How the home price forecasts changed
STEVE LADURANTAYE — Real Estate Reporter Globe and Mail Blog
The Canadian Real Estate Association has been adjusting its forecast for 2011 as economic circumstances warrant, and on Monday took another crack at the numbers.
Its first prediction was made in February, 2010, when it said prices would fall 1.5 per cent as sales fell 7.1 per cent.
Monday’s numbers were rosier, as stronger than expected sales across the country and high prices in B.C. caused the trade association to amend its outlook to a 1.3 per cent decline in sales and a 4 per cent gain in prices.
Here’s how it got there:
Initial forecast for 2011, February 2010
Sales: -7.1 per cent
Prices: -1.5 per cent
“Interest rate increases will contribute to weaker national sales activity in 2011.”
June, 2010 forecast for 2011
Sales: -8.5 per cent
Prices: -2.2 per cent
“While sales activity is unfolding as expected in Ontario, the decline in affordability in British Columbia impacted sales in the province during the first quarter. Additionally, changes to mortgage regulations announced in February are expected to marginally impact activity.”
July 2010 forecast for 2011
Sales: -7.3 per cent
Prices: 0.9 per cent
“Weaker than anticipated sales activity during the crucial spring home buying season in Canada’s four most active provincial markets prompted the revision. The decline is consistent with the exhaustion of pent-up demand from deferred purchases during the economic recession, and sales having been pulled forward into early 2010 due to changes in mortgage regulations.”
Sales: -9 per cent
Prices: -0.8 per cent
“Sales activity in the third quarter of 2010 began on a weak footing, but gained traction as the quarter progressed. Improving momentum for home sales activity suggests the resale housing market is stabilizing, but weaker than expected third quarter activity has reduced CREA’s annual forecast.”
February, 2011 forecast for 2011
Sales: -1.6 per cent
Prices: 1.3 per cent &n bsp;
“The upward revision to CREA’s forecast for 2011 reflects recent improvements in the consensus economic outlook and a further expected improvement in consumer confidence.” &nbs p;
May 9 forecast for 2011 &nbs p;
Sales: -1.3 per cent &n bsp;
Prices: 4 per cent
“Although sales activity in the first quarter of 2011 came in largely as expected, multimillion dollar property sales in Greater Vancouver have surged unexpectedly. These sales have upwardly skewed average sale prices for the province and nationally, prompting the average price forecast to be revised higher http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/how-the-home-price-forecasts-changed/article2016467/
TD report:Vancouverites most willing to make joint purchase of a condo
VANCOUVER, May 10 /CNW/ - The majority of Vancouverites who recently purchased or intend to purchase a condo say that if they had more money, they would prefer to buy a house instead. The 2011 TD Canada Trust Condo Poll, which surveyed Canadians who are thinking of buying, or recently bought a condo, found that affordability of condos is a big attraction, especially in Vancouver (64% versus 46% nationally) and for respondents under 35-years-old (62% versus 46% for other age groups). Vancouverites are more likely than those surveyed in other cities to say they would consider buying a condo with a friend to make purchasing more affordable. Condos seem to be viewed as a stepping stone into homeownership, with many planning to move in the not too distant future. But, is this a good strategy?
"Especially if you are planning a joint purchase with someone, be clear about your timeline and have a plan in place for the eventual sale of the condo," advises Barry Rathburn, Manager, Residential Mortgages, TD Canada Trust. "Further, if you are only planning to own a condo for a few short years, calculate the costs that you will incur, such as condo fees, parking fees and moving expenses and work this into your budget. Depending on how soon you plan to move, these costs could outweigh the equity you'll build and receive from the eventual sale of your condo. I understand the attraction of owning a property, but in some cases it can make more financial sense to continue to rent while you save for a down payment on the home you really want." Home Sweet Home - but for how long?
Half of Vancouver respondents expect to live in their condo for three years or less (18%) or four to six years (32%). Across cities surveyed, the number planning for a short stay is highest amongst respondents under 35. Nearly one-quarter (22%) of respondents in this age group said they don't plan to spend more than three years in their condo and another 45% plan to move after four to six years.
Has the tightening of mortgage rules affected the condo market?
Forty-nine percent of Vancouverites said the recent amortization change to 30 years for new mortgages had a significant impact on their decision to choose a condo over other types of homes.
Somewhat alarmingly, the poll found that more than one-quarter (26%) of those intending to buy a condo in Vancouver were not aware of the recent changes to lending rules. "Homebuyers need to have some understanding of the mortgage laws. If you plan to buy a home, you can possibly save yourself a lot of money in the long run by understanding your options and making well informed decisions about the type of mortgage you choose and the amount of your down payment based on what you can afford," says Rathburn. "Familiarize yourself with different mortgage options, so you can weigh the pros and cons of each before making a decision. There are experts at the bank who can walk you through different mortgage options and help you find the right solution for you, including a variety of flexible mortgage payment features, which can give you the choice to manage your mortgage payments, which is something that you may need in the future."
What do Vancouverites look for in a condo?
Vancouver residents named good building security as the most important feature to look for in a condominium (98%). Keeping with the theme of affordability, low condo fees was the second most popular answer (96%). Eighty-four percent of Vancouver respondents said they were not willing to pay more than $400 in condo fees monthly. These figures remain consistent with findings from a similar poll conducted by TD Canada Trust in 2010. Other important features were attractive interior design features, available parking and an energy-efficient building (all 93%).
Condos popular with downsizing pre-retirees:
Nationally, those over 50 are attracted to condos because they fit into their plans to downsize their home. Not surprisingly, when those over 50 move into a condo, 31% don't plan to move again. Since they plan to stay put, many over 50 are making their condos as comfortable as possible, with 53% planning to spend more than $10,000 on upgrades (compared to only 15% of those under 35).
"Moving to a smaller, less expensive home can free up money to allow pre-retirees to make some upgrades and enjoy a bit more luxury in their space," says Rathburn. "It's especially important for those who are selling their home to downsize as part of their retirement strategy to make a budget for any upgrades and stick to it. You don't want to get carried away and spend all the extra money you earned with the sale of your previous home."
Approximately half of Vancouver respondents are planning to make upgrades to their condo right away (48%). One-quarter of Vancouverites say they will spend less than $5,000 on these upgrades, 51% will spend between $5,000-$10,000, 18% will spend $10,001-$15,000 and 7% will spend more than $15,000.
About the 2011 TD Canada Trust Condo Poll From March 25 to April 11, results were collected from 806 people in Vancouver, Toronto, Calgary and Montreal, through a custom online survey by Environics Research Group. Responses were collected from 204 Vancouver residents. Respondents had either bought a condo in the past 24 months, intend to buy a condo in the next 24 months, or considered a condo when shopping for a home.
After strong start, Canadian economy downshifts to lower gear in February
OTTAWA – The Canadian economy contracted in February for the first time in five months as a setback in manufacturing brought growth back down to earth after two heady months.
Statistics Canada reported Friday that real gross domestic product fell 0.2 per cent, following monthly leaps of 0.5 per cent in January and December.
A correction was widely anticipated, particularly in the factory sector that had been artificially boosted by production timing issues. But this was worse than expected, and more worrisome because the weakness extended to many areas outside the factory floor.
“The January numbers were a total head fake coming after the plant shutdowns in November and snowstorms, but what worries me in this report is it wasn’t just that effect coming off,” said Derek Holt, vice-president of economics with Scotiabank.
“This reflected some fairly broad-based weakness in the economy.”
The Bank of Canada’s latest forecast is for a strong 4.2 per cent first quarter of this year, but economists said that is now in jeopardy unless March proves to be a bounce-back month.
“Considering the downside risks to (second-quarter) growth, the Bank of Canada’s call for the output gap to close by (second quarter of) 2012 could be at risk” as well, said Bank of Montreal economist Benjamin Reitzes.
Given the tardiness in the reporting of many economic indicators in Canada, it is difficult to get an actual picture of March’s performance at this time, economists said. The only known major indicator so far is that employment declined slightly in March.
Holt said Canadians shouldn’t read too much into the February retreat, however.
The performance is in line with an economy growing at a moderate pace, in the two to 2.5 per cent range, and not of one heading south. On a three-month average, the economy is advancing at a 0.3 per cent monthly pace, TD Bank economist Diana Petramala pointed out.
The downshift, however, gives the Bank of Canada one more reason to keep interest rates just where they are despite last month’s surprising strong 3.3 per cent inflation reading. The Canadian dollar is already at worrying levels for exporters, and a move to raise rates by the central bank would only make matters worse.
February’s weakness was skewed toward the factory sector, with manufacturing declining a massive 1.6 per cent, but also showed across a broad base as 16 of the 21 major groups retreated.
Manufacturing of motor vehicles and associated parts fell 7.5 per cent; machinery was down 3.3 per cent and fabricated metal products were off 2.7 per cent. Wood-product manufacturing increaed, however.
