December 2007 Market Research

[BMironov]

Statistics Canada:New Housing Price Index (Dec 13, 2007)
http://www.statcan.ca/Daily/English/071213/d071213c.htm

QUOTE The rate of growth in new housing prices slowed again in October, the 14th straight month in which the pace of growth has either decelerated or held steady.

Contractors` selling prices increased 6.1% between October 2006 and October 2007, compared with a 6.2% year-over-year increase in September. October`s rate of growth was only half of the pace of 12.1% in August 2006, the most recent high.

Saskatoon again led the country, with the largest year-over-year price increase of 47.9%. This is down from its all-time high gain of 53.6% in August 2007. On a monthly basis, new housing prices in Saskatoon rose 0.7% from September.

In Regina, new housing prices were up 29.5% over October 2006. However, on a monthly basis, prices remained unchanged.

In Calgary, prices were 6.2% higher than in October last year. But on a monthly basis, they declined 0.2% from September, the first decrease in the month-over-month series since December 2006. This drop comes as builders reduce pricing on some models to reflect current market conditions in the city.

In Edmonton, prices were 24.3% higher than in October 2006, a continued deceleration from the high in November 2006. Prices in Edmonton rose 0.3% from September to October, mainly the result of higher reported land values.

In Vancouver, prices rose 6.2% between October 2006 and October 2007, due to increased costs of labour and material. This compared with a 6.1% rise in September. On a monthly basis, prices in Vancouver rose 0.7% from September, the result of strong market conditions for sellers and increasing land values in the Lower Mainland area.

In Victoria, contractors` total selling price remained unchanged from September. The year-over-year change remained steady at 0.7%.

In Ontario, Windsor was again the only city in Canada recording year-over-year deflation. New housing prices for the city declined 2.6% from October 2006. They remained unchanged from September 2007.

Elsewhere in Ontario, year-over-year housing price increases remained mostly steady. Healthy home markets allowed builders to increase prices moderately in Toronto (+2.8%) and St. Catharines (+4.5%).

 

[BMironov]

Statistics Canada:Canada`s international investment position (Dec 12, 2007)
http://www.statcan.ca/Daily/English/071212/d071212b.htm

QUOTE International assets and liabilities both continued to decline in the third quarter of 2007, though the drop in assets was greater. As a result, Canada`s overall net international liabilities (the difference between Canada`s financial assets abroad and liabilities to non-residents) rose for a third straight quarter, although at a slower rate than in the previous quarter.

Net liabilities to non-residents increased $12.2 billion in the third quarter to $145.3 billion. Net external liabilities now represent 9.4% of Canada`s gross domestic product, up from 8.1% the previous quarter, but down significantly from its historical high of 44.3% in 1994.

HIGHLIGHTS:

• Canadian dollar continues to drive increase in net international liabilities
• Foreign assets decline more than international liabilities
• Canadian assets: Substantial decrease in foreign securities and direct investment holdings Canadian liabilities: Increase in foreign direct investment in Canada Net direct investment position turns negative
  
  
  Increase in net international indebtedness sharper with portfolio investment at market value

 

[BMironov]

Toronto Star:Ontario sees balanced rent market (Dec 14, 2007)
http://www.thestar.com/Business/article/285495

Toronto flat but Sudbury area vacancy rate at 0.6% as mining boom means accommodation in demand

QUOTE Sudbury registered a 0.6 per cent vacancy rates for apartments in October, half of what it was a year earlier at 1.2 per cent, according to a report by the federal agency yesterday. Average rents for a two bedroom apartment increased over the year to $749 from $712.

"Rising commodity prices are boosting employment growth and in-migration," said the CMHC.

A balanced market favouring neither landlord nor tenant is considered to be in the 2 per cent to 3 per cent range.

In Ottawa and Toronto, the two largest provincial centres, vacancy rates remain unchanged from last year at 2.3 per cent and 3.2 per cent.
...
After Calgary and Vancouver, Toronto registered the third-highest average rent for a two-bedroom apartment in Canada, at $1,061. That`s up modestly by 1.2 per cent from a year earlier, or below the rate of inflation.

A record number of condominium completions in prior years has meant more competition for apartment landlords, who have been forced to keep a lid on prices.

That trend will likely continue in the future with record sales of new condos this year.
...
More than a third, or 36 per cent, of Ontario renters live below the poverty line, said Mary Truemner, acting director of legal services for the Advocacy Centre for Tenants Ontario. The group is calling for rent regulation on vacant units.

 

[BMironov]

Toronto Star:Manufacturers get tax breaks (Dec 14, 2007)
http://www.thestar.com/Business/article/285518

Ontario unveils $1.1 billion in business tax breaks aimed at buoying manufacturing, resource sectors

QUOTE Ontario`s struggling manufacturers got a "life raft" yesterday as the provincial government targeted them for special help as part of $1.1 billion in business tax cuts over the next three years.

