House Price Index – May 2009

May 28th, 2009 by Andrew

A useful tool for analyzing the health of the Canadian real estate market is the Teranet / National Bank House Price Index which released its May 2009 report today. According to the report housing prices across Canada decreased by 5.8% year over year from March 2008 to March 2009 which extends a 4 month streak of consecutive year over year declines. Since the peak of housing prices in August 2008 prices have also fallen about 8.5%.

The report also breaks out housing price trends for the 6 major metropolitan areas of Toronto, Vancouver, Montreal, Ottawa, Calgary and Halifax.

Metropolitan area	Index level Mar-2009	% change m/m	% change y/y	From peak	Peak Date
Calgary	152.97	-0.8 %	-8.4 %	-12.7%	Aug-2007
Halifax	118.17	1.0 %	-0.8 %	-3.0%	Nov-2008
Montreal	120.60	0.0 %	2.9 %	-1.6%	Sep-2008
Ottawa	113.14	-0.5 %	1.0 %	-4.3%	Oct-2008
Toronto	104.68	-1.9 %	-6.9 %	-10.8%	Aug-2008
Vancouver	133.02	-1.7 %	-9.6 %	-11.7%	Jun-2008
National Composite	119.62	-1.3 %	-5.8 %	-8.5%	Aug-2008

As you can see from the table above the largest declines in price from the peak have been experienced in Calgary, Vancouver and Toronto.

A lot of the economic turmoil that has occurred in the United States over the last year has been related to the rapid correction in their housing market. I saw a stat yesterday that US housing prices have dropped over 33% since the peak a couple of years ago and are continuing to decline according to the latest S&P/Case-Shiller Home Price Index report from May.

Some people are of the opinion that Canadian housing prices have not declined as much as US housing prices as a result of stricter mortgage lending regulations imposed by the Canadian Mortgage and Housing Corporation. However one has to question if the Canadian housing market still has a long way to go before it hits the bottom.

I will continue to post the lastest trends from the Teranet / National Bank House Price monthly report as they are released to keep you informed of the trends.

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Canadian Household Debt On The Rise

May 26th, 2009 by Andrew

The Globe and Mail published an article today which focused on the increasing size of Canadian household debt from a recent survey conducted by the CGA. This trend should not really be that much of a surprise given the recent decline in stock portfolios, slowdown of the real estate market and increase in the availability of consumer credit over the past decade. It is interesting however, to look at the magnitude of household debt and to analyze the trends.

A stat that I found to be quite shocking was the fact Canadian household debt increased from $1 trillion in 2007 to $1.3 trillion in 2008. That is quite an alarming year over year increase. On a per Canadian basis that amounts to $39,597 per Canadian in household debt.

Another trend is that the composition of Canadian household debt is also changing. Instead of using debt to purchase assets such as vehicles, real estate or investments the average Canadian is increasing their credit card and credit line debt to fund consumption spending. Below are the top reasons that survey respondents gave for their increasing household debt.

Reason For Increasing Debt:

Day-to-day living expenses 58%

Interest charges 27%

Purchase of a new car 26%

Purchase of consumer durables 25%

Purchases of a new residence 19%

Expenses for leisure and entertainment 19%

Health related expenses 16%

Enrolling in an educational program 10%

Other 24%

It just goes to show that there are a lot of Canadians is living beyond their means who are using short term debt such as credit cards and lines of credit to fund their everyday needs. This is dangerous because it can be unsustainable over the long term. If someone loses their job or faces an unexpected expense while using debt to finance every day expenses then it can easily lead to personal bankruptcy.

The ratio of household debt to household assets has also recently risen to 19% up from 14%-15% over the past decade.

Key Takeaways

The key take always from these figures is to always try to live within your means and not over extend yourself with debt. I feel that a lot of people got too excited over the past decade when assets such as real estate and stocks were on the rise and piled on more debt then they could handle with the assumption that it was fine, as long as their asset base continued to appreciate. As we’ve seen over the past year and a half asset bubbles can correct and correct quickly leaving all those with a high debt load in a terrible squeeze as conditions deteriorate.

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How Expensive Is Your Car To Insure?

May 24th, 2009 by Andrew

Ever wondered how your vehicle stacks up in terms of how much it costs to insure relative to other cars? The Insurance Bureau of Canada provides a very handy Excel spreadsheet with all of this data summarized for vehicle model years from 1995-2007.

The spreadsheet allows you to sort vehicle models based on accident benefits, claim cost, collision, comprehensive, direct compensation property damage, theft cost and theft frequency.

If you are in the market for a used vehicle make sure you double check this data to make a more informed decision before you make a purchase.