Overall, the goods producing sector of the economy fell 0.6 per cent
Service producing industries were flat as gains in retail trade, professional and financial services, and the public sector were offset by losses in wholesale trade and transportation services.
The finance and insurance sector grew 0.2 per cent during the month, while construction edged up 0.1 per cent as both non-residential building construction and engineering and repair work advanced.
Mining, oil and gas extraction was unchanged in February, with advances in mining (up 0.9 per cent) and in support activities (up 2.1 per cent) offset by a 0.4 per cent decline in oil and natural gas extraction.
Residential construction was also unchanged, as drops in single dwellings and renovations were offset by increases in other types of dwellings.
“Following six consecutive monthly increases, the output of real estate agents and brokers decreased, reflecting a reduction in sales of existing homes in all provinces except British Columbia,” the agency said
Is 1st half gain 2nd half pain?
Tim Shufelt Financial Post Apr 17, 2011
Since climbing back from the depths of recession, Canada’s sound economic footing relative to the United States has been a source of national pride and self-congratulation.
But as much as ever, the U.S. economy’s weaknesses become Canada’s own, an inescapable reality that could be made painfully clear in the second half of 2011.
The disappointing start to the year in the United States now threatens to spread north, raising the prospect of an imminent slowdown in Canadian economic growth. Many observers, the Bank of Canada among them, are advising Canadians to lower their expectations.
“We could lapse into this lowgrowth environment, with low productivity and a high Canadian dollar,” said Brian Bethune, chief financial economist for North America at IHS Global Insight. “I’m not sure that’s a very exciting future.” To him, a drop-off in growth is “baked in the cake.”
Last year, the global economic recovery suffered a setback, one significant enough to stoke fears of a return to recession and incite the U.S. Federal Reserve to again intervene by injecting billions of dollars of liquidity.
Whether a similar regression stains 2011 depends on two key questions: Will the Canadian dollar remain high? And will the U.S. recovery, which has so far been a start-stop affair, become sturdy enough to drive demand for Canadian exports?
The answer to the first question is fairly clear, Bank of Canada governor Mark Carney said this week.
The loonie’s “persistent strength” will remain the bane of the Canadian exporter, he said, one of the headwinds that will result in more modest economic growth over the next several quarters.
There is no consensus, however, on the immediate future of the U.S. economy, mainly because the current cyclical recovery in the United States is so historically atypical, said Nigel Gault, chief U.S. economist at IHS.
Unlike almost any other that came before, this recovery is forced to endure without a comeback -or even stability -in the housing sector. “It’s extremely unusual,” Mr. Gault said. “In a traditional robust expansion, housing would have been one of the leading sectors.”
But U.S. housing continues to hit new lows, with possible years ahead before home prices begin to rise substantially.
“That means the economy just can’t come back as quickly as it would in a normal recovery,” Mr. Gault said.
Millions of houses remain vacant, prices continue to fall, and the limited sales activity occurring is dominated by distressed properties.
With new-home construction almost at an “irreducible minimum,” the housing sector could not prove more of a drag on U.S. GDP, Mr. Bethune said. “You’ve got this anchor being dragged along.”
Growth in the first quarter in the United States is likely to come in at about 1.8% on an annualized basis, answering the question of whether a U.S. slowdown should be expected, Mr. Gault said. “We’ve had a pause already. We’re in the middle of it.”
These interruptions in the economic cycle set the current recovery apart in a second sense.
“In most recoveries, once they get going, they really get going,” Mr. Gault explained. “In theory, GDP bottomed out in 2009, and we’ve been growing since then. So we’re almost two years in. Normally at this point, you’d be comfortably above the previous GDP peak.”
That mark, however, was only just reached in the United States in the last quarter of 2010.
But perhaps conventional wisdom does not strictly apply, suggested Michael Gregory, senior economist at BMO Capital Markets. And perhaps decent growth is not predicated on stability in housing, he said.
Mr. Gregory likens the U.S. economy to a Bundt cake. “There’s a hole in the middle, but the cake is still rising.”
As a share of the overall U.S. economy, housing has shrunk to a record low, one factor limiting the havoc real estate volatility can wreak on markets, Mr. Gregory said.
In addition, just as rock-bottom interest rates failed to reignite housing activity, so too will rate hikes avoid further traumatizing the depressed residential sector, he said.
The U.S. recovery will continue despite its perpetual anchor, he said. “To me there’s a pretty sizeable adjustment to come, but that doesn’t bother the economy as much as it did a few years ago.”
Canada, as a result, will escape a second-half pause, Mr. Gregory predicted, “simply because the U.S. is starting to have that self-sustaining momentum.”
If housing is the U.S. economy’s anchor, then manufacturing is its buoy.
In the first quarter of this year, factory production in the United States grew by 9.1% on an annualized basis, a huge bump driven by emerging-market demand in Asia and Latin America.
“The U.S. export machine is humming,” Mr. Gregory said. “They realize where their bread’s buttered. Unfortunately, our bread’s buttered the same way.”
Whereas U.S. manufacturers have the benefit of a depressed greenback, making their prices more competitive on global markets, Canadian exporters have to contend with the challenges of an elevated loonie.
Under the assumption that the dollar continues to trade around US$1.03, the Bank of Canada cut growth estimates in six of the seven upcoming quarters.
Mr. Carney said Canada’s solid first quarter was an anomaly and will give way to 2% annualized growth in the current quarter.
“What we are seeing on the trade side is still quite a challenging situation for our exporters -and it could be more difficult,” he said.
In keeping to its plan for gradual increases in its key lending rate, however, Mr. Carney faces a dilemma.
The interest-rate differential with the United States already attracts higher capital flows, which in turn put upward pressure on the loonie. Further rate hikes, while the U.S. Federal Reserve is expected to hold steady until 2012, will only exacerbate the problem.
“That process becomes self-fulfilling,” Mr. Bethune said. “The capital inflows push the Canadian dollar up higher, which then rationalizes more capital inflows. You get this cycle, which can continue for some period of time.”
Many are anticipating the central bank to raise rates midJuly, at a time when second-quarter results will become apparent. But those results could prove disappointing, Mr. Bethune said. “It could well keep the Bank of Canada on hold through the end of 2011,” he said.
With the absence of substantial inflationary pressures, the central bank at least has the luxury of flexibility in timing its rate increases.
A good thing, since raising rates too soon would simply add another encumbrance to Canadian growth, Mr. Gregory said.
“We have to make sure the U.S. recovery and U.S. economic expansion is self-supporting, it is continuing, it is solid and it is entrenched.”
That might require the U.S. domestic economy to join the burgeoning export sector on the recovery track, Mr. Bethune said. But the U.S. customer has to budget for rising oil and gasoline prices as a result of volatility and war in North Africa and the Middle East.
That means less spending on domestic goods and services. “Any time you have a run-up in oil and gasoline prices like we’ve seen, that has a pretty retarding effect on growth in the U.S., as I’m sure we’ll have in Canada as well,” Mr. Bethune said.
While global oil supply is generally not limited, prices reflect geopolitical risks in a risk premium, he explained. “You’re just going to see a messy repricing of that risk premium every day. We’re dependent on a highly unstable part of the world.” http://business.financialpost.com/2011/04/17/is-1st-half-gain-2nd-half-pain/
By Shane Buckingham
Senior Staff Writer
For those worrying that the Canadian real estate market is in a bubble ready to burst and unleash a U.S.-style financial collapse, it’s time to do some economics homework, says Real Estate Investment Network President Don Campbell.
What the sceptics are missing, Campbell told a crowd of more than 300 delegates at CRE’s Investor Forum, is that today’s global economic uncertainty has positioned Canada as “safe haven” for international investors looking for a secure place to store their wealth.
Situations, such as the tsunami and nuclear disaster in Japan, rising tensions in the Middle East and North Africa, and the mounting debt crisis in Europe, along with a slow, wobbly U.S. economic recovery, have many investors rushing to put their capital into Canadian real estate.
For instance, Campbell talked to an investor from Bahrain who’s investing more than $200 million in Canada because he’s concerned about the instability in his country, where there have been a series of violent clashes between government forces and protesters.
The 3 Fs
Aside, from the stability factor, Campbell told delegates that the critics are also overlooking the growing demand for what he calls the three “Fs”: food, fuel and fertilizer.
"Canada is uniquely positioned to provide the world with the three ‘Fs,’ and our supply chain is safe. The inflation in these commodities will drive prices upwards and boost jobs into key areas of the country, which in turn will lead to migration of people to those regions, driving real estate and rental demand upwards," Campbell said.
Consider the world’s food supply. The United Nations Food and Agriculture Organization reported in March that global food prices reached their highest point in the last two decades during February.
Not to mention, salt water that washed over the Japanese crops and the nuclear fallout in and around the Fukushima Reactor has virtually destroyed the soil in many areas of Japan.
