July 2011 Canadian Economic Fundamentals

[Ally]

Housing correction coming: Sharp or slow?




The Canadian housing market is due for a correction, but it will likely be a slow decline rather than a sharp drop, says a report from the Canadian Imperial Bank of Commerce.




`While house prices are likely to adjust as interest rates eventually climb, the national pace of any correction is likely to be gradual,` Benjamin Tal, deputy chief economist at CIBC, said in a report released Thursday.




Still, Tal said the market will not crash abruptly because the two key triggers for a major drop are absent from the market.





Read the full article here.

 

[Ally]

If you have a partner, you need a contract




Benjamin Franklin once wrote, `An ounce of prevention is worth a pound of cure.`




Although this is often referred to in the context of maintaining good health, it applies equally in business and personal relationships. If you plan on investing or living with someone else, think about having a contract done first.




Real-estate investments usually start with friends or business colleagues getting together to invest when they don`t have the money to do it alone. The goal is to find the right property, fix it up a little, select good tenants, develop positive cash flow and then sell down the road for a profit.





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[Ally]

Housing starts up 1.7% in June




OTTAWA ` Home construction rose more than expected in June, led by a jump in single-unit activity, Canada Mortgage and Housing Corp. said Monday.







The seasonally adjusted annual rate of housing starts was 197,400 units last month, up 1.7% from a revised 194,100 units in May, CMHC said. The April figure was also revised to 194,100 units.







Economists had expected between 184,000 to 185,000 starts in June.







`Housing starts increased in June due to an increase in single and multiple starts in Ontario,` said CMHC chief economist Bob Dugan. `The revised numbers show that housing starts have been above their trend line since March. However, we expect housing starts to move back towards levels consistent with demographic fundamentals in the near term.`





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[Ally]

Interest rates have been kept low to stave off recession




MONTREAL - For many, it is a mystery as to why interest rates are so low and what will possibly cause them to rise one day. This question has challenged investors for decades.




A country's central bank generally sets interest rate policy.




In Canada, it is set by the Bank of Canada Governing Council which, at the present time, is chaired by governor Mark Carney, while in the U.S. it is set by the Federal Open Market Committee, which is chaired by Ben Bernanke.




The Bank of Canada's role is to keep inflation within their desired range. One of their main tools for controlling inflation is to increase or decrease the cost of money into the economy through the lowering or raising of interest rates.





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[Ally]

Housing starts rise on apartment, condo gains




A jump in the number of housing starts in Ontario last month helped boost the national seasonally adjusted rate to 197,400 units in June, Canada Mortgage and Housing Corp. reported Monday.




The rate was up from a revised 194,100 units in May and 194,100 units in April, also revised upward, the federal Crown corporation said in its monthly report.





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[Ally]

Euro zones wrestles to stop crisis from reaching Italy




European officials tried Monday to prevent the euro zone's debt crisis from spilling over into bigger economies such as Italy and Spain, as disagreements delayed a second bailout for Greece.




Intense debate over how, and how much, banks and other private investors can contribute to a new rescue package for Greece has unsettled financial markets in the currency union, most dramatically in Italy, as rating agencies warn that even a voluntary involvement will likely be seen as a partial default of Greece on its massive debts.





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[Ally]

Prices take a hit when U.S. economy slows, not exports




`When the U.S. sneezes, Canada catches cold.` I don`t know who came up with that expression, but it`s been used pretty much every time that someone tries to connect bad U.S. economic news to Canada. A case in point is last Friday`s U.S. labour market release.




The links between the U.S. and Canadian economies are certainly strong enough, but they are also widely misunderstood. For example, the notion that a U.S. recession is passed on to Canada by means of a reduction in our net exports is simply wrong.







About 30 per cent of Canadian output is exported, and roughly 75 per cent of exports go to the U.S., which means that some 20-25 per cent of Canadian GDP is exported to the United States. If U.S. demand for Canadian exports were proportional to U.S. income, a 1 per cent decline in U.S. GDP would show up as a 0.2-0.25 per cent decline in Canadian output. (See also here, where I estimate that everything else held constant, a 1 per cent decline in U.S. GDP produces a 0.3 per cent decline in Canadian GDP).





