Changes begin to Canada’s mortgage insurance guarantee framework

Two months ago, Jim Flaherty, Minister of Finance, announced that Canada would change its “mortgage insurance guarantee framework” to prevent over-speculation in its housing market. The new rules went into effect yesterday. These rules:

  1. Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
  2. Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
  3. Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

Flaherty referenced the recent financial crisis as motivation for taking these proactive steps.

CBC News reports on the changes in “New mortgage rules take effect” and describes the current strength in Canada’s housing market.


China Gets Even Tougher on Real Estate Inflation

Reuters reports that “China Steps up Fight Against Property Speculation“:

“Provincial and municipal governments in areas experiencing rapidly rising property prices may temporarily restrict the number of properties people may buy, in accordance with the situation in their jurisdictions, the State Council said.

The measures also made clear to banks that they would be expected not just to raise mortgage rates and down payment requirements, but to refuse credit to people who are clearly buying homes for speculative purposes.”

Specifically, banks are being asked to increase down payments and mortgage rates for people who already own two homes or more.

Apparently, China has a working definition of an asset bubble and is getting increasingly proactive about preventing (or slowing down) rampant asset inflation.


College Faculty Not Seeing the Benefits of Tuition Inflation

Tuition at colleges and universities are soaring (click here for story about UC schools), but, apparently, faculty are not receiving the benefits, at least not lately. The New York Times reports on the annual salary survey conducted by the American Association of University Professors:

“Over all, salaries for this academic year are 1.2 percent higher than last year, the smallest increase recorded in the survey’s 50 years — and well below the 2.7 percent inflation rate from December 2008 to December 2009.

The survey found that average salary levels actually decreased this academic year at a third of colleges and universities, compared with 9 percent that reported lower average salaries in the previous two surveys. Private and church-related universities reported shrinking average salaries more often than public institutions.”

Of course this leaves us to wonder where all the money is going from tuition hikes. The article notes: “Generally, administrative salaries at colleges and universities have been increasing far more quickly than pay for faculty members.”


Inflation threat may be rising in the United Kingdom

Reuters reports that producer prices increased broadly in February in the United Kingdom:

“…annual gains were registered in all categories, suggesting many manufacturers are taking advantage of the recent pick-up in growth to pass on at least some of their higher energy bills.

Core producer output price inflation, which strips out food, beverages, tobacco and petroleum products, rose by an annual 3.6 percent, its highest rate since February 2009.”

When including energy and food prices, producer prices soared twice as high as expectations to 0.9%. The annualized increase of 5.0% has not been this high since November, 2008.

The Bank of England is betting that inflationary pressures will subside later in the year given spare capacity in the economy. Skeptics are growing…


AK Steel Increases Prices on Carbon Steel Products

Another month, another price increase for AK Steel (AKS). Yesterday evening, AKS announced a $40/ton price hike on all carbon steel products. The company explained the reasons for the increase:

“…the price increase is in response to increased demand for carbon steel products, as well as the need to recover higher costs for steelmaking inputs.”

The recovery in the steel industry continues…


Apartment rents are rising

WSJ:

Apartment rents rose during the first quarter, ending five straight quarters of declines and signaling the worst may be over for the hard-hit sector.

Nationally, the apartment vacancy rate stayed flat at 8%, the highest level since Reis Inc., a New York research firm, began its tally in 1980.

Reis tracks vacancies and rents in the top 79 U.S. markets, and rents rose in 60 of them, led by Miami, Seattle and New York—all cities that have notched big rental declines in the past year.

Rents increased 1.6% in the first quarter in Miami and 0.9% in New York. The gains came during what is usually a seasonally weak period for apartments and suggested that landlords may have some momentum heading into the peak spring and summer leasing season.

Keep in mind that housing costs currently account for 42 percent of the Consumer Price Index.


Indian steel prices continue to soar in 2010

The increasing costs of coking coal and iron ore are driving the price of steel ever upward. In India, steel prices have increased for the third time this year. The Hindu Business Times reports:

“According to industry observers, mining firms are entering into supply contracts with steel makers for the April-June quarter at about $110-120 a tonne, which is an increase of 80-100 per cent from the levels of 2009-10 annual contracts.”

Apparently, these latest price increases are leading to price hikes in consumer goods and construction that rely on steel-based inputs. However, Steel Minister Virbhadra Singh is not worried about inflationary pressures:

“‘There has been a spurt in steel prices in the domestic market recently but it is a temporary phenomenon and at present there is no inflationary concern.’”