“Did you know we’re one bad harvest away in China from starvation?” Campbell told delegates.
This precarious situation has arisen in a decade during which about 300 million Chinese will move from the countryside to urban centres. That means China will have to switch to more intensive form of farming to feed its people, Campbell said.
And the only way they’re going be able to do that is by using petroleum products, such as potash, which is mined in Canada and Australia, he added.
Then, there’s rising demand for fuel, which Canada can provide from the country’s large oil reserves, second only to Saudi Arabia.
The growing demand for oil and natural gas sector means more jobs and more government revenue, Campbell said, which means more investment in social programs such as education and health care.
One more F
There is, however, one more F Campbell added to the other three: forestry. Canada will be entering into a “forestry super-cycle,” he told delegates, as Japan, a large importer of high-quality lumber, starts to rebuild and the U.S.-residential construction sector begins to recover in 2014.
“You’re going to see lumber markets spike in the next few years, so that means more jobs,” he added.
All this translates into more overall economic growth. Campbell predicts that Canada’s gross domestic product during 2011 will reach 3.3%.
|Ckick here to close|
Housing market will be stable next two years: RBC
A stronger economy will offset the effects of higher mortgage rates and keep Canadian house prices stable over the next two years, according to the Royal Bank of Canada.
In a market update that has the bank forecasting price gains of 0.5 per cent in 2011 and 1.3 per cent in 2012, economist Robert Hogue said that after two years of “gyrating wildly,” the Going forward, we see nearly perfectly offsetting forces driving Canada’s housing market,” he said. “On the upside, the economic recovery will gather strength in 2011, continuing to boost employment and family incomes. On the downside, interest rates are expected to rise.”
The Bank of Canada will likely raise interest rates by 100 basis points this year and another 150 basis points in 2012, he said, making mortgage payments more expensive for the majority of homeowners. But real gross domestic product is expected to increase to 3.2 per cent in 2011 from 2.9 per cent in 2010.
“The net effect of these forces is expected to be close to nil, thereby leaving resale activity largely flat,” he said.
There have been a flurry of forecasts issued in the last week, as the market starts the year stronger than expected
Canadian housing market is likely to be a much less interesting place for the next several years. Capital Economics issued a cautious report that suggested higher interest rates could drive prices down as much as 25 per cent over the next three years, while the Canadian Real Estate Association raised its sales forecast for the next two years as it suggested that a stronger economic recovery and continued low interest rates would keep the market balanced.
“Even though mortgage rates are expected to rise later this year, they will still be within short reach of current levels and remain supportive for housing market activity,” CREA chief economist Gregory Klump said. “Strengthening economic fundamentals will keep the housing market in balance, which will keep prices stable.”
Capital Economics economist David Madani said too many optimistic forecasts are based on too short a time frame to be useful, because many mortgages won’t reset until rates rise much higher than they are today.
“Let’s balance this discussion a bit and think longer term,” he said in a recent interview. “As far as housing prices are concerned, we think they’re overvalued and we don’t see income growth closing that gap.”
Jan 25th, 2011
Canadian, U.S. consumers more hopeful about jobs, finances, purchases
By Julilan Beltrame, The Canadian Press
OTTAWA - North American consumers are starting to feel better about their personal finances and the economy, a hopeful sign for the still fragile recovery.
Two fresh surveys, one by the Conference Board in Canada and another from the International Monetary Fund in the U.S., detected an identical pattern of rising confidence in January, although relative optimism continues to be stronger north of the border.
Canada's confidence index rose 7.1 per cent this month to 88.1 points, the highest since the initial optimism coming out of the recession in the latter half of 2009 and early 2010.
Overall, the U.S. measure still lags Canada but in January it reached its highest level in eight months, rising to 60.6 from 53.3 in December, according to a Conference Board survey there.
Releases from both the IMF and the Conference Board note that levels are still below what would be considered positive, although they are improvements over recent months. Analysts generally welcomed the stronger consumer sentiment.
"In all, better consumer expectations in January bode well for a continued upturn in consumption...which will in turn prove supportive of overall economic activity," said Martin Schwerdtfeger and economist with the TD Bank.
The increases follow a month of generally more upbeat economic news, particularly in the U.S., which has seen the early stages of an employment recovery and strong manufacturing activity.
But Conference Board of Canada economist Pedro Antunes said while positive news played a part, both in Canada and the U.S., there is also a predictive element to the surveys.
"This is really about looking ahead...and people are a little more optimistic," he said.
Still, some economists cautioned against reading too much into surveys — for instance, whether more upbeat consumers will translate into more sales of homes, cars and appliances.
"It's actions that speak louder than words," said Scotiabank economist Derek Hold. "The way people manage their money and spend can be very different from how they say they will."
While conditions appear to be improving, that comes after last year's summer period faced generally downbeat news, when Canada's recovery slowed to one per cent and the U.S. became so weak both the central bank and the government launched a second round of stimulus measures.
On Monday, the International Monetary Fund gave a modified thumbs up to the global recovery, while noting that advanced countries, including Canada and the U.S., will continue in the slow-growth lane for the next two years.
The IMF predicted Canada's growth will average 2.3 per cent this year and 2.7 per cent in 2012 — one-tenth of a point less than the Bank of Canada's estimate of the previous week. The U.S. will grow by three per cent and 2.7 per cent in the next two years, largely thanks to stimulus, the Washington-based financial institution said.
Both countries will get a better measure on how their economies are progressing in just over a week's time when employment figures for January are released.
Canadians' rising confidence was seen across a range of measures, but not uniformly across the country.
One of the clearest signals was that 28.1 per cent of respondents said they expect their financial situation to improve in the coming six months, up 3.3 percentage points. The number who felt the next six months looked worse, dropped by 0.7 point to 15.1 per cent.
The respondents were also more confident about Canadian labour markets, with those who felt job opportunities would increase over the next six months rising 1.4 percentage points, while those who felt conditions would get worse falling 2.7 points.
There was also a clear signal that more respondents felt good about making a major purchase, although the optimistic camp and pessimistic group each represented about 44 per cent of respondents.
"Whether this sudden improvement on the major purchases question can be sustained remains to be seen. But, coupled with the increasing optimism about future employment opportunities, it does suggest healthy consumer consumption going forward," the Conference Board said.
Regionally, confidence rose the strongest in Ontario and the Prairies. Quebec registered a modest increase and British Columbia and Atlantic Canada were slightly less optimistic than they were in December.
The Canadian finding is based on the result of over 2,000 interviews conducted between Jan. 6 and 17. The margin of error is estimated at plus or minus 2.2 percentage points.
Jan 17th, 2011
Department of Finance tightens CMHC rules
Today Minister of Finance announces a couple of changes for high ratio loans approval - and such changes emerge amid rising concern about the record levels of household debts nears a startling 150% as of third quarter of last year.
The following is a summary of the main changes and their implications. Again these new changes affect mainly the high ratio mortgages, that is mortgages with downpayment less than 20%.
For the second time in twelve months, the Department of Finance tightened rules on residential mortgages to help slow the pace of household debt accumulation. Changes include shortening the amortization period to 30 years (which had already been shortened from 40 to 35 years in 2008), withdrawing CMHC insurance of home equity lines of credit (HELOC), and a reduction in the maximum refinance percentage from 90% loan-to-value to 85%. Changes to the amortization period and the refinancing ratio will take effect March 18 and the HELOC change will take effect April 18, 2011.
The amortization change may alter the quarterly profile of housing market activity as some sales are pulled forward by households to pre-empt it. But the impact is not expected to be large, nor does it lead us to alter our annual forecast. Existing home sales were already forecast to weaken by about 8% compared to 2010, and prices to slip by a modest 1%. On aggregate, our calculations suggest that 20K sales (annually) may be impacted by the amortization change, with the average price likely to weaken a further percentage point. However, while the last few months of data represented upside risk to our December forecast, today’s measures put our forecast back on track. (the above forecast is by a major bank on the overall housing market in Canada)
The other two changes are more likely to impact consumer durables and housing-related spending. For instance, household usage of HELOCs is mostly directed towards renovations, vehicle purchases, and debt consolidation. Yet, on that front as well, the impact is not expected to be large. Our macroeconomic forecasts already embedded a significant slowdown in household debt accumulation and consumer durable spending. The withdrawal of HELOC insurance may cause some substitution toward more traditional mortgages, but very few financial institutions insure their HELOC portfolios. As such, the change is unlikely to register significantly on the aggregate lending scale. Moreover, less than a fifth of refinancing deals are high loan-to-value (LTV >80%), and lowering the LTV threshold to 85% likely impacts less than a tenth of refi loans through lower amounts and/or alternative vehicles. All said, aside from some distortion on the timing of some heavily credit-dependent activities, the policy changes do not alter our forecasts.
