November 2010 Canadian Economic Fundamentals

[Ally]

Canadians handling mortagage debt well

Canadian homeowners are handling their mortgage debt so well they could handle paying more each month, according to a report released Monday by the Canadian Association of Accredited Mortgage Professionals.

Its sixth annual report on residential mortgges found the vast majority of mortgage-holding Canadians (84%) could afford an extra $300 or more a monthly in payments.

This certainly bodes well for Canadian solvency levels, as the total level of outstanding residential mortgages in Canada crossed the $1-trillion mark in August, a 7.6% increase from last year.

Over the past 15 years, the volume of residential mortgages has expanded 194%, or about 7.5% a year. Growth was especially rampant between 2004 to 2008, exceeding 10% each year, the report said.

Slightly more than one in three (35%) were even more proactive about their mortgage debt, having either increased payments or paid down their mortgage in one lump-sum over the past year. Seven per cent did both.

Read the full article here.

 

[Ally]

A visual look at Canada`s housing starts

The Canada Mortgage and Housing Corp revealed on Monday that housing starts fell more than expected in October. There were 167,900 starts last month (based on an annualized rate), down 9.2% from 185,000 in September.

Above, we break down the numbers to give you an idea of where starts were weakest, and which provinces and areas bucked the trend.

See the graph here.

 

[Ally]

Business owners regain some of their lost confidence

Canada`s small and medium-sized businesses recovered some of their lost confidence last month, according to the most recent survey by the Canadian Federation of Independent Business. The monthly "business barometer" was at 66.9 for October, up three points from September. The index was on a downward slope during the spring and summer. October`s result marked the highest score since May. "While this index level is still modest compared to pre-recession readings, it suggests a firming up of business owners` expectations," CFIB chief economist Ted Mallett said.

Read the full article here.

 

[Ally]

Annual State of the Residential Mortgage Market in Canada

The Canadian Association of Accredited Mortgage Professionals (CAAMP) just released its annual mortgage report.

Download below.

 

[Ally]

Ontario leads home building decline

OTTAWA — Housing starts fell more than expected in October, Canada Mortgage and Housing Corp. said Monday.

The federal housing agency said there was an annualized rate of 167,900 starts last month, down 9.2% from 185,000 in September. The September number was revised down from the previously reported 186,400.

"Housing starts moved lower in October due to a decrease in urban single starts in all regions, with the exception of Atlantic Canada," CMHC chief economist Bob Dugan said in a statement. "Both single-detached and multiple starts decreased last month."

In October, housing starts in urban areas — those with populations of 10,000 or more – were down 12.3% to an annualized rate of 142,400. On this basis, starts were down 24.5% in Ontario, fallen 16.9% in the Prairies, off 9.1% in British Columbia, down 2.6% in Quebec but up 32.9% in Atlantic Canada.

Economists polled by Bloomberg expected a rate of home-building beginnings of 183,000 in October.

Read the full article here.

 

[Ally]

Surprise drop in condos hits housing starts

New home construction fell 9.2% in October from a month earlier, falling short of economists` predictions due to an unexpected drop in the number of condominium starts.

Consensus was for 182,000 starts last month on a seasonally adjusted annualized basis, which would have been a 2.4% decline from September. Instead, Canada Mortgage and Housing Corp. said Monday the annualized figure for October was 167,900 units, a steep drop from the 185,000 units built the month before.

The decline was driven in part by urban multiples, which is largely made up of condominiums. New construction in that sector was down 15% from a month earlier.

TD Bank Financial Group senior economist Pascal Gauthier said yesterday the performance of urban multiples had been a "head scratcher" up until the latest figures.

"The point I was trying to make was that on a trend basis they had been surprising us," said Mr. Gauthier. "They were just a little bit too strong. We thought they would come down."

Read the full article here.

 

[Ally]

Why commodities are going crazy

LONDON — Gold and tin struck record highs on Tuesday and other commodities stormed to their strongest levels in years, supported by expectations of dollar weakness and hopes of demand for raw materials due to U.S. stimulus measures.

Sugar hit a 30-year peak and coffee a 13-year high. Copper, which neared a record, oil, platinum and corn all hit their highest levels since 2008.

"I think people (funds) are reallocating some money to commodities," said Romain Lathiere, fund manager with Diapason Commodities Management. "Everybody wants sugar, coffee, base metals, gold and silver as well," he added.

Gold hit a session peak of US$1,422.30 an ounce, reaching a record high for a fourth straight session on worries about inflation and euro zone sovereign debt.

Bullion has rallied since the U.S. Federal Reserve announced last Wednesday its plans to purchase US$600 billion worth of government bonds.

Read the full article here.