Highlights

Top 5 Most Frequently Stolen Vehicles

2000 HONDA CIVIC SiR 2DR
1999 HONDA CIVIC SiR 2DR
2004 SUBARU IMPREZA WRX/WRX STi 4DR AWD
1995 DODGE/PLYMOUTH GRAND CARAVAN/VOYAGER
1995 DODGE/PLYMOUTH CARAVAN/VOYAGER

Top 5 Vehicles With The Highest Theft Claims Cost

2005 CADILLAC ESCALADE 4DR 4WD
2001 AUDI TT QUATTRO ROADSTER
2004 SUBARU IMPREZA WRX/WRX STi 4DR AWD
2006 LAND ROVER RANGE ROVER 4DR 4WD
2003 ACURA RSX TYPE S 2DR

Top 5 Vehicles With The Highest Collision Claims Cost

2006 SUBARU IMPREZA WRX/WRX STi 4DR AWD
2004 JAGUAR XJ8/XJ-R 4DR
2006 MAZDA B4000 4WD
2003 FORD EXCURSION 4DR 4WD
2005 SUBARU IMPREZA WRX/WRX STi 4DR AWD

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Compare Car Insurance Quotes Online

May 23rd, 2009 by Andrew

In my article 10 Tips To Save On Car Insurance I mentioned that the best way to save on the cost of car insurance is to shop around and get multiple quotes from different insurance companies. So how do you shop around efficiently and effectively?

Most car insurance companies will provide you with a quote over the phone or through an automated system on their corporate website. The challenge with this process however is that you must provide your vehicle and driving history information multiple times in order to compare quotes between different insurance companies.

The solution? Kanetix.ca.

With Kanetix.ca all you do is input your vehicle and driving history information once and the website will provide you with multiple auto insurance quotes from companies in your area. Its that simple! I suggest you give it a try if you are looking to save on your auto insurance.

Kanetix.ca also has a “recent quote” widget on the main page which displays the auto insurance quotes of other customers who recently went through the system. This tool is useful to see how other people in the same age category, geographic area and with a similar vehicle stack up in terms of the cost to insurance.

So give Kanetix.ca a try and hopefully it can help you expediate your auto insurance quote gathering process.

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10 Tips To Save On Car Insurance

May 22nd, 2009 by Andrew

Car insurance is one of those things that nobody enjoys paying for, but is a legal requirement in order to own and operate a vehicle in Canada. For a full explanation of how car insurance works view my earlier post.

Even though auto insurance is a necessary evil there are several ways you can go about optimizing your auto insurance policy so that you maintain adequate coverage in case of an unforeseen event and pay the lowest premium possible.

10 Tips for Saving on Car Insurance

1: Drop collision coverage

If you drive an older vehicle chances are it isn’t worth much and costs a lot more in maintenance to maintain relative to a newer car. If you are in a collision with an older car chances are it isn’t going to be worth repairing and the insurance company will in the majority of cases just write you a cheque for what they deem to be the “fair value” of the vehicle as compensation.

Given that it often doesn’t make sense to pay additional premium for collision insurance on an older vehicle. If you are in an accident your liability coverage will cover the expense of repairing the other persons ca

r. By dropping collision coverage on your own car you stand to save quite a bit of your premium which you can then put towards the purchase of a new car should you get into a collision.

2: Drop comprehensive coverage

Comprehensive coverage helps pay for damage to your car resulting from incidents other than collision. This can include damages from falling objects, vandalism, theft, fire and certain natural disasters. Again if you own an older car it may not make sense to pay additional premium to carry comprehensive coverage.

3: Increase your deductible

The deductible is the amount that you are willing to pay to share the cost of a claim with your insurance company. For example if you are in an accident and it is going to cost $2,500 to repair your car and your car insurance policy is set up with a $500 deductible on collision coverage. In this case you would pay the initial $500 and the insurance company would pay the balance of $2,000.

Most insurance companies will offer a range of deductible options offering you choice on how much you are willing to pay of each claim. Obviously the higher the deductible or the more you are willing to share the cost of each claim then there is less risk for the insurance company and in turn they are able to offer you a lower premium.

4: Use anti-theft devices

Use a steering wheel bar, alarm system or have a GPS tracking system installed as an additional layer of protection against theft. Most car insurance companies will reward you with a lower premium for use of these anti-theft measures.

5: Buy a car with a low cost insurance rating

Some cars cost more to insure than others. This is due to different frequencies of theft and the cost to replace/repair the vehicle after a collision.

Before you buy or lease a car make sure to check the Insurance Bureau of Canada Car Insurance Ratings Guide to find out how vehicle stacks up.