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[Ally]

Bank of Canada Second Quarter 2011 Survey Flags improving economic conditions




The Bank of Canada simultaneously released both its Business Outlook Survey (BOS) and its Senior Loan Officer Survey (SLOS) for the second quarter of 2011 this morning. The BOS survey encouragingly indicated that the activity seemed to be strengthening along a number of key dimensions. As well, the BOS indicated an easing in credit conditions to record low levels from a borrower's perspective. From a lender's perspective, as reflected in the separate SLOS survey, the picture of credit availability improved as well with availability continuing to widen across the various firm categories. (The BOS survey was conducted during the period May 24 to June 16, 2011 while the SLOS survey reflected opinions for the period June 13 to 16, 2011.)




The simultaneous release of the BOS and SLOS surveys provided a read on credit conditions from both the borrower's and the lender's perspective, respectively. The two surveys suggested that easier credit conditions are becoming increasingly more widespread. The diffusion measure in the BOS (i.e., the difference between those seeing tighter versus easier conditions) dropped to -24 in the second quarter of 2011 from -6 in the first quarter of the year and represented the largest negative value on record going back to the fourth quarter of 2001. This mainly reflected those respondents who saw conditions tightening dropping to 2 from 14 during this period although those who saw conditions easing rose to 26 from 21.





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[Ally]

Calafia beach pundit





This chart helps to put the European debt crisis`which is focused on the debt of Portugal, Ireland, Italy, Greece and Spain`into perspective, since the yield on 2-yr government bonds is a good proxy for the market's guess as to the likelihood and magnitude of default. The real risk of default is concentrated in Greece, Portugal, and Ireland.







An investor today can choose between buying Greek bonds that are highly likely to default in some fashion, or he can buy rock-solid German bonds. An efficient market would leave the investor indifferent to the choice. Assuming that Greek bonds will lose 40% of their value in a restructuring tomorrow, then buying them today at a yield of 31% would produce a total return comparable to what could be had by buying a 2-yr German bond today. Here's the math: 0.6 * (1.31)^2 = 1.03, which is slightly more than the 2.53% total expected return on German 20-yr bonds. So one could argue that Greek bonds are priced to an almost certain and immediate default (or "haircut") of 40%. The same math suggests that Portuguese and Irish bonds, with yields of around 17%, are priced to an almost certain and immediate default of about 25%. (There are other ways of calculating the likelihood of default, but this is the simplest.)







Read the full article here.

 

[Ally]

The Italian debt chart that everyone needs seared onto their brain

Source: http://www.businessinsider.com/who-holds-italian-debt-2011-7

 

[Ally]

Analysis: Condo boom may avoid crash on demographics



Elevated levels of unsold condos were one factor prompting Bank of Canada Governor Mark Carney to warn last month about "the possibility of an overshoot in the condo market in some major cities





But analysts said the building surge reflects changing demographics and evolving cities. In addition to first-time homebuyers, condos have also become popular for retiring baby boomers.





Immigration has also underpinned the rapid build-up. The booming market is concentrated in the heavily populated and pricey cities of Vancouver and Toronto, destinations for many of the more than 200,000 people who move to Canada each year.





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[Ally]

How we sell your apartment building





A video showing the unique way DALA sells apartments.





Watch the video here.

 

[Ally]

Canadian businesses feelin upbeat




Canada is outpacing many other countries on the hiring front, as companies grow optimistic about their sales prospects and worry they won`t have enough people to keep up with demand.




Against a backdrop of uncertainty ranging from the sluggish U.S. rebound to Europe`s debt troubles and fears that China will move too aggressively against inflation, the domestic economy is chugging along, seemingly outperforming expectations.





Read the ful article here.