Finance Minister Dwight Duncan announced he`s scrapping the much-hated capital tax for manufacturers and the resource industry starting Jan. 1 and cutting it by 21 per cent for all businesses retroactively to last Jan. 1 – two years ahead of schedule.
...
Paterson said scrapping the capital tax is extremely significant for the struggling auto sector, in which many companies are losing money – and will save GM up to $5 million annually.

The province has been working to phase out the capital tax, which many observers call a "job killer" because it taxes companies on their invested capital – including the value of machinery – and not on profits, which means a company that is losing money must still pay capital tax.

The capital-tax savings for all businesses will cost the government $340 million in foregone revenue in the fiscal year ending March 31.

For small business, Duncan pledged to raise the threshold at which they pay the much higher general corporate income tax rate to $500,000 annually from $400,000 retroactively to last Jan. 1, a move that will save thousands of businesses a total of $29 million this year.

That means they`ll be paying just 5.5 per cent tax on an extra $100,000 of net income before going up to the 12 per cent manufacturing tax rate or 14 per cent general corporate tax rate for net income above $500,000.

In a related break, more businesses will qualify for the lower small business tax rate, which now ends once earnings reach $1.12 million. It is being raised to $1.5 million.
...
Duncan, who will present his budget in the spring, said he used the targeted and retroactive tax changes to put help where it`s needed most.
...
Fine print in the economic statement details how the capital tax will be eliminated Jan. 1 for companies with at least half their payrolls devoted to manufacturing, mining, logging, farming and fishing.

 

[BMironov]

Globe and Mail:B.C. shale gas set to be next generation`s oil sands (Dec 14, 2007)
http://www.reportonbusiness.com/servlet/st...lumnsBlogs/home

QUOTE In the remote north of the province, there is a vast warehouse of hydrocarbons lurking in difficult geology, waiting for the right combination of technology, economics and entrepreneurial guts to free them.A generation ago, that description applied to Alberta and its oil sands. Today, that scenario is playing out in British Columbia and its shale gas fields where trillions - yes, that is a T - of cubic feet of natural gas could be on their way to market.

Yesterday, the province unveiled its single most successful auction of oil and gas exploration rights in nearly three decades, a $401-million haul that pushed the year`s tally past $1-billion. By itself, the size of the Dec. 12 auction is impressive. But what is even more striking is that two-thirds of the payout came from four parcels near Dawson Creek in northeastern B.C.
...
Problem is, shale formations are far different than a typical natural gas well, in which the pressure of the reservoir is usually enough to force a steady stream of gas to the surface. In shale formations, natural gas molecules are stuck to the rock, and must be peeled away before they will flow to the surface. Although the physics differ, shale gas and the oil sands face the same maddening economic dilemma: Everyone knows the resource is there, they just have no clue how to turn those molecules into profit.

So, just as the oil sands lingered for decades as Alberta`s conventional industry flourished, so have shale resources remained unloved and untapped. Until now. As the auction results show, big bets are starting to be plunked down on shale gas. Those bets may not pay off. As with the oil sands, only a small portion of the huge amount of known resources may ever be produced. "The question remains - what is actually recoverable?" says Glenna Jones, vice-president of Canadian equities for Ross Smith Energy Group Ltd. in Calgary.
...
However, neither of those developments are brand new, nor dramatic. Neither easily explain the sudden surge of interest in B.C.`s shale gas. What does is the looming reversal of industry profitability under the royalty regimes of B.C. and Alberta. For the moment, Alberta has the edge, although precise calculations are tough because of the welter of circumstances that go into calculations. But once Alberta hikes its royalties in 2009, the advantage will swing to British Columbia.

Not surprisingly, then, companies that are buying the rights to oil and gas exploration are edging out of Alberta, where land sales have plummeted 60 per cent this year, just as B.C. marks its best year ever.

And that is one more thing that B.C.`s shale natural gas and Alberta`s oil sands have in common. Eleven years ago, Alberta slashed royalties on the oil sands, creating a gravity well that pulled tens of billions in capital into the Fort McMurray area and gave birth to a major new branch of the energy industry.

 

[BMironov]

Some of recent CMHC Rental Market reports:
Ontario: http://www.cmhc-schl.gc.ca/odpub/esub/64507/64507_2007_B02.pdf
Toronto, ON: http://www.cmhc-schl.gc.ca/odpub/esub/6445...59_2007_A01.pdf
Hamilton, ON: http://www.cmhc-schl.gc.ca/odpub/esub/64391/64391_2007_A01.pdf
Kitchener, ON and Guelph, ON: http://www.cmhc-schl.gc.ca/odpub/esub/64399/64399_2007_A01.pdf

 

[JimSalmon]

Hamilton Spectator

Housing prices to rise 3.5%

December 18, 2007 The Canadian Press
TORONTO (Dec 18, 2007) QUOTE Real estate brokerage Royal LePage is forecasting "steady, yet moderate growth" in the Canadian residential market in 2008, after the industry`s busiest year ever in 2007.

