Economics Analysis

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From the National Association of Realtors:

FOREIGN INVESTMENT

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.

CULTURALLY CORRECT

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.

GLOBAL MARKETS

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.

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April 2008

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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.

Avery Shenfeld
Senior Economist
Economics & Strategy
CIBC WORLD MARKETS INC.
Weekly Market Insight April 25, 2008