In terms of monetary policy, this helps take some pressure off the Bank of Canada (BoC). With all the talk about the non-sustainable pace of household debt accumulation, there was speculation about whether or not the BoC would consider hiking interest rates for reasons not directly related to its inflation-targeting mandate. Such speculation can be put to rest for the time being, and we can go back to focusing on the inflation outlook.
Click here to read the full report on Globe & Mail.
Bank of Canada Holds Interest Rate...
OTTAWA – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
The global economic recovery is proceeding largely as expected, although risks have increased. As anticipated, private domestic demand in the United States is picking up slowly, while growth in emerging-market economies has begun to ease to a more sustainable, but still robust, pace. In Europe, recent data have been consistent with a modest recovery. At the same time, there is an increased risk that sovereign debt concerns in several countries could trigger renewed strains in global financial markets.
The recovery in Canada is proceeding at a moderate pace, although economic activity in the second half of 2010 appears slightly weaker than the Bank projected in its October Monetary Policy Report. In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust. However, net exports were weaker than projected and continued to exert a significant drag on growth. This underlines a previously-identified risk that a combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports.
Inflation dynamics in Canada have been broadly in line with the Bank's expectations and the underlying pressures affecting prices remain largely unchanged.
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.
Canadians comfortable with their mortgage debt levels; One third have made additional payments in the last 12 months
Canadian Association of Accredited Mortgage Professionals releases
Annual State of the Residential Mortgage Market in Canada report
TORONTO, Nov. 8 /CNW/ - Canadian homeowners are comfortable with their mortgage debt, have significant home equity and could withstand an increase in their mortgage interest rate, according to the sixth Annual State of the Residential Mortgage Market report from the Canadian Association of Accredited Mortgage Professionals (CAAMP), released today.
The vast majority of Canadians with mortgages are able to afford at least a $300 increase in their monthly mortgage payments.
One in three (35 per cent) mortgage holders have either increased their payments or made a lump sum payment on their mortgage in the last year.
89 per cent of Canadian homeowners have at least 10 per cent equity in their homes and 80 per cent have more than 20 per cent equity.
Overall home equity is at 72 per cent of the total value of housing in Canada; for homeowners who have mortgages, equity level averages 50 per cent.
As of August 2010, there was $1.01 trillion in outstanding residential mortgage credit in Canada, an increase of 7.6 per cent from last year.
"Canadians are being smart and responsible with their mortgages," said Jim Murphy, AMP, President and CEO of CAAMP. "They are building equity in their homes and making informed, long-term mortgage decisions. The survey results speak to the strength of our mortgage market, especially when compared to the United States."
Homeownership is a good long-term investment
Most Canadians agree that buying a home is a good long-term investment and are focused on their mortgages to support that investment.
Many mortgage holders are making voluntary additional payments: 16 per cent have increased monthly payments during the past year, 12 per cent have made lump sum payments, and 7 per cent did both.
Canadians are exercising caution when taking out their mortgages, with a majority choosing a fixed-rate (66 per cent). A five-year fixed-rate mortgage remains the most popular option in Canada. Despite the fact that variable rate mortgages have become much less expensive compared to fixed rates, the majority choice is still fixed rates: this decision is based on people's individual assessments of risk, not just the cost difference.
Potential rate increases won't be a problem
The CAAMP study found that a vast majority of Canadians have significant capabilities to afford higher payments if and when mortgage interest rates rise. 84 per cent report that they could weather an increase of $300 or more on their monthly payments.
Most of the people who have low tolerances for increased payments have fixed rate mortgages, by the time their mortgages are due for renewal, their financial capacity will have expanded and their mortgage principal will have been reduced.
Also, Canadians have been able to negotiate better than posted mortgage interest rates. For five year fixed rate mortgages arranged in the past year, the average rate is 4.23%, which is 1.42 points lower than typical, advertised rates.
Of the 1.4 million Canadians who renewed their mortgage in the past year, 72 per cent were able to renegotiate a decreased rate: on average, rates are 1.09 percentage points less than the rates prior to renegotiating.
Canadians have significant equity in their homes, strengthening the housing market
Canadians' home equity is impressively high. Among homeowners who have mortgages, the average amount of equity is about $146,000, or 50 per cent of the average value of their homes.
The amount of equity take-out in the past year is unchanged from last year with around one in five homeowners, or 18 per cent, taking equity out of their home, at an average of $46,000. The most common purpose for equity take-out is debt consolidation and repayment (45 per cent) followed by home renovations (43 per cent), purchases and education (19 per cent) and then investments (16 per cent).
The report is authored by CAAMP Chief Economist Will Dunning and based on information gathered by Maritz Research Canada in a survey of Canadian consumers conducted in October 2010.
The CAAMP survey report contains a wealth of industry information, including consumer choices and borrowing behavior, opinions on current "hot topics" related to housing and mortgages, regional breakdowns of responses, and an outlook on residential mortgage lending.
For a copy of the report, please visit www.caamp.org, 'Mortgage Industry', under 'Resources'.
September 20, 2010
HIGHLIGHTS OF THE WEEK
• Foreign currency policy captured headlines this week as Japan intervened to devalue the Yen, and pressures mounted on China to accelerate its appreciation of the RMB.
• Currency interventions are limiting the potential impact of U.S. export growth during the recovery. This is a challenge for America, because a rapid improvement in the terms of trade would go along way to aiding the recovery, as indebtedness impedes consumer spending.
• The prospects for quantitative easing (QE) could create an interesting dynamic in currency markets, as foreign countries react to a possible decline in the USD.
• In the end, not every economy can rely on exports to support growth.
• The robust pace of Canadian economic growth recorded since the third quarter of 2009 is likely to moderate, reflecting a slow recovery in global demand and a combination of domestic risks.
• Most notably, record levels of household indebtedness, which drove high levels of consumer spending in the past nine months, will now put downward pressure on spending as households become more cautious.
• This will have a particularly adverse impact on the housing market, which recorded massive gains over the course of 2009, driven largely by this debt-fuelled spending spree.
• We expect the cooling in consumer spending to feed into the downturn in the housing market, which has already begun and will persist throughout the remainder of 2010 and a large part of 2011.
September 06, 2010
Favourable U.S. data suggests Canadian rate increase
Paul Vieira, Financial Post · Monday, Sept. 6, 2010
OTTAWA • What a difference a week makes in gauging the state of the Canadian economy.
At the start of last week, few market players believed the Bank of Canada would raise its benchmark rate on Wednesday as concern over its largest trading partner, the United States, mounted. The U.S. economy was believed to be on the verge of flirting with a double-dip recession, given the spate of weak economic data traders had grown accustomed to over the summer.
But two key U.S. pieces of August data released last week — the ISM manufacturing index and non-farm payrolls — were better than expected and suggested the North American economic recovery, while sluggish, marches on and is in no real danger of falling into an abyss. This helped trigger a “vicious” sell-off in bonds, in which investors piled in because of fears of a severe economic slowdown.
The result: The probability that Mark Carney, the Bank of Canada governor, will raise interest rates by 25 basis points, to 1%, increased to slightly more than 60% on Friday from less than 50% as of late August.
The good-looking U.S. data “tipped the scale heavily” toward a rate hike, said Douglas Porter, deputy chief economist at BMO Capital Markets.
Also playing a role was Canadian GDP data for the second quarter, which on the surface appeared tepid — 2% annualized growth, well below the rapid pace recorded in previous quarters. But analysts say the Canadian economy is stronger than the second-quarter headlines indicated, with final domestic demand still advancing at a robust pace. Plus, much of the second-quarter drag was from so-called “import leakage,” in which gains in imports — as firms acquired productivity-enhancing equipment at the fastest pace since 2005 — outstripped exports. Income data also showed wages and salaries grew “a very solid” 4.8% annualized in the three-month period, according to economists at Moody’s Analytics.
“Although growth slowed more than expected in the second quarter, the cause of this slowing does not suggest that there has been significant deterioration in the economy’s overall health,” said John Clinkard, chief Canadian economist at Deutsche Bank.
“Given the surge of investment in new machinery and equipment in the second quarter, that [means] business confidence is strong,” Mr. Clinkard said.
Still, much doubt remains about the health of the United States. The Bank of Canada’s economic outlook, released just two months ago, now appears too optimistic given recent trends. It expected the economy to reach its full potential late next year, but that could be pushed out further with weaker economic indicators in the United States and Canada. Plus, recent data suggest inflation, which ultimately drives the bank’s rate decisions, poses no threat as the key core rate — which strips out volatile-priced items — has slowed for two straight months.
These factors are driving analysts to scale back expectations for rate hikes for the remainder of 2010 and into 2011, predicting the Bank of Canada will pause for a while to see where all the economic dust settles. For instance, Bank of Nova Scotia chief economist Warren Jestin now envisages the central bank moving its benchmark rate no higher than 1.75% next year, or 50 basis points below previous forecasts.