Royal LePage predicted yesterday that house prices nationally will rise by 3.5 per cent to an average of $317,288 next year. The number of transactions is forecast to slip by 4 per cent to just over half a million -- still above the number of sales in any year before the record pace of 2007.

Coinciding with the Royal LePage report came data from the Canadian Real Estate Association showing Multiple Listing Service home resales broke all previous annual records by the end of November. MLS activity in major markets totalled 345,577 units in the first 11 months of this year, 2.7 per cent more than the previous full-year record of 336,646 in 2005.

Royal LePage Real Estate Services president Phil Soper said Canada`s housing market should continue to thrive next year on strong economic fundamentals including high employment, solid consumer confidence, modest inflation and a relatively low cost of borrowing.

Soper noted that Canada is in one of the longest housing market expansions in history, but in 2008 eroding affordability is likely to reduce demand, "allowing the market to move toward balanced conditions, with lower levels of price appreciation, and fewer homes trading hands."

Royal LePage, a unit of the Brookfield Real Estate Services Fund, predicts next year`s biggest percentage price increases will be in the most affordable large urban markets -- Regina and Winnipeg.

In Calgary and Edmonton "the excessively fast run-up of home values in 2006 and the first half of 2007 priced people out of the market," and increases are expected to be more moderate in 2008.

Vancouver, with the country`s highest home prices, is forecast to remain powered by a strong B.C. economy ahead of the 2010 Olympics.

Ontario and Quebec markets "are anticipated to maintain their relative strength and vibrancy throughout next year, weathering stormy financial markets and adjusting well to the high value of the Canadian dollar."

In Atlantic Canada, immigration is expected to keep the housing market growing at a "strong and steady pace."

The Multiple Listing Service data showed little slackening in the pace of home-buying last month, though activity was off the frenetic peak of earlier in the year. It was the busiest November on record, up 7.6 per cent from a year ago and up 3.2 per cent from October on a seasonally adjusted basis.

November`s average price for resale homes bought through MLS was up 11.6 per cent from $332,807 in 2006.

CREA economist Gregory Klump said a seller`s marker continues in most cities, and there is no sign in Canada of the mortgage woes that have afflicted the American housing sector.
http://www.thespec.com/News/Business/article/297861

 

[BMironov]

Statistics CanadaConsumer Price Index (Nov 2007) (Dec18, 2007)
http://www.statcan.ca/Daily/English/071218/d071218a.htm

QUOTE Fuelled by higher gasoline prices and mortgage interest cost, consumer prices increased 2.5% between November 2006 and November 2007, a slight acceleration from the 12-month change of 2.4% posted in October.

However, the Bank of Canada`s core index, used to monitor the inflation control target, rose only 1.6%, posting its slowest 12-month increase since April 2006.

The core index has decelerated since July 2007. The 12-month change was 2.2% in August, 2.0% in September and 1.8% in October.

TD Econnomics commentary:
http://www.td.com/economics/comment/rs121807.pdf

QUOTE Looking ahead, inflation trends in Canada will in all likelihood remain soft in the final month of the year and through 2008. For one, although the loonie has retreated from its early November peaks, it still remains elevated, which suggests further pressure on retailers to pass along savings from the strong Canadian dollar to consumers. Moreover, GDP growth in Canada is likely to lose considerable steam in the coming quarters, as economic slowing south of the border intensifies. As reviewed more thoroughly in the recently released ‘Quarterly Economic Forecast’, the moderation in the U.S. economy will translate to a couple of quarters of sub-par real GDP growth in Canada, which will likely add to the downward pressure on Canadian prices. In addition, inflationary pressures that were evident in early 2007 will gradually fall out of the year-over-year change in the CPI (base year effects), suggesting that inflation will moderate sharply in the coming quarters. We now expect core CPI to come in at 1.7% in Q4, which is well short of the BoC’s 2.3% projection. The core index is then expected to ease to a year-over-year trough of 1.4% in the second quarter of next year. Overall, we believe that the sharp downturn in core inflation, ongoing uncertainty over financial market conditions, and the sour outlook for U.S. and feed through to Canadian economic growth will prompt the Bank to deliver another 25 bp insurance cut in January. However, given the strength in the domestic economy, we don’t expect an extended easing cycle and believe that the Bank will move back to the sidelines after January as they assess the impact of 50 bps in cumulative easing.