 

[Ally]

Calgary police warn public about online scams after renters notic false ad on Kijiji

CALGARY - A rental bargain turned out to be anything but for at least one person who lost $600 to an online fraudster.

The scam was perpetrated by someone who copied a legitimate Calgary rental ad on the popular online classified service Kijiji — but dramatically lowered the monthly rate to attract plenty of potential tenants.

The fake ad listed the four-bedroom home on Mount Aberdeen Grove S.E. at $1,000 a month, compared to $2,000 being sought by the legitimate landlord.

The scammer told prospective renters that he had recently moved to New York and wasn`t able to meet them in person — asking instead for them to send him $600 via wire transfer.

"Our suspect was encouraging people to drive by, but he made up some story about how he just moved and couldn`t get back to let people in," said Const. Martin West.

Read the full article here.

 

[Ally]

Household debt levels are rising, but perspective is needed

Bank of Canada Governor Mark Carney says he`s concerned about levels of household debt, a sentiment echoed by two recent reports: one from TD Bank Financial Group and the other from the Certified General Accountants Association of Canada.

Both paint a disturbing picture of Canadians` growing indebtedness.

TD warned that "the relentless rise in household debt in Canada . . . is a growing cause for concern." The CGA raised the pitch, adding: "The rapidly deteriorating situation of the household sector`s balance sheet should be viewed as alarming."

The measure that stands out in their analyses is the amount of debt relative to personal disposable income, which Statistics Canada puts at 146 per cent and, according to TD estimates, may reach 151 per cent in the next five years based on projections of two-percent annual economic growth, supporting personal disposable income growth of four per cent a year.

So serious is the situation that Carney hinted regulators and legislators may have to intervene because, although individuals bear responsibility for managing their household finances in normal times, "we are still living in abnormal times."

Read the full article here.

 

[Ally]

China allows insurers to invest in Canada

OTTAWA — Finance Minister Jim Flaherty said Wednesday the federal government has clinched a deal with Chinese financial regulators that he argued could see up to $106-billion head to Canada for investment purposes.

In a statement, Mr. Flaherty said the deal between Ottawa and the China Insurance Regulatory Commission would designate Canada as a destination for Chinese insurance wealth management business. As a result, Chinese insurers would be permitted to invest in Canada -- providing Canadian financial markets will access to up to $106-billion in investment capital.

"This agreement demonstrates a great deal of confidence in Canada`s economic prospects and the soundness of Canada`s financial system," said Mr. Flaherty, who is in Seoul as part of Canada`s delegation attending the Group of 20 leaders summit.

The agreement with China, the world`s second biggest economy, comes ahead of the G20 summit, that`s already brewing friction over concerns over currency devaluations that analysts warn could spill over into a trade war unless global policymakers come to some form of consensus on how to deal with foreign-exchange policy. China is often cited as a culprit as its yuan is tied to the U.S. dollar.

Read the full article here.

 

[Ally]

Beyond Demographics: It pays to know renters` wants and needs

Over the last 30 years, Canada`s rental pool has grown alongside its population. However, the current tenant makeup is not much different than it was three decades ago. What has changed, says Kevin Green of Greenwin Property Management Inc., is tenant expectations, with today`s renter wanting landlords to provide a plethora of amenities.

"During the days of rent control, tenants were happy to live in a clean and safe building," says the CEO of one of Canada`s largest residential property management companies. "Today, with the condominium boom, the increase in rents and more vacancies, tenants are looking for a higher level of service."

What does this entail?

Green says landlords need to essentially combine the flexibility of apartment living with the service of a hotel.

"Tenants today are expecting a lifestyle," he explains. "They want exercise rooms, movie rooms, libraries, car wash bays. They`re looking for a 24 to 48 hour (maintenance) turnaround time if anything`s broken (in their suite). They also want someone to help them with restaurants in the neighbourhood or get theatre tickets."

Read the full article here.

 

[Ally]

Is our housing market overvalued?

Is our real estate market overvalued? The debate continues.

The Economist magazine recently argued that Canada`s housing market is overvalued by 24 per cent, when you look at ratios of the historic cost of renting versus buying.

Two Bank of Montreal economists disagree. In a recent report titled Canadian Housing: Pricey, Not Dicey, Earl Sweet and Sal Guatieri say the Economist`s projections are wrong.

The magazine used price-to-rent comparisons — rent prices supposedly reflect a home`s worth — but the BMO economists compared house prices to income and found that Canadian abodes were far less inflated - 11 per cent above historic norms.

Housing valuations were higher late last year, about 18 per cent overvalued, but thanks to a 3 per cent decline in prices this year and continued moderate growth income, the degree of overvaluation has declined.