Last week’s U.S. data may have put to rest fears of a double-dip recession, “but we are also tracking a U.S. economy that is nowhere near the pace it needs to be at this stage of the business cycle,” said Avery Shenfeld, chief economist at CIBC World Markets. The United States still requires “easy monetary policy and a softening in next year’s planned fiscal tightening if it is going to stay out of trouble.”
Even with positive jobs and manufacturing data, the week ended with a bit of a reality check for the U.S. economy with figures showing growth slowing in the service sector, which accounts for 80% of U.S. output.
The U.S. Federal Reserve is expected to refrain from rate hikes for a while — well into 2011, according to most analysts — with the U.S. economy still in a lacklustre state. The Bank of Canada, then, won’t want to raise rates too aggressively ahead of the Fed or risk the Canadian dollar appreciating to levels that start to take a bite out of economic output.
In fact, speculation is that the Fed would inject further liquidity, through another round of securities purchases, before considering a rate hike. But senior Fed policymakers remain divided on that need, with Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, describing fears of deflation and a double-dip recession as “alarmist.”
In addition, Mr. Lockhart said that, despite all the worry, the U.S. economy remained on a “gradual recovery track.”
Read more: http://www.financialpost.com/news/Favourable+data+suggests+Canadian+rate+increase/3487100/story.html#ixzz0yqQg7dlu
August 10, 2010
National consumer confidence dipped in the second quarter of 2010. According to the Conference Board of Canada’s index of consumer confidence, consumer sentiment lost some ground after having increased in the first quarter, and is now roughly back on par with levels reported at the end of last year. The decrease in confidence reflects weaker outlooks for household budgets and employment, and less enthusiasm about making major purchases.
The balance of sentiment about making major purchases, such as a home or a car, edged into negative territory in the second quarter of 2010. A negative balance of sentiment means more survey respondents said it was a bad time to buy a big-ticket item, such as a home or car, than said it was a good time to do so. This indicator is an important factor underlying the housing market
The balance of sentiment about job growth prospects was down compared to the first quarter, but was still more positive than in any other quarter since the third quarter of 2007.
The balance of sentiment on the outlook for household budgets was also down in the second quarter, but nevertheless remained positive. A positive balance of opinion means more households said they expect their household budget to improve in the next six months than said they think it will worsen. The quarter-over-quarter decline was largely due to downbeat responses from consumers in British Columbia and Ontario, where the HST comes into effect on Canada Day.
August 10, 2010
The unemployment rate in Canada was down 0.2 percentage points to 8.2 per cent in the first quarter of 2010. This stands 2.3 percentage points above the record low in the third quarter of 2007.
Although still down 229,200 positions since employment peaked in the third quarter of 2008, employment has been recovering since the beginning of the second half of 2009. Since the turnaround, total employment levels have climbed by 138,400 jobs.
Job growth in the first quarter totalled 91,900 positions on a seasonally adjusted* basis. This job gain reflects 47,400 additional full-time positions and 44,500 more part-time jobs.
The majority of the hiring was in British Columbia and Ontario, where more than 30,000 combined jobs were added in the goods producing industries. First quarter job growth occurred in natural resources, utilities, construction and manufacturing, trade, public administration, education, healthcare, and in scientific, business, and accommodation and food services.
Hiring in these sectors offset layoffs in agriculture, transportation and warehousing, the financial sector, and information and culture services.
* Seasonal adjustment removes normal seasonal fluctuations.
Upbeat survey may pave way for interest rate hike
By Julian Beltrame
OTTAWA — Canadian firms are giving the recovery a vote of confidence in a key quarterly survey, paving the way for the Bank of Canada’s expected interest rate hike next week.
The central bank’s quarterly survey, released Monday, showed firms were concerned about the fallout from the European sovereign debt mess, but still generally upbeat about the coming year.
“Overall, (business executives) are positive about the outlook for business activity over the next 12 months,” the bank wrote.
“For the first time in two years, firms, on balance, reported an improvement in their past sales activity.”
The bank’s governing council next interest rate announcement is next Tuesday.
Following a strong jobs report last week, the survey likely represents the last piece of evidence governor Mark Carney was looking for to confirm a predisposition to continue raising rates.
“I’d say there’s a 75 or 80 per cent probability they will hike next week by 25 basis points,” said Derek Holt, vice-president of economics with Scotia Capital.
“I think they’d want to avoid the perception that they just came out with a whole new round of bullish forecasts and then got wobbly knees after just one quarter-point hike (in June).”
What could stay Carney’s hand, economists say is the unknown factor of what will happen to the global economy as governments move from spending to restraint later this year and next.
Canada’s domestic economy appears well grounded. Statistics Canada reported on Friday that an additional 93,000 jobs were added in June, bringing total re-hiring since the recession’s end to over 400,000.
And the business outlook survey showed that 50 per cent of firms surveyed said they planned to add workers over the next 12 months, as opposed to only 10 per cent that planned to cut their workforce.
TD Bank economist Diana Petramala viewed that finding as the strongest in the report, although she said it might indicate some hiring that’s already taken place.
While an increase in the bank’s policy rate to 0.75 per cent will raise short-term interest rates for consumers, most economists say it is unlikely to have much of an impact on longer-term, fixed mortgage rates. Many see a hike at this time as not applying the brakes to growth, since the rate would remain near the historic low, but as a judgment by the bank that the recovery is taking hold.
Not all agree, however. A bearish minority argue that Canada still faces considerable headwinds from the European situation and ongoing U.S. weakness, and that Carney should refrain from adding a further impediment to growth.
But failing a climb down from its forecast of 3.7 per cent growth this year, and 3.1 per cent next year, the bank appears on track to take interest rates a little higher next week, analysts say.
“With price pressures expected to rise in the production line, excess economic slack continuing to melt away, and credit and lending conditions continuing to ease, the survey results weigh on the tightening side,” noted economist Michael Gregory of BMO Capital Markets.
The summer poll, and a separate survey of loan officers also released Monday, found sentiments positive, if not deliriously so, across a range of topics.
The bank said credit conditions appear to be easing, especially for larger corporations, a critical prerequisite for expansion.
The balance of opinion was also positive on questions of sales volume prospects for the coming year, and future investment intentions.
Not all doubts have vanished, however.
Business executives expressed concerns about “recent global economic and financial uncertainties and possible spillover effects in Canada.”
And although on the plus side of the ledger, expectations on future sales and investment intentions were softer than three months ago. That’s partly because of the way the Bank of Canada couches its questions, contrasting expectations to what they were in the earlier survey.
The bank noted the responses suggest that firms that have already experienced strong sales growth from recession lows now believe that the growth rate will slow to more sustainable levels, but remain positive.
And many firms that do not expect to increase spending on new machinery have already made those investments, particularly firms in the services sector.
On other elements of business activity, executives said they expect the cost of their inputs to increase at a greater rate during the next 12 months, and plan to pass on these cost increases to their customers.
But the inflationary expectations over the next two years were modest, within the central bank’s one-to-three per cent range.
The Canadian Press http://news.therecord.com/Business/article/744317
By Keith Leslie
TORONTO — The harmonized sales tax about to take effect in British Columbia and Ontario is proof of Benjamin Franklin’s assertion that “in this world nothing can be said to be certain, except death and taxes.”
Funerals are just one of many services and goods previously exempted from provincial sales taxes that will be subject to the HST starting Canada Day, as governments in both provinces switch the tax burden from corporations and to consumers.
However, exactly what’s going up in price and what’s not depends entirely on which province you live in.
The single sales tax, which combines the five per cent Goods and Services Tax with provincial Retail Sales Taxes, will be 12 per cent in B.C. and 13 per cent in Ontario.
Energy costs will be the biggie for most Ontario consumers, with an immediate jump in the cost of electricity, natural gas and home heating oil because of the HST.
Ontario motorists will be among the first to feel the pinch when they fill up at the pumps. Gasoline and diesel fuel, which had been exempt from the province’s eight per cent sales tax, will be subjected to the 13 per cent HST.
British Columbia is maintaining its exemption for the provincial sales tax portion of the HST on gas and diesel, and won’t apply the HST to electricity or home heating fuels. However, B.C. has a carbon tax on energy that will rise to 4.82 cents a litre on July 1.
The tax on alcohol is actually decreasing, but the prices won’t. The provincial taxes of 10 to 12 per cent will be lowered under the HST, but other fees and taxes will rise because of what the provinces say is their social responsibility to maintain minimum prices for liquor.
The HST will not apply to purchases of resale homes in either province, but will apply to new homes costing over $400,000 in Ontario and those over $525,000 in B.C. New home buyers in Ontario will receive rebates up to $24,000 to lessen the impact of the HST.
There are so many other differences to the way B.C. and Ontario are harmonizing sales taxes that retailers who operate in both provinces will need two rule sheets to figure out what’s taxed and what’s not.
