conditions, Egypt should be able to pay,” Balcells said.

The fall in Egypt’s foreign exchange reserves

KENYA

Kenya spends about 30% of its income on interest payments. Its bonds have lost almost half their value and it currently has no access to capital markets – a problem with a $2 billion bond maturing in 2024.

Regarding Kenya, Egypt, Tunisia and Ghana, David Rogovic of Moody’s said: “These countries are the most vulnerable simply because of the amount of maturing debt relative to reserves and the fiscal challenges in terms of stabilization of the debt burden”.

Kenya’s concerns

ETHIOPIA

Addis Ababa plans to be one of the first countries to receive debt relief under the G20 Common Framework Programme. Progress has been hampered by the country’s ongoing civil war, although in the meantime it continues to service its only billion-dollar international obligation. Read more

Africa’s debt problems

EL SALVADOR

Making bitcoin legal tender pretty much closed the door to IMF hopes. Confidence has fallen to the point where an $800 million bond maturing in six months is trading at a 30% discount and longer-term bonds at a 70% discount.

PAKISTAN

Pakistan reached a crucial agreement with the IMF this week. Read more The breakthrough couldn’t be more timely, with high energy import prices pushing the country to the brink of a balance of payments crisis.

Foreign currency reserves fell to $9.8 billion, barely enough for five weeks of imports. The Pakistani rupee weakened to record lows. The new government must now rapidly reduce its expenditure since it devotes 40% of its income to the payment of interest.

Countries in debt distress at record level

BELARUS

Western sanctions forced Russia into default last month and Belarus now faces the same harsh treatment after backing Moscow in the Ukraine campaign.

Belarusian bonds

ECUADOR

The Latin American country only defaulted two years ago, but was thrown back into crisis by violent protests and an attempt to oust President Guillermo Lasso. Read more

It has a lot of debt and with the government subsidizing fuel and food, JPMorgan has raised its public sector budget deficit forecast to 2.4% of GDP this year and 2.1% next year. Bond spreads exceeded 1,500 basis points.

NIGERIA

Bond spreads are just over 1,000 basis points, but Nigeria’s next $500 million bond payment in a year should easily be covered by reserves that have been steadily improving since June. However, it spends nearly 30% of government revenues to pay the interest on its debt.

“I think the market is overpricing a lot of these risks,” said Brett Diment, head of emerging market debt at investment firm abrdn.

Foreign exchange markets in 2022
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Reporting by Marc Jones; Additional reporting by Rachel Savage in London and Rodrigo Campos in New York; Editing by Susan Fenton

Our standards: The Thomson Reuters Trust Principles.

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