6: Maintain a clean driving record

Nothing will increase the cost of your car insurance premium faster than a bad driving record. Several at- fault accidents or ticketed traffic violations will substantially hurt your driving record and the insurance companies require compensation for the risk they are taking to insure you. Most dings on your driving record can also take years before they are removed from your premium calculation.

That said, it is important to always drive defensively and within the law at all times to prevent an unwanted accident or traffic violation.

7: Adjust how your car is used

Your insurance company calculates a portion of your premium based upon how you use your car. Do you drive 10,000 KM a year back and forth to work or 50,000 KM a year across the country for business? By reducing the number of KMs that you drive a year can impact your premium. Perhaps taking public transit, biking or walking to work a few days a week is an option to reduce your annual KMs.

8: Take advantage of multi-insurance product discounts

Most insurance companies will offer substantial discounts if you own more than one insurance product with them. The most common insurance product to bundle with your auto insurance is home insurance.

When setting up an auto insurance policy ask the customer service rep what the discount are if you hold multiple insurance products. I have seen discounts in the range of 5-15%.

9: Take advantage of multi-vehicle discounts

Most insurance companies will also offer discounts for having multiple vehicles listed on a policy. This opportunity to save usually exist when you have a family with multiple vehicles or when two people move in together with separate insurance policies.

10: Get multiple quotes

There are numerous insurance companies out there who have different criteria for calculating premiums. So the most important thing you can do to get the lowest auto insurance premiums is to SHOP AROUND.

There are a lot of great services online that allow you to directly compare auto insurance quotes from leading insurance companies in your area by entering your vehicle and driving history once. The best tool that I have found for Canadian auto insurance quotes is Kanetix.ca

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How Car Insurance Works

May 21st, 2009 by Andrew

Auto insurance is a system which allows individuals to spread the risk of owing and operating a vehicle. With the large number of vehicles on the roads these days a certain percentage of them are going to be involved in a collision, destroyed by fire or stolen. To protect against the financial burden associated with these risks people purchase auto insurance policies which allow them to effectively pool the risks involved with all the other drivers out there.

How does it work?

Every auto insurance policy holder makes regular payments (the premium) into a large pool of funds which is managed by an insurance company. The insurance company will invest the pool of funds into a basket of conservative investments which are regulated by the Canadian government to insure fiscal responsibility.

If a policy holder has their car damaged in a collision, damaged by other means or has their car stolen then that policy holder would make a “claim” with the insurance company. If the policy holder is coverage for the particular type of claim then the insurance company will pay out money from the pool of funds to cover the expenses associated with the claim being made.

What are the components of car insurance?

In most Canadian provinces accident benefit coverage and third party liability coverage are mandatory while collision coverage and comprehensive coverage are optional.

Accident Benefits

Accident Benefits coverage pays for medical treatment, income replacement and other benefits to help you heal if you are injured in a collision. Accident benefits are also called “no-fault benefits,” which means they are paid to you by your own insurer regardless of who caused the collision.

Third-Party Liability

In most provinces, the person who did not cause the collision has the right to sue the at-fault driver for additional costs and damages not covered by Accident Benefits. Third-Party Liability covers you for the legal costs of being sued if you are the at-fault driver.

Collision Coverage

Collision Coverage covers the cost to repair or replace your vehicle if you are in an accident where you are at fault. Insurance companies will often offer a deductible option which is basically the fixed amount your are filling to pay for each claim out of your own pocket to share in the cost of the claim.

Comprehensive Coverage

Comprehensive auto insurance covers theft, fire, vandalism, weather damage, riots, missiles, and other similar circumstances which may cause damage to a vehicle. Comprehensive auto insurance does not usually cover acts of God, theft or vandalism by family members or employees, contents of the vehicle, tires, or damage due to improper maintenance.

How are premiums (payments) calculated?

Car insurance premiums are calculated based on a number of factors. The factors that have the largest influence on the premium amount include….

Where you live

If you live in a busy city the risks of an accident or car theft are higher which increases premiums

The type of vehicle you drive

Different types of cars are cheaper to insure then others. Some cars have higher safety rating leading to lower accident benefit payouts and some cars are cheaper to repair or replace if a collision or theft occurs.

How you use your car

The more you drive your car (KMs) the higher the risk of a collision.

Your driving record

Drivers with numerous at-fault accidents or driving infractions (tickets) are a higher risk to insure and thus have higher premiums

Your statistical Group

Premiums vary based on the statistical group that you fall into such as years of driving experience, age and gender.

And thats all there is to it. On the surface an auto insurance policy can seem complicated, but when broken out it really isn’t all that scary. Most insurance companies are good with respect to explaining everything if you make the point of asking for the information.

For more information on car insurance visit the Canadian Auto Insurance Bureau website.

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