17 Sep

Canadian housing market immune to global turmoil in August, CREA finds


Posted by: Kimberly Walker

Canadian housing market immune to global turmoil in August, CREA finds



A real estate agent puts up a “sold” sign in front of a house in Toronto Tuesday, April 20, 2010. THE CANADIAN PRESS/Darren Calabrese

Michelle McQuigge, The Canadian Press, On Thursday September 15, 2011, 4:09 pm EDT

By Michelle McQuigge, The Canadian Press

TORONTO – The global economic turmoil that roiled stock markets around the world in August did little to dampen the Canadian housing market, which continued to show strong gains in sales and prices.

Analysts expressed universal surprise on Thursday that the wildly volatile swings on North American, European and Asian stock markets had little impact on housing, which for many years has been a pillar of economic growth in Canada.

While many analysts had expected a big slump — as Canadians felt poorer because of the stock losses and worried about a weak global economy — sales of resale houses remained steady and prices rose modestly in August.

The figures, released by the body that represents the bulk of Canadian real estate agents, suggest that the housing sector — propped up by low mortgage rates and solid regional economies — will continue to underpin growth in the national economy.

For years, housing has been a big job creator across Canada and has helped boost appliance, furniture, hardware and the retail sectors. Rising prices have also made consumers feel richer and made them more likely to spend money across the economy.

The Canadian Real Estate Association’s August resale housing report showed sales of existing homes maintained the same levels seen in July and increased significantly from the same month the year before.

New listings also remained steady, the association said, adding the number of balanced local real estate markets is currently the highest on record.

Housing prices rose 7.7 per cent year-over-year to $349,916, but have come down from levels posted earlier this year as frothy markets in Toronto and Vancouver began to flatten, the brokers group said.

Scotiabank economist Adrienne Warren said the latest numbers paint a picture of a real estate market returning to a balanced state.

“It’s nice to see prices cooling off a little bit, yet not falling terribly either,” Warren said in a telephone interview. “It’s a fairly ideal market at the moment.”

Analysts say balanced real estate markets help prevent a housing bubble, where prices rise so fast and high that an inevitable plunge occurs later, with potentially devastating effects on the economy.

The collapse of the American housing market since 2008 and the current high number of foreclosures south of the border is a major reason the U.S. economy remains mired in a slump and could easily slip back into recession.

The August markets turmoil — which wiped out tens of billions of dollars in stock values in Canada — did created enough consumer worries to offset some of the benefits of low interest rates for homebuyers.

Robert Kavcic, economist with BMO Capital Markets, said low borrowing rates and strong national job growth helped to fortify the real estate market against broader volatility. But the effect of even those influential factors was beyond his expectations.

“The one thing that continues to surprise us is how steady the Canadian housing market has been,” Kavcic said. “Granted, sales were down a little bit in August, seasonally adjusted, but I would say that’s hardly disappointing given all the other turmoil we’re seeing in financial markets obviously slowing global growth.”

In its monthly report, CREA said actual sales — meaning not seasonally adjusted — came in 15.8 per cent above national levels last year. A total of 324,030 homes traded hands via the association’s Multiple Listing Service system so far this year.

The association’s chief economist Gregory Klump foresees continued strength in the Canadian market, saying low borrowing rates underpinning the current numbers are unlikely to rise in the near future.

In the August resale report, Klump noted that economic turbulence outside Canada has been been keeping interest rates low and will continue to do so.

“Those headwinds will likely persist until, and indeed after, fiscal quagmires in the U.S. and Europe are resolved,” Klump said. “In the meantime, the Bank of Canada will have ample reason to delay raising interest rates further, which is supportive for the Canadian housing market.”

The persistence of global economic woes, however, sounds alarm bells for David Madani of Capital Economics, who believes housing prices could fall by 25 per cent over the next few years.

“If you consider all the negative news that we’ve seen outside of Canada, . . . it seems to be that the economic outlook is deteriorating, and so perhaps I think what we’re seeing in housing markets is a bit at odds with the losses in confidence and uncertainty that seems to be rising,” Madani said.

“It’s a surprise, and I guess the question is, does it sound right?”

Warren predicts housing will remain strong as long as interest rates stay low, but she cautions that prices in the hot Toronto market could come under downward pressure.

The housing market in Calgary, on the other hand, is expected to pick up as oil and natural gas prices which underpin the Alberta economy rebound,

Overall, Warren said, Canadian prices should remain stable. “There’s not really a trigger out there that’s going to cause prices to come down sharply.”

Have a great weekend!!