Internet fees will now be subject to the HST in Ontario, but were already hit with both taxes in B.C.
British Columbia will apply the HST to cable television fees and local residential phones, both of which were already taxed with the GST and PST in Ontario.
Green fees at golf courses will be subjected to the HST in Ontario but not in British Columbia.
Ontario has exempted newspapers and prepared meals and drinks costing under $4 from the HST, but British Columbia did not.
B.C. will apply the HST to snack foods, catering services, over-the-counter medications and food-producing plants and trees.
Ontario will apply the HST to legal services but they will remain exempt in B.C.
B.C. will subject shoe repairs, tailoring, wedding planning services and veterinary bills to the HST while those services remain exempt in Ontario.
Taxes will go up in both provinces on services such as lawn care, snow removal, dry cleaning, hair cuts, massages, personal trainers, gym memberships and home service calls. Home renovations and real estate commissions will also rise because of the HST.
Home insurance was exempt from the GST so it will not be hit with the HST, but will still be subject to the provincial sales tax.
Other items previously exempt from the PST but now subject to the HST include hotel rooms, taxis, domestic air, rail and bus travel along with campsites and hunting and fishing licences.
Also rising will be the tax on magazine subscriptions, some theatre tickets, ski lift fees, rental fees for hockey rinks and banquet halls and lessons for everything from ballet to soccer. However, music lessons will remain exempt from the HST.
Music and videos downloaded as MP3 files will also be subject to the HST after previously being exempt from the provincial sales tax.
Cigarettes and other tobacco products — and nicotine replacement products — will also be subjected to the HST after being exempt from the provincial sales tax, as will vitamins.
There will be no HST on vital documents such as health cards and birth certificates or on driver’s licence and vehicle plate renewals, although personalized vanity plates will be subject to the HST in Ontario.
Used cars, which were previously exempt from the five per cent GST when sold privately, will now be subject to the 13 per cent HST in Ontario and a 12 per cent provincial sales tax in B.C.
Both provinces negotiated some exemptions from the HST with the federal government, which wanted the tax applied as widely and with as few exemptions as the GST.
Consumers will continue to pay only the five per cent GST on children’s clothing and footwear, children’s car and booster seats, diapers, books and feminine hygiene products.
The HST will not be charged on basic groceries, rent, condo fees, prescription drugs, some medical devices, child care, municipal public transit, most health and education services, tutoring, most financial services and legal aid.
However, even though condo fees are exempt from the HST, purchases by condominium corporations will be subject to the tax, so condo fees are expected to rise.
The price of going to the movies or a sporting event in Ontario is actually expected to drop with the introduction of the 13 per cent HST because those outings were hit with a 10 per cent PST plus the GST.
The Canadian Press http://news.therecord.com/Business/article/737079
Recession realized, recovery begins
Vancouver, BC - April 14, 2010
For residential markets across British Columbia, from Metro Vancouver to the Interior and northern reaches, the recession's negative effect on statistical numbers is waning but to varying degrees.. Some regions have rebounded, others are still hurting.
Landcor is pleased to present our 2009 Residential Summary report. We've taken some extra time to add some additional information into this report. Aside from the regular provincial and regional sales statistics and trends we've increased our commentary to add some background information on a regional basis.
We've often been asked to provide information on BC markets and we hope that you'll appreciate the comments from local economists and demographic briefs from BC Stats. Presenting the information together provides for a more complete understanding of the factors in play in the BC Residential market.
Please send us your feedback on these changes and suggestions for more content. We'd like our reports to serve you as best as possible.
Be on the lookout for our Q1 2010 Residential Summary, we'll be publishing that report in late May to our mailing list and the press so you'll be able to review the early 2010 trends based on all registered property sales in British Columbia.
Click on the article to read more
TD Special Report on Canadian Housing
· Speculation by homebuyers drove house prices beyond levels justified by fundamentals and induced an excess of new housing relative to sustainable levels – particularly on Canada’s prairies.
· Affordability eroded severely over the last two years, demonstrating an unsustainable disconnect between house prices and incomes that was due for a correction.
· Inventories of singles have burgeoned in western markets and unsold multiples are at worrying levels in Québec. The historically elevated construction of condos in Toronto and Vancouver mean that these cities’ inventories will spike during 2009 and only alleviate slightly during 2010.
· The cyclical downturn will depress housing demand during 2009, but recent overbuilding will prevent a quick recovery. In particular, as migration ebbs to the prairies, residential construction will experience a protracted slump.
- However, Canada will not experience a U.S.-style housing crash, owing to less overbuilding and more conservative lending institutions.
April 09 TD report Exec (PDF)
April 09 TD report (PDF)
Banks begin to decline federal aid in first sign of recovery
Credit conditions easing, banks no longer struggling to raise funds to make loans
From Tuesday's Globe and Mail
March 17, 2009 at 2:00 AM EDT
Canadian banks are turning down some of the funding that the government is making available to them, a sign that they are recuperating from the financial crisis.
The banks have stopped selling the government the full amount of mortgages they could under Ottawa's $125-billion mortgage purchase program, the centerpiece of the federal government's plan to help the industry.
�We actually don't need a lot of funding right now,� a senior banker at one of the big five banks said yesterday. �All of the Canadian banks are pretty flush right now with cash.�
That's not to suggest they aren't facing problems, with consumers increasingly losing their jobs and unable to pay off their debts. But the banks are no longer struggling to raise funds to make loans � at least for now.
Credit conditions for Canadian banks have improved since late last year, as Canadians jittery about the stock market have left more of their money in bank accounts, giving them a ready pot of cash to fuel lending. At the same time, global credit markets have eased slightly as central banks have pumped billions of dollars into the financial system.
Federal Finance Minister Jim Flaherty announced the creation of the mortgage purchase program in early October, when it was extremely difficult for banks around the world to fund their lending operations.
He originally said�Ottawa�would buy up to $25-billion of mortgages from the banks, through Canada Mortgage and Housing Corp., to free up capacity for them to make new loans.
The purchases take place in periodic auctions that actually turn a profit for the government. Ottawa tells the industry how much it is willing to buy � for instance, $5-billion worth of mortgages held by the banks on their balance sheets � and then the banks each say how much they would be willing to pay, in the form of interest, to sell mortgages to the government. CMHC accepts the most profitable bids.
Bankers have been griping that the program, which is projected to earn billions of dollars for�Ottawa, is expensive. But until last month, that hadn't stopped them from selling all of the mortgages that they could into it, and pressing Mr. Flaherty to buy even more. Well into the new year, banks continued to have trouble raising medium-term funds.
Ottawa�boosted the size of the program twice, most recently announcing in the federal budget that it would buy a total of up to $125-billion worth of mortgages. The program has been successful in leading to a reduction in mortgage rates for Canadians, with banks passing on their lower funding costs.
But in the last couple of auctions, the banks have not sold the full amount of mortgages�Ottawa�was willing to buy. The most recent one took place on March 11, when CMHC told the banks it would buy up to $4-billion worth. Banks sold it about half that, $2.1-billion.
That followed the Feb. 20 auction, when banks sold CMHC $2.3-billion worth after it said it would buy up to $7-billion from them.
There are a couple of reasons why the banks have lost some of their appetite for the government aid.
More Canadians are pulling their cash out of mutual funds and riskier investments and parking it in deposits, such as chequing accounts and GICs. Deposits are the largest source of funding for the banks. If stock markets recover, and customers shift their money back into mutual funds and equity investments, the banks could find themselves in need of funding help again, notes Toronto-Dominion Bank chief economist Don Drummond.
At the same time, the growth of banks' loan portfolios is slowing. The soft housing market led to very weak mortgage originations in January and February, Mr. Drummond said.
Still, the slackening demand for government help does suggest that credit conditions have eased. The lack of take-up on the mortgage auctions �seems to point to the fact that the Canadian banks are not in a big liquidity crunch themselves,� said Marlene Puffer, a managing director at Twist Financial Corp.
That means the banks' lending operations are not being held back by an inability to raise financing, she added: �Any constraints in terms of the banks lending are coming more from inside the banks than any constraints they're facing in terms of raising capital.�
The Canadian Bankers Association said in an e-mailed statement that the mortgage purchase program is still an effective tool, noting that it's already injected more than $53-billion worth of liquidity into the marketplace so far.
A spokeswoman for CMHC declined to comment yesterday, noting that the details of the auctions are confidential.
January 9, 2009
A House is Still a Home, For All That and All That
by Ottawa Citizen
If there was ever a word seemingly unambiguous in meaning, it would be "house." Yet over the course of the past decade, our concept of what a house represents has changed dramatically.
Once considered places where you raise children and stake a claim in a community, houses instead came to be seen mainly as can't miss investments - generators of perpetual wealth. If there is anything good to come out of the financial downturn, it will be the demise of this unhealthy idea.