"The Canadian housing market does not appear to be in a bubble, and is unlikely to suffer a U.S.-style collapse," write the economists. They says key difference are the quality of assets behind the loans loans and other things like mortgage insurance and recourse against defaulters.

Their view isn`t shared by all analysts. In August, the Canadian Centre for Policy Alternatives wrote that housing is overvalued by about 36 per cent. "The steep rise in house prices in so many cities displays all the hallmarks of an accident waiting to happen," David Macdonald said his report.

Read the full article here.

 

[Ally]

CRA isn`t accountable to taxpayers, ombud says
If you disagree with the Canada Revenue Agency, you have the right to an appeal.

Here`s the problem. The CRA`s appeals branch makes important decisions, but does not have to explain its decisions to taxpayers.

Paul Dubé, Canada`s ombudsman for taxpayer rights, says this is wrong. People have the right to know why their appeal was turned down.

"It is the explanation of why that lies at the heart of meaningful reasons for a decision," he says in a report, The Right to Know.

"Without the why, information about a decision is not complete, accurate or clear. Furthermore, the CRA is not being accountable to the taxpayer."

Dube, a former criminal defense lawyer named to the ombudsman`s job in February 2008, can resolve individual complaints.

Read the full article here.

 

[Ally]

10 reasons why credit unions are worth a look
It`s your money, so why does it seem to cost so much every time you touch it, move it or invest it?

Many consumers are asking that question, and transaction fee fatigue is prompting them to join the more than 1.7 million people in the province who use credit union to bank, get loans and mortgages, and other financial services. Credit unions have been serving Canadians for more than 100 years —Ontario`s first one was founded in Ottawa in 1908. Carefully regulated, credit unions combine the attentive service of a cooperative with the financial safeguards of the Canadian banking system. Credit unions offer fewer branches and ATMS, and overall service that might or might not be better than a big bank`s. But many people are giving them a look; here are some of the reasons.

1. Competitive rates

Credit unions typically have low lending rates and pay higher deposit interest. They are owned by members, not shareholders, so they can shave off costs and pass savings along. For example, Meridian Credit Union, the largest group in Ontario with 44 branches and eight commercial business centres, offers a "better than market rate" against any other financial institution on a five-year fixed-rate mortgage.

Read the full article here.

 

[Ally]

Canadian homebuilders spooked in October

Canadian housing starts fell a worse-than-expected 9.2% to 167,900 annualized units in October, from a downwardly-revised 185,000 in the prior month (previously 188,400). That`s the third straight monthly decline, or the fifth in the past six months, and marks the lowest level of activity since September 2009, when homebuilding was springing out of the recession. While October`s decline was larger than expected, the overall trend of softer construction activity is not—October seasonally adjusted home sales were 25% below peak levels seen at the end of 2009, and starts in recent months have cooled back in line with the estimated 175,000 rate of household formation.

Single-unit starts continued to slide in October, falling 8.0%, while the more volatile multi-unit segment saw a 15.0% drop. Singles have now dropped 39.5% from their March peak, and are running 23.9% below year-ago levels—closer to the recession low than their heated spring level. Meantime, October`s drop also pulled multi-unit starts back below year-ago levels (-4.0%).
The regional performance was split in October, with Atlantic Canada seeing a solid increase thanks to a large bounce-back in New Brunswick. However, all provinces in Central and Western Canada saw lower levels of construction activity in the month, headlined by a hefty 22.9% drop in Ontario—both singles (-6.7%) and multiples (-35.6%) fell in the province.

Read the full article here.

 

[Ally]

Canadian Housing: Pricey, not diceyThe media and some analysts remain glued to the idea that the Canadian housing market is a bubble ready to implode à la the U.S., Ireland, Britain, and Spain, where prices have dropped 22% on average. The latest concerns were fanned by an article in The Economist that suggests the Canadian market is 24% overvalued based on a comparison of prices and rent. Rent captures the stream of income derived from housing, and thus, in theory, is an appropriate valuation metric. However, in practice, it is important to note that statistical agencies often have difficulty measuring effective rents. Moreover, the downward trend in interest rates in the past three decades would normally favour ownership over renting and, hence, encourage a higher price-to-rent ratio today than in the past (Chart 1). Perhaps for these reasons, of the 20 countries reviewed by The Economist, the median overvaluation was 20%, and only four countries were overvalued by less than 10%, casting some doubt on the appropriateness of this metric.