 

[Ally]

Hudson luxury home sells for $3.4 million





MONTREAL - A posh Hudson estate initially priced at $6.9 million in 2008 was purchased for less than half that amount Tuesday during Quebec`s first absolute auction.




The sale of the eight-bedroom, 17,000 square foot waterfront estate for $3.4 million includes a 10 per cent commission for the U.S.-based Grand Estates Auction Co. which organized the event.




A spokesperson for Great Estates said the Montreal-area mansion, which features an indoor pool, separate guest house and even a secret passage, attracted 23 bidders, while generating more than 500 inquiries and 200 showings.






Read the full article here.

 

[Ally]

Housing market facing 'modest' correction over next two years: TD





OTTAWA ` Canada's housing market is set to undergo a "modest" correction, with resale activity poised to drop 15.2 per cent and average prices likely to fall 10.2 per cent over the next two calendar years, according to a report released by TD Economics Wednesday.







"A combination of more subdued job and household income growth, rising interest rates, the recent tightening in borrowing rules for insured mortgages and fewer first-time home buyers are expected to be the chief culprits behind the slowdown," said the report, prepared by deputy chief economist Derek Burleton and economist Sonya Gulati.







But the national numbers will hide considerable regional differences, they added.






Read the full article here.

 

[Ally]

Demographics may help Canada condo boom avoid crash





Canada's booming condominium market, which has filled the skylines of its biggest cities with cranes and prompted a warning from its central bank, may well avoid the type of crash that has hobbled the industry in the past.




While inventories of unsold condominiums are trading well above historically averages, industry executives and analysts say demographics, immigration and limited land in the biggest markets all provide long-term support.




With $500,000 fixer-upper homes out of reach for many Vancouver and Toronto home buyers, condos also remain their only route to property ownership.






Read the full article here.

 

[Ally]

Scale back Canada gas projects, study urges




Canada should limit approvals for new natural gas projects and step up environmental enforcement on shale gas developments, according to a study released Thursday by two environmental groups.




The Pembina Institute and the David Suzuki Foundation say increasing the use of natural gas as a substitute for dirtier fuels such as coal may bring unwelcome environmental effects and not help meet targeted cuts in greenhouse gas emissions.





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[Ally]

We're squandering the biggest economic opportunity in our history




Will Canada squander the biggest economic growth opportunity since Confederation?




That's the key question facing federal Natural Resources Minister Joe Oliver, Alberta Energy Minister Ron Liepert and his provincial counterparts as they gear up for Monday's energy summit in Kananaskis.




Oh, you won't hear the question posed quite that explicitly. Instead, there will be a lot of fuzzy talk about forging a national energy strategy and finding ways to streamline regulatory processes.




That's all well and good. There's already far too much duplication between the provinces and the feds, and that must be addressed. But beyond the bureaucratese, the key issue is pretty simple, and it boils down to this:




Unless Canada gets its act together, and builds the energy infrastructure -pipelines and export terminals -that are needed to tap into Asia's fast-growing markets, it risks losing out on trillions of dollars of future revenues.





Read the full article here.

 

[Ally]

Housing market hot streak coming to an end




The 15-year gravity-defying run of house prices in Toronto is at an end, according to a Star survey of leading economists and Canada`s five major banks.




Analysts agree the cycle of exceptional appreciation will be broken in 2012, but disagree about the severity of the downturn ` some believe house prices will flatline, others forecast a drop of up to 25 per cent by 2013.




If that forecast comes true, it will put an end to a spectacular run-up that saw prices more than double in cities such as Toronto since 1996





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[Ally]

Should you sell your home on your own?







Everyone wants to sell real estate these days. That is what happens when you have one of the hottest markets in North America.




It means new choices for consumers when buying or selling, but it appears more than 90 per cent of Canadian home sales still involve a professional real-estate agent. The statistic is the same in the United States, where discount brokerages have been operating for the past 10 years. The question is, why?




It is easy to attack real-estate agents and the commissions of up to 5 per cent for buying and selling. But what do you get with the alternatives?





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