 

[BMironov]

CIBC World Markets:Five Surprises for 2008 (Dec 19, 2007)
http://research.cibcwm.com/economic_public...load/sdec07.pdf

QUOTE Money is made by expecting the unexpected. As we approach a new year, it`s useful, then, to think outside the box, looking for events that could surprise financial markets. And given the holiday spirit, let`s focus more on good news stories.

• First, securities linked to the US mortgage market won`t all end up being the toxic waste that financial markets now assume, and might actually recover more than fixed income assets tied to corporates.
• Another now out-of-favour security that could do better than some think is banksponsored Asset Backed Commercial Paper.
• Third, the Fed, now in the throes of an easing cycle, could end up hiking rates before next year is out. Closer to home, Saskatchewan has a shot at leading all provinces in economic growth in 2008. And looking most broadly, global growth will hug not far below the 5% mark seen in the past few years, notwithstanding the slow crawl that the US faces until the spring. America`s role in the world ain`t what it used to be, with developing Asia accounting for half the global growth tally in the past three years. China is still looking, if anything, too brisk, the eurozone hasn`t seen any signs of real trouble, while high oil prices leave growth in OPEC countries and Russia in good hands.

All of that will be a pleasant surprise for the recently shaky TSX, as annual returns in the resource-laden Canadian equity market have
an airtight correlation with global economic activity.

 

[BMironov]

CIBC World Markets:How Alberta can win the carbon war (Dec 12, 2007)
http://research.cibcwm.com/economic_public...d/occrept64.pdf

QUOTE Not too long ago, extracting oil from oil sands was technologically feasible, but economically insane. Today, following the structural rise in oil prices, not only are oil sands part of mainstream oil supply, but soon they will become the largest source of new oil in the global economy, with related greenhouse gas emissions poised to soar.

Similarly, the technology to capture and store carbon is widely available now. But it is expensive. With no restrictions on emissions, companies have no economic motivation to apply such an option. Things, however, are changing. Soon, the right to emit will come with a price tag. And the surprise will be how little it will take to convince large emitters that injecting CO[sub]2[/sub] into the ground will make more economic sense than spreading it into the atmosphere.

In this context, due to its proximity to some of the world’s finest geological storage sites, Alberta’s oil patch is ideally located to benefit from this emissions reduction option. Instead of being the victim of environmental regulations, the oil patch might emerge victorious in the carbon war.

 

[BMironov]

Statistics Canada:Gross domestic product by industry (Oct 2007) (Dec 21, 2007)
http://www.statcan.ca/Daily/English/071221/d071221a.htm

QUOTE Economic activity increased 0.2% in October, after growing 0.1% in September. These increases occurred as the dollar appreciated significantly vis-à-vis its US counterpart in both months. Both the goods- and services-producing industries advanced. Increases in manufacturing and wholesale trade propelled the growth, while a decline in mining dampened it. Growth was also recorded in the financial sector and retail trade. Conversely, agriculture and forestry declined.

HIGHLIGTS:

• Wholesale trade continues to rise significantly
• Manufacturing sector rises in October
• Energy sector retreats
  
  
  Retail trade advances Construction up slightly

 

[BMironov]

TD Economics:CANADIAN ECONOMY GROWS MODERATELY IN OCTOBER (Dec 21, 2007)
http://www.td.com/economics/comment/rs122107.pdf

QUOTE The industry level data for October was a mixed bag for goods producing industries. Utilities output – which tends to be particularly volatile – supported the bottom line in October, increasing by 0.9%. Even the beleaguered manufacturing sector posted a strong 0.8% increase in the month. After dipping for most of last year, manufacturing seems to be heading back towards expansion on a year-over-year basis. Even so, this sector will continue to face headwinds from a strong Canadian dollar and softer U.S. demand. October’s Achilles heel was the primary sector – mining, oil & gas and agriculture & forestry which dropped 1.5% and 0.5% respectively.

The Canadian economy has delivered one upside surprise after another. Canadian employment has blown past all expectations and the economy in the third quarter grew by a surprisingly strong 2.9% annualized pace. Despite this, the Canadian economy cannot continue to defy gravity and there are signs that weaker conditions are ahead. While Canada’s domestic economy is expected to remain fairly healthy and supportive to service industries, the darkening U.S. outlook and higher Canadian currency will continue to restrain demand for the 76% of Canadian exports that are destined for the American marketplace. All told, we expect Canadian economic growth to simmer down to about 1.4% in the Q4 2007 and 1.9% in 2008. And given that the inflation outlook appears to be a lot less threatening than before, the Bank is likely to respond with just a touch of monetary stimulus, lowering interest rates by another 25 bps to help bring core inflation back to target, and to help the Canadian economy get through the slow-down in the U.S.