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(October 17, 2006) The Bank of Canada kept its key overnight lending rate at 4.25%, citing weaker-than-expected economic growth in the latter half of the year.

“Although global economic growth is expected to be a little higher than previously anticipated, a weaker short-term outlook for the U.S. economy has curbed the near-term prospects for Canadian exports and growth,” the central bank said in a statement.

The Bank has also lowered its growth projections to 2.8% this year, and to 2.5% in 2007, returning to 2.8% in 2008.

Consistent with this outlook, core inflation is expected to move slightly above 2% in the coming months, the Bank added, and then return to 2% by the middle of 2007. “Lower energy prices have led to a downward revision to the near-term projection for total CPI inflation.”

Overall, inflation risk is “roughly balanced,” the Bank noted, citing the potential of increased household spending, offset by the possibility of a sharper economic downturn in the U.S., which would affect Canadian exports.

The next interest rate announcement is scheduled for December 5.

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Affordability gap favours renters, report says

(October 17, 2006) Rising home prices and mortgage rates are tilting the economic logistics of housing back to renting, according to a report released on Tuesday by Scotia Economics.

“The affordability gap between renting and owning is at its highest level since 1990,” says Scotiabank senior economist Adrienne Warren.<.p>

The report notes that the difference between the typical monthly mortgage payment on an average resale home in Canada and the average rent on a two-bedroom apartment is currently more than $800, up from $575 last year.

However, this calculation masks major regional differences,” Warren cautions, pointing out that in major urban areas, the buy-over-rent premium in 2005 ranged from just $31 per month in Winnipeg to $1,220 in Vancouver.

In recent years, trends have favoured renting over buying, with rental costs increasing at an average of just 1.3% a year between 2000 and 2005, compared to a 2.7% increase in the cost of buying a home over the same period.

“Ownership costs are climbing faster than rents in all 16 markets tracked by Statistics Canada with the exception of Charlottetown,” says Warren.

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Still, although home prices are approaching historic highs, the growing number of affordable condominiums, innovative mortgage products and the likelihood that interest rates will stay low over the coming year are all positive developments for potential first-time buyers, Scotia’s report adds.

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AIG adds to mortgage insurance product lineup

(October 17, 2006) AIG United Guaranty Mortgage Insurance Canada is expanding its product lineup and introducing new options to its current offerings.

Company president Andy Charles says the firm has developed “a comprehensive suite of products and technology designed to create additional value for Canadian consumers.”

The new products include Advantage 100, which allows borrowers with strong credit to purchase a home with no down payment at a mortgage insurance premium lower than currently available in the marketplace, and Advantage 97, which enables borrowers to purchase a home with as little as 3% down payment.

In addition, consumers now have the choice of 30-, 35-, or 40-year amortizations on certain products.

Changes to existing mortgage insurance products include new underwriting guidelines, fewer restrictions on certain mortgage insurance programs, and, for some products, lower mortgage insurance premiums.

AIG United Guaranty is a marketing term for United Guaranty Corporation, a member company of AIG.

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Le Pan steps down as OSFI head

(October 17, 2006) Nick Le Pan has retired as superintendent of the Office of the Superintendent of Financial Institutions, the body responsible for regulating Canada’s financial institutions and pension plans.

The announcement came in a letter from Julie Dickson, who will act as acting superintendent until a replacement for Le Pan is found.

“There should be no change in your dealings with OSFI,” Dickson wrote. “The process to identify and appoint a new superintendent is underway.

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