The Canadian Real Estate Association reports that Canadian home prices are falling. So now Canadians are "feeling" poorer, just as they "felt" richer when the values of their homes appeared to have no ceiling. But this is really much ado about nothing - or, at most, some ado about very little.
Homeowners not looking to sell will be unaffected. Those wanting but not needing to sell can just wait
if out. Even those who do need to sell will, most likely, be buying their next home in a depressed market (it's called a "global crisis for a reason) and their losses will be offset by their savings.
Falling home prices can result in positive change. For one, people will be less inclined to borrow against the equity in their homes to pay for things that don't appreciate in value - and that they don't really need - such as vacations or plasma TVs. Too many, when their equity was growing faster than their hydrangeas, treated their homes like shingle-clad credit cards.
Home buyers will also, one imagines, be more reluctant to purchase houses they can't really afford. In recent years, many people worried little about buying beyond their means because they believed home prices could only go up. Those who lost a job or experienced some other financial calamity could always
sell and reap a tidy profit. Why worry? But now, with home sales falling alongside prices, we now know that no plan is free of risk.
Another benefit to a more rational housing market is that people learn to diversify their investments. It is not uncommon for homeowners to have the vast majority of their net worth wrapped up in their houses.
But buying a big house is an inadequate retirement plan. After accounting for expenses - property taxes, insurance, repairs, renovations - it becomes clear that a house, while a sensible investment, should not be one's only investment.
Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies, is among those who regret that "house" became synonymous with "investment" a phenomenon, he writes, that was the product of "inflated values. Easy credit. and wild expectations of profit." He now expects that "the standard usage definition will hark back to the older one: an anchor in a community where a family can live, work and play."
Let's hope he's right, and let's further hope that when the next housing boom comes, homeowners won't forget the lessons they're learning now. Dictionary editors are busy enough as it is.
Why Canada Looks Likely to Escape a Severe Recession
From Jay Bryan for The Vancouver Sun
Stocks swooned again Monday amid new signs that the U.S. recession would be even more severe than expected, but there was a small ray of sunshine for ordinary Canadians.
While this country can't escape the serious drag from a U.S. recession, there's reason to believe that the slowdown in Canada will be a good deal less serious, says a new analysis by National Bank economist
Combing through the economic record, Desnoyers was pleased to see how inaccurate it is to believe that Canada's fate is tied to that of the U.S.
In fact, he concluded, our severe recessions are always self-inflicted, caused by inflation worries leading the Bank of Canada to hike interest sates too high. Happily, the opposite is happening now.
"I cannot exclude the possibility" that Canada will have a mild recession, he said yesterday, but if so, it will be much less painful than the one south of the border.
In terms of the average Canadian worker, for example, Desnoyers expects to see the unemployment rate rise by perhaps one percentage point before job conditions stabilize late in 2009.
That's certainly unwelcome, representing an addition of about 190,000 workers to the jobless rolls, but it's only a fraction of the 4.5 percentage points added to Canada's unemployment in the early 1990s.
That's when the last really severe U.S. recession struck. It's also a fraction of the deterioration expected in the U.S. this year and next.
The logic behind Desnoyers's logic is this: Export income in Canada will be cut by the U.S. downturn and a big drop in prices for Canada's resource products.
That's why we're entering a slowdown.
But to have a severe slump with soaring unemployment, we'd also need a swoon in domestic spending by consumers, businesses and governments.
That's not happening.
Domestic demand, which makes up three-quarters or more of Canadian economic activity, is on track to keep growing, thanks to a central bank that has already slashed interest rates and stands ready to cut even more.
As the last deep recession began here in 1990, the central bank's target interest rate was a punishing 13.5 per cent, or in more accurate "real" terms after subtracting inflation, fully 10 per cent.
That wasn't just restrictive, it was crushing.
Today, the target rate is 2.25 per cent - in real terms, just half of one percentage point. And it's likely still more cuts are coming. Could we even see a real rate below zero?
"Certainly," Desnoyers said. "It's already true in the US,'' he said, and the Bank of Canada is aggressively boosting the economy in this downturn.
Beyond this, as the government adds more economic stimulus through tax cuts or new spending. "We're in the best position in the world," notes Desnoyers, since Canada enjoys surpluses in good times.
Of course, the U.S. is also slashing rates and spending like crazy. But it's starting from a much more difficult position, with its housing market in collapse and the financial system badly damaged.
A new forecast from economist Kurt Karl with Swiss Re, a big insurance firm, makes the point. Karl predicts a "mild" recession in Canada, with the economy shrinking for three quarters, but says that the shrinkage won't come close to what he expects in the U.S.
By the end of the recession, in the second quarter of next year, Canada's economic output will be down
by a tiny 0.1 per cent from a year earlier. In the U.S, it will have fallen by 1.2 per cent.
Don't Panic. Now's the Time to Start Building Wealth
From Harvey Enchin for The Vancouver Sun - November 2008
"Those who have knowledge, don't predict. Those who predict, don't have knowledge." - Lao Tzu
Hogwash. It's hard to believe that so much drivel attributed to Taoist philosopher Lao Tzu emanated from him. Of course those who predict have knowledge, as well as a multitude of techniques including time series analysis, econometrics and informed conjecture.
They have used these tools to forecast the state of the economy in 2009, and the picture they paint isn't pretty. The consensus is that most western economies are already in, or are headed for, recession - a real decline in output as measured by gross national product for two or more consecutive quarters.
Canada's strong fiscal position, conservative lending practices, high levels of employment, and continued growth in consumer spending - up 1.1 per cent in September - led some prognosticators to suggest Canada could avert a recession. But the Organization for Economic Cooperation and Development put the kibosh
to that optimism with a forecast of 1.6 per cent GDP contraction in the fourth quarter of 2008,1.4 percent in the first quarter of 2009, and 0.3 per cent in the second. The unemployment rate would rise, the OECD said, to seven percent in 2009 and 7.5 per cent in 2010, from the current 6.2 percent - meaning a total 1.4 million Canadians would be out of work. It added that declining tax revenues would force federal and provincial governments to post deficits next year and in 2010. Meanwhile, housing starts are down, bankruptcies are up, and access to capital remains constricted.
The OECD said 21 of its 30 member economies will experience a protracted recession of a magnitude not seen since the early 1980s. In its November poll, the Conference Board of Canada found consumer confidence dropped 2.9 points to the levels of the early 1980s recession.
Roughly 10 million Canadians are too young to have lived through that recession, and another four million too young to remember it. So it might be worth recalling that the recession that gripped Canada from 1981 through 1982 was accompanied by double-digit inflation, an unemployment rate near 13 percent, interest rates of 20 per cent, and an Iranian revolution that drove oil prices up 200 per cent. Over six declining quarters, from the third quarter of 1981 to the fourth quarter of 1982, GDP fell by five per cent. One of the lingering legacies of that recession was an addiction to deficits. Compare this to the backdrop of the 2008-2009 recession: Inflation below two percent, unemployment projected at no more than 7.5 per cent, interest rates at historic lows, oh prices down 50 percent from their peak, and an estimated drop in GDP of 3.3 percent over three declining quarters.
Parallels between the two recessions are hard to establish. But perhaps there is one: As in 1981-1982, the current U.S. recession was triggered by a collapse in residential investment; Canada's by a drop in net exports.
Some forecasts that warn of a recession similar in scale and scope to 1981-1982 fail to consider the unprecedented global action taken to resolve the credit crisis - and stave off deflation. Stimulative monetary and fiscal policies are helping to stabilize the financial system, improve liquidity and offset a withdrawal of private sector investment with public infrastructure spending.
There is little doubt that at least the first half of 2009 will be in an economic trough, and employment will lag the recovery of GDP as it always does. But recessions have a purpose in a free market economy, to squeeze the excesses out of the system, to realistically revalue assets, to compel inefficient, under-capitalized companies to restructure, to force regulatory reform to better meet the needs of a changing marketplace, and to rebalance incomes with the cost of living.
Just as the stock market has overreacted to worsening economic conditions, consumers have been unduly alarmed by a necessary and inevitable correction. Once they overcome their shock, it will become clear that
this is the time to begin to build wealth.
From the National Association of Realtors:
Canada Most Transparent Real Estate Market
Emerging markets have significantly improved their levels of real estate transparency according to the latest Global Real Estate Transparency Index from Jones Lang LaSalle, The 2008 survey reveals that eight countries moved up a full transparency tier since the last index in 2006. Dubai, Romania, Ukraine and Russia showed the biggest improvements over the last two years. The Index, which provides a rigorous framework for comparing the level of real estate transparency in 82 world markets, shows that nearly half of the countries surveyed in 2006 demonstrated a significant improvement in their transparency score two years later. Transparency levels globally are improving as governments seek to streamline regulatory and legal hurdles to aid cross-border movement of capital and corporate facilities. Only Venezuela posted a lower transparency score this year compared with 2006, principally due to changes in government regulations and new taxation policies targeting foreign investors. Canada now ranks as the world's most transparent real estate market, up from the 4th position in 2006. The U.S. and Australia are tied for second place on the list. The lower end of the scale includes Oman, Qatar, Morocco, Kuwait, Pakistan and Kazakhstan.