Rachelle Gregory-Marshall, AMP| Team Lead/ Director of Business Development Inside Sales BC
C. 416-523-8745| TF. 1 877-850-3369

Email: Rachelle.Gregory-Marshall@merixfinancial.com



8 Sep

Summary: The Bank of Canada’s Changing Language


Posted by: Kimberly Walker

The Bank of Canada’s changing language: CBC.CA

On Wednesday September 7, 2011, 4:51 pm EDT

Watching the Bank of Canada’s language on the economy change over the past year is like seeing a healthy, upbeat person gradually come around to the idea that a serious illness is overtaking them.

A year ago, the central bank was continuing the slow process of raising its key interest rate toward familiar levels, as the western world began to put the financial cataclysms of 2008 behind it. On Sept. 8, 2010, the target rate for overnight loans between banks rose to one per cent.

And here’s how the world economy looked to the Bank of Canada — getting better, but though not steadily: “The global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies,” the Bank of Canada said in September of 2010.

And Canada’s economy — buoyed by demand for commodities like oil, gas, uranium and fertilizer — was recovering: “The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary Policy Report (MPR), largely reflecting a weaker profile for U.S. activity,” the central bank’s statement read at the time.

It was canny, however, about forecasting any further increases in rates, sensing possible trouble ahead: “Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.”

That was code for don’t get too excited, folks: a lot could still go wrong — and it did.

Remember that for more than a year, from April 2009 to June 2010, the central bank’s key rate had been 0.25 per cent — effectively zero, or maximum stimulus, as a rising Canadian dollar did some of the bank’s inflation-cooling work and the world began to recover its appetite for Canadian commodities.

The bank had gradually increased its key rate over the next few months to 0.75 per cent. Then came the bump to one per cent exactly a year ago.

Since then, as Europe’s debt problems have flared in Greece, Ireland, Portugal and Spain, and in some people have taken to the streets to protest government attempts to curb spending and remain solvent, the Bank of Canada’s key rate has been rock steady at one per cent.

Now watch how the language has moderated, as central bank economists saw the economy flattening:

On Oct. 10, leaving the rate at one per cent, the bank said: “In advanced economies, temporary factors supporting growth in 2010 — such as the inventory cycle and pent-up demand — have largely run their course and fiscal stimulus will shift to fiscal consolidation over the projection horizon .… The combination of difficult labour market dynamics and ongoing deleveraging in many advanced economies is expected to moderate the pace of growth relative to prior expectations. These factors will contribute to a weaker-than-projected recovery in the United States in particular.”

By Dec. 7, it saw recovery “largely as expected,” but sounded the first note of bigger trouble ahead: “At the same time, there is an increased risk that sovereign debt concerns in several countries could trigger renewed strains in global financial markets.”

On Jan. 18, 2011 — happy new year! — there were signs the economy was rebounding all too well, with government spending in the U.S. and Canada showing up in growth all over. As well, Canadian commodities remained hot sellers, pushing up the value of the Canadian dollar.

In fact, the bank said, “the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance are restraining this recovery in net exports and contributing to a widening of Canada’s current account deficit to a 20-year high.”

Translation: “No need to raise interest rates.”

On March 1, the recovery kept pushing ahead, driven by exports, but the bank left rates unchanged, and stuck with this now-boilerplate paragraph at the end of its release: “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.”

On April 12, the bank forecast 2.9 per cent gross domestic product growth in 2011 and 2.6 per cent in 2012 — all good, with robust spending and business investment leading investors to “become noticeably less risk-averse.”

And yet, searching the horizon for clouds, the bank saw enough to stick with its boilerplate: “This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of material excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.”

By May 31, however, the bank began to see some of its more horrible imaginings coming true, and the boilerplate was dropped. Again leaving the key rate at one per cent, the bank said global inflation might be growing, but “the persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation through weaker-than-expected net exports and larger declines in import prices.”

Stimulus might be “eventually withdrawn,” it said, but “such reduction would need to be carefully considered. “

On July 19, the bank’s language noted slower-than-expected U.S. economic growth, Japan recovering at a lower-than-expected pace from its nuclear disaster, and said “widespread concerns over sovereign debt have increased risk aversion and volatility in financial markets.” In other words, investors were getting jumpy about how Europe might pull itself together without major defaults and weakened currency.”

And on Wednesday, laying out all the factors that are besetting global growth and the Canadian economy, the bank finally sounded a doctor facing a sick patient.

It didn’t explicitly suggest returning to more stimulus (lowering interest rates), as some economists had forecast it might, but the bank no longer expected to withdraw economic stimulus:

“In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished. The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2 per cent inflation target over the medium term.”