In our view, comparing house prices with personal income, rather than rent, provides a superior methodology. As shown in Chart 2, the historical trend for this ratio has a zero slope, meaning prices tend to rise alongside incomes over time. This makes sense, since a family`s income largely determines how much it can pay for a house. For ease of comparison, we rebased the ratio such that the long-term trend is 100. One can interpret this trend as the `fair` value of housing relative to income. Comparing the current ratio with the long-term trend suggests Canadian house prices hit a peak overvaluation of 18% in late 2009. This raises some concern because it suggests the market is only slightly less overpriced than in the late 1980s, or compared with the U.S. in 2006. However, a 3% decline in (seasonally-adjusted) prices so far this year, coupled with continued moderate income growth, has reduced the estimated degree of overvaluation to a less worrisome 11% in 2010Q3.

Read the full report here.

 

[Ally]

Canadian dollar`s strength expected to continue until new year

OTTAWA — The Canadian dollar is likely to co-operate with cross-border shoppers through the holiday season by staying close to parity with the U.S. currency up until the new year, says a report released Wednesday.

But for those headed to southern locations where U.S. dollars are used in the months that follow, they might want to do their currency exchange right now.

Avery Shenfeld, chief economist with CIBC World Markets, forecast the loonie would be about 99 cents US as 2010 ends, declining to around 93 cents US by spring.

The Canadian dollar touched parity with the U.S. greenback on Wednesday, as it has done previously over the last week. It has not, however, recorded an official close at or above the U.S. dollar`s value since April 23.

Shenfeld said some of the factors that are driving the loonie to high levels are poised to change in 2011. That includes rising commodity prices and the slumping U.S. dollar.

Read the full article here.

 

[Ally]

How realtors gauge the housing marketGregory Klump spends his days studying the housing market as the chief economist for the Canadian Real Estate Association. I visited him last month in the association`s Ottawa offices, since I was in town and working on a series about housing. Here is a transcript of the interview, in which we bicker about whether reporting average sale prices each month is helpful or not.

There are a lot of numbers out there in regards to home prices. Month over month, year over year. Which metrics matter?

The metrics that matter in the housing market are the same that matter in any market – supply and demand and the balance between the two.

Over what time period though?

As long as you got. We can go back to 1972 and if we want to go further back …. we can go back to 1956 on an annual basis. On a price-to-income basis a lot of analysis hasd`t gone on before 1980, when looking at long-term averages. Bit if you go back using a longer-term timeframe of analysis things are not so worrisome – it`s just another normal housing market cycle.

Where do you see the market right now in that cycle?

By and large the consensus is the market has peaked, the disagreement is over where we go from here on price. History shows that the price-to-income ratio doesn`t revert to its long-term mean by prices crashing through the floor. What happens is prices pretty much stabilize and sag a little bit, but it`s activity that takes it on the chin. It takes a number of years for incomes to catch up with prices, but in doing so you have your reversion to the long-term average.

Read the full article here.

 

[Ally]

Economists predict bailout of Ireland by end of 2011

LONDON—Ireland will seek international rescue funds before the end of next year, says two thirds of economists and bond strategists polled by Reuters on Thursday.

Twenty of the 30 analysts surveyed said Ireland would not make it through to the end of 2011 without seeking funding externally. The price of any bailout would be around 48 billion euros ($66 billion, dollar figures U.S.), according to a median of forecasts from the 10 respondents who gave a figure.

"It`s not just an Irish problem, it`s a European problem," said Alan McQuaid, chief economist at Bloxham Stockbrokers.

The respondents comprised economists at research institutes and top Irish and European banks, and bond strategists at large dealers.

Last month, a snap Reuters poll showed a slim majority of economists thought Ireland would likely avoid tapping the European Union or International Monetary Fund for a bailout next year.

Since then, market confidence in Ireland`s ability to cope with its huge debt burden has fallen significantly.

Read the full article here.

 

[Ally]

The weighty question about dogs in condosQ: Is there a weight restriction for dogs in a condo unit?

A: There is no weight limit in the Condominium Act or regulations. A weight restriction may be contained in the declaration or rules. A rule, unlike a declaration provision, must be reasonable but the courts have upheld a weight limit rule in a highrise condo. The rationale appears to be that occupants live in close proximity and large dogs could create a risk of injury in hallways and elevators as well as stairwells in the event of an evacuation due to fire.

Those considerations are not applicable to townhouse condos and a court might reject a weight restriction rule as being clearly unreasonable.

Q: Is it okay for the board to go out for a holiday dinner if each director pays for his or her own alcoholic beverages?

A: Treating the board to a restaurant meal at the expense of the corporation constitutes remuneration of the directors. The Condominium Act specifies that remuneration of directors requires the passage of a bylaw approved by an affirmative vote of owners of a majority of the units. Many owners may not agree with the provision of the benefit at their expense. A bylaw must specify the amount of the remuneration and could refer to an annual expenditure for the provision of meals for the board. The period of the remuneration is limited to three years.

Read the full article here.