U.S.-Japan Investment Initiative 2008 Report
Since its formation in 2001, the United States-Japan Investment Initiative has facilitated discussion and cooperation on ways to improve the climate for foreign direct investment (FDI) in Japan and the U.S. The Initiative is part of the U.S.-Japan Economic Partnership for Growth, jointly chaired by Japan's Ministry of Economy, Trade and Industry and the U.S. Department of State. The 2008 Investment Initiative Report, published in early July, details the work of the Investment Working Group, which has led to greater understanding of the critical contribution of FDI to economic growth and the most effective ways to promote cross-border investment. The report describes policy initiatives to promote FDI and addresses recently enacted rules governing cross-border stock swaps to assess their impact in facilitating mergers and acquisitions. The report also discusses how both countries have improved understanding of each other's procedures for reviewing FDI with regard to national security implications. The U.S. continues to attract significant FDI inflows from countries around the world because of its open economy, strong long-term growth, and high rate of return to capital. In Japan, FDI has increased significantly since the latter half of the 1990s due to reforms in corporate and bankruptcy laws and systems, corporate accounting systems, and the expansion of business fields open to foreign companies as a result of deregulation. Access or download the full report.
American Dream In Reverse
A growing number of U.S. immigrants are pursuing the American Dream--but not in America. High prices, foreclosures and tight credit has resulted in some immigrants looking to their homeland to find the better life they came to the U.S. to pursue. Latin American developers are increasingly targeting nationals living in the U.S. who, with their U.S. wages, can afford much more than when they lived in the country. Each year an estimated 5% of U.S. immigrants invest in a home in their country of origin, according to a 2005 survey by The Inter-American Dialogue. Many immigrants are unable to qualify for a home loan in the U.S. so they send money home to relatives who oversee the home's construction. Increasingly, though, developers, private lenders and governments are making it easier for immigrants to buy directly. This comes at a good time for immigrants as in 2007 total remittances to Latin America and the Caribbean reached $65.5 billion, but the growth rate has slowed and, in some countries, is in decline. A 2008 poll by the Inter-American Development Bank (IDB) found that only 50% of respondents were still sending money on a regular basis to their families, down from 73% in 2006. IDB reports that the Dominican Republic's government allows immigrants to apply for up to $10,000 for down payments. Mexico's mortgage lender Su Casita had loaned about $66 million in mortgages to 1,420 Mexican immigrants in the U. S. since early 2007. El Salvador's government began coordinating housing fairs in the U.S. in 2006 to minimize fraudulent contractors, attracting more than 4,000 Salvadorans to date. With slow U.S. sales, REALTORS® can grow their business by offering services to assist immigrant clients in tapping into such resources and use NAR's global network to locate professionals worldwide to assist with locating properties.
Is France the Best Place in the World to Live?
Aging baby boomers are providing REALTORS® with opportunities to assist this huge generation of Americans with retirement or second home housing. For an increasingly number of them, it will be outside the United States. For those looking to live abroad in their golden years--year round or seasonally--REALTORS® may be asked about which countries are best. Clearly, there is no single answer. For each person, the quality of life and lifestyle issues will differ, but International Living magazine provides insight into 192 countries which might be useful. The magazine annually rates and ranks countries by a Quality of Life Index, which considers nine categories, including cost of living, climate, culture/leisure and safety. After all the number crunching, France tops the list, followed by Switzerland, U.S., Luxemburg, and Germany. Complete sets of scores for each country are available. Wondering where NOT to recommend? Iraq ranks dead last on the list of 192 countries preceded by Somalia, Afghanistan, Yemen and Sudan.
End of Global Housing Boom
A recent survey of home price indicators suggests that the worldwide housing boom is over according to the Global Property Guide. Of 34 countries in which home price indices are regularly published, 21 saw home prices fall after adjusting for inflation over the past year (y-o-y ending 1Q 2008). In the majority of markets where house prices did not fall, they are losing momentum. Latvia saw the biggest price drop--down 38.2%. The global credit crunch and inflation due to rising prices of oil, food and commodity prices are seen as the primary causes. The drop in U.S. prices range from -4.2% to -18.1%, after inflation, depending on which index is used, and Europe saw the most significant drops in Ireland (- 13.2%), Luxembourg (-5.8%), Portugal (-4.3%) and Malta (-4.9%). Emerging markets are the source of good news in terms of price growth, with Slovakia topping the list where, after adjusting for inflation, house prices rose 29.3%. Other markets with home prices increases during the past year include China (Shanghai), Bulgaria, Hong Kong, and Singapore. Looking ahead, the Global Property Guide forecasts that the world's house prices will continue to decline. Read more about the causes and impact of the drop in home prices, and view charts on both actual and inflation-adjusted prices for 39 markets.
U.S. Projected to Drop from Top FDI Spot by 2014
The United States is number one when it comes to attracting foreign investment, but emerging markets such as China and India may overtake the U.S. in the race for foreign cash within the next few years, according to a survey of CFOs and other senior executives conducted by audit, tax, and advisory firm KPMG. The survey of 300 executives found 27% think U.S. markets will be the leader in foreign investment this year and next. China was ranked highest by 17% of respondents, the United Kingdom by 14% and Germany by 13%. The U.S. may not stay in the top position for long though. China is projected to surpass the U.S. as the lead investment target by 2014, according to 24% of respondents, while 23% said the U.S. would remain the top target in 2014, with 19% citing Russia and 18% citing India. Although India comes in fourth, it is expected to see the largest growth in foreign investment across all business sectors and is also expected to take the lead in investment in manufacturing. KPMG says that the strong cash flow into the U.S. is likely a result of foreign companies' interest in taking advantage of the weak dollar. Read KPMG's press release on the foreign investment study.
Information provided by
Lynn Lamb (Click here to contact agent)
Coldwell Banker LifeStyle Realty
The New Job Got a Lot Tougher
Let's hope Mark Carney likes a challenge, because his new posting at the top of the Bank of Canada could be a lot tougher than it was for his predecessor.
The Bank's single instruction is to contain inflation, but presumably, to do so without wrecking the economy in the process. Governor Dodge's mandate wasn't without its own bumps in the road. But he had one major trend smoothing the way, a general decline in global inflationary forces, and in the last few years, a skyrocketing Canadian dollar that countered the sharp climb in energy costs.
As a result, Dodge never had to face a truly tough decision in terms of sacrificing growth to keep the CPI at 2%. When the economy faltered, he could be aggressive in cutting interest rates. When it boomed, he could test the waters of ever-lower unemployment rates and the associated pick-up in wage rates, counting on falling prices for Chinese imports, cheap global food prices, and new and more aggressive competitors in retailing to keep inflation at bay.
In terms of their inflation impacts, energy aside, all of the global shocks in the past decade were in the direction of tamer prices. The stagflation of the 1970s, when inflation was heightened even when growth was depressed, was not a risk.
For now, that's where things still stand in Canada. In the wake of the prior year's C$ climb and a resulting tumble in prices for autos and other imports, inflation is low enough to provide the cover for an additional rate cut or two as a means of helping the economy avoid the worst of the US slump.
But looking further out, the choices will become much tougher. On commodities, the Bank's monetary policy report can't seem to make up its mind, citing, in two adjacent paragraphs, the risks of higher or lower resource prices.
But it concedes that much of the rise in resource costs relates to the economic boom in developing economies, one that has a long road ahead of it. If, as we expect, food and energy prices continue to climb, keeping the Canadian CPI reigned in at 2% will mean that other prices are going to have to be well under than pace.
And there's the rub. With a likely diminishing disinflationary benefit from retail competition and Chinese exports, to accomplish that feat, Carney might have to keep interest rate settings high enough to send the C$ soaring ever higher, making life even more difficult for Canada's non-resource exporters.
Or, those same interest rates are going to have to be at settings that leave much more economic slack in Canada's labour market than we've been used to of late, in order to keep wages and services prices under wraps. The David Dodge world of a sub-6% unemployment rate coexisting with a 2% inflation rate might simply not be possible for Mark Carney.
Economics & Strategy
CIBC WORLD MARKETS INC.
Weekly Market Insight April 25, 2008
Household Credit Analysis
Information provided by
Darlene McCann (Click here to contact agent)
Verico-Paragon Mortgage Group Inc.
Information provided by
Lynn Lamb (Click here to contact agent)
Coldwell Banker LifeStyle Realty
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How the impact of the HST will differ between Ontario and B.C.