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This Week's Mortgage Market Update Contains:

• How the rich are investing in real estate right now
• Record high household debt in Canada triggers alarm
• What's Behind Scotia's Rental Changes

This Week's Quotation:

“So many of our dreams at first seem impossible, then they seem improbable, and then, when we summon the will, they soon become inevitable.” -  Christopher Reeve, From speech at Democratic National Convention, August 1996

This Week's Highlights:

• Housing starts decline slightly in October
• Employment tumbled in October
• Annual headline and core inflation rates up in September

How the rich are investing in real estate right now

I was catching up on a backlog of reading last weekend when I came across an interesting, if worrisome, article in The Economist. In it, the British newsmagazine suggested the Canadian real estate market is overvalued by 25 per cent or more, and is now "frothier" than the U.S. market was at its peak in 2008. A provocative suggestion, one sure to make millions of Canadian homeowners a little concerned. For better or worse, real estate remains a significant asset for most Canadian families. If our real estate market is in bubble territory, the financial implications would be serious. Read more....

Record high household debt in Canada triggers alarm

Canadians have set a new record for household debt, a sign that many families are leaving themselves vulnerable to an economic shock. The debt burden of Canadian households has surpassed levels of both the United States and the United Kingdom and, by at least one measure; they are hurtling toward those countries' peak levels of 2007, new Statistics Canada data show. Read more....

What's Behind Scotia's Rental Changes

Scotiabank has long been an investor-friendly lender. But recently, Scotia Mortgage Authority (SMA) made its rental financing program notably more restrictive. SMA now:

• Limits borrowers to five rental properties, including those financed elsewhere (there was no official limit previously)
• Restricts rental mortgages to 5-year closed terms (fixed or variable)
• Upcharges the rate for rental deals (whereas before it didn't)

"THIS WEEK'S HIGHLIGHTS"

Housing starts decline slightly in October

Canadian housing starts remained essentially steady in October, falling 0.6% to 207,600 annualized units from September's 208,800 (earlier reported as 207,600). October's slight decline in the pace of housing starts was entirely due to a 9.0% drop in the urban singles component, to 60,900 from 66,900 in September. The volatile urban multiples component continued to climb in October, with a 1.7% increase to 123,600. Rural starts also rose, from 20,400 annualized units to 23,100. On a regional basis, big declines in urban starts were seen in Quebec (-28.8%) and the Atlantic provinces (-43.5%), following strength in these areas last month. These declines were the result of a slower pace of construction in both the singles and multiples components. Ontario, the Prairies and British Columbia all saw gains, of 11.7%, 28.2% and 1.5%, respectively. These gains were entirely driven by multiples starts, with singles declining in all areas. Growth in multiples was particularly pronounced in the Prairies, with the multiples component increasing by over 93%.

Employment tumbled in October

Canadian employment fell by 54,000 in October. The labour force contracted by 13,800 in October and the unemployment rate rose to 7.3% from 7.1% in September. The October report showed a decline in employment in the goods producing industries where the number of employed fell by 51,900. Construction (-20,100) and manufacturing (-48,400) jobs were cut in the month. In the services side of the economy, employment dipped by 2,000. All jobs lost were fulltime with 71,700 positions cut. Part-time employment rose by 17,700. On net, full-time employment is still up by 198,200 in 2011. The public sector shed 3,800 positions. Private sector employment reported 32,000 jobs cuts. Still, the declines over the three month period only reversed 71% of July's 94,500 surge. The number of self-employed individuals was down by 18,100 following the 38,900 increase in September. The year-over-year gain in average hourly wages for permanent workers slipped to 1.3%, a tad slower than September's 1.6% pace and still well below the average 2.3% in the first half of the year.

Annual headline and core inflation rates up in September

The September consumer price report showed the headline index rose 0.2% in the month however, the core rate ran much hotter, rising 0.5%. The year-over-year headline inflation rate edged up to 3.2% in September from August's 3.1% pace. The annual core rate was 2.2%, above the 1.9% recorded in August. Women's clothing prices spurted by 10.5% in September, which, supplemented by rising tuition fees (4.2%), car prices, and air transportation costs, boosted the inflation rates. Financial services costs also rose 4.8% in September. Moderating these increases were declines in electricity costs (which partially reversed increases in July and August) and insurance costs. The rise in the headline rate was also dampened by declining prices for fresh fruit and vegetables, and gasoline, three items that are not included in the core measure. The rise in vehicle prices and larger than seasonal increase in clothing prices accounted for about 0.2% of the monthly increase. Compared to September 2010, prices for gasoline were up 22.7%, fuel oil prices rose 27.4%, vehicle insurance premiums rose 5.6%, and food from restaurants and meat prices were also higher. At the same time, mortgage interest costs, furniture prices, computer equipment, and natural gas prices declined. On balance, the annual inflation rates, both headline and core, moved higher in the month.