December 2009

[Ally]

Canada may require higher Mortgage downpayments: Report

OTTAWA (Reuters) - Canada may require people taking out mortgages to come up with a larger downpayment if it looks like indebtedness is getting too high, Finance Minister Jim Flaherty said in a interview released late on Sunday.

Flaherty`s remarks echoed concerns voiced last week by Bank of Canada Governor Mark Carney about households` ability to pay down debt. Household debt relative to income has risen sharply though it is below U.S. and British levels, and Carney warned consumers not to assume that interest rates will stay low.

"If we see further evidence that there is excessive demand in the housing market or that there`s an indication that people are taking on obligations that they will not be able to handle in the future when interest rates rise, then we will take some action," CTV television quoted Flaherty as saying.

"The likely action we will take is to increase the size of the downpayment from 5 per cent to a higher number, reduce the amortization -- bring it down from 35 years to something less."

Shortening the amortization period would mean mortgage payments would have to go up to pay the loan off more quickly, and might make people think twice about taking on more debt.

Read the full article here.

 

[Ally]

Canada`s Auto Industry set to recover in 2010

OTTAWA — Canada`s auto industry will return to profitability in 2010 after enduring a year that shook the sector to its core, the Conference Board of Canada said in a report Tuesday.

The board forecasts auto manufacturing, a cornerstone of southern Ontario`s manufacturing hub, will deliver earnings of $263 million in 2010, after suffering a pre-tax loss of $2.3 billion in 2009.

"The Canadian auto industry appears to have turned a corner in the second half of 2009 and is expected to return to profitability in 2010," said board economist Sabrina Browarski.

"However, production will remain below historical levels. Manufacturers will have to make concerted and ongoing efforts to streamline product lineups, control costs, and innovate to maintain profitability."

Despite the Canadian sector`s relatively quick return to profitability, the fallout of the financial crisis will continue to be felt for years in the U.S., "creating a ripple effect that will be acutely felt by Canadian motor vehicle exporters well into the medium term," Browarski said.

Read the full article here.

 

[Ally]

Economy Recovering at a weaker pace than expected

OTTAWA — Canada`s economy rose 0.2 per cent in October, the second straight monthly gain, Statistics Canada reported Wednesday, but growth was at a weaker pace than expected.

Analysts were expecting a 0.3 per cent advance during the month, following an unrevised 0.4 per cent gain in September.

"Production increased in most major sectors, as was the case in September," the federal agency said. "A significantly higher level of activity for real estate agents and brokers provided the largest contribution to the . . . gain in service industries. There were also increases in retail and wholesale trade as well as in some tourism-related industries."

The existing homes market jumped 7.2 per cent as sales "grew significantly in several parts of the country," the agency said.

Construction activity was up 0.1 per cent during the month.

Read the full article here.

 

[Ally]

Comment: Flaherty bombs on housing bomb

Think of Canada`s housing market as a ticking time bomb. Think of Finance Minister Jim Flaherty as the unlucky bomb disposal expert called in to deal with the problem.

Flaherty is moving slowly - oh, so slowly - to snip a wire here and there in an attempt to defuse the mess. Problem is, the ticking is getting louder by the minute.

If the bomb explodes, home prices could plunge. In the worst case, plunging prices could bring on an economic downfall such as the United States, Ireland and Spain suffered after their real estate markets collapsed.

But to make Flaherty`s challenge even more difficult, he still has to convince most people the bomb even exists. At the moment, he`s being cautious in how he describes the problem. He`s being even more cautious in how he deals with it. Perhaps too cautious.

Flaherty told Canwest News Service last week that he`s monitoring the real estate market and is ready to intervene if it reaches "irrational" levels. The Finance Minister says he may require homebuyers to put down higher down payments. He may also force them to amortize their mortgages over shorter periods.

No doubt these are excellent ideas. But Flaherty has already tried them.

Read the full article here.

 

[Ally]

Housing Bubble Theorists abound

What a difference a year makes. Last November, the economy was said to be on the verge of the next Great Depression, sucking the life out of a housing market that was coming off a record year in 2007.

Flash forward 12 months. The Canadian Real Estate Association said yesterday existing-home sales in November were up 73% from a year ago and prices rose 19% during the same period. The fear now is that the housing market is too hot, stoked by record-low interest rates.

Among economists, all the talk is of a bubble forming. David Rosenberg, chief economist with Gluskin Sheff & Associates Inc., kicked off the discussion with his note that suggested housing values were 15% to 35% above where they should be based on fundamentals such as personal income and residential rents.

Bank of Montreal`s Douglas Porter, a reluctant addition to the bubble economist ranks, was still hedging his bet.

"We`re on the bubble of a bubble," said Mr. Porter, who is worried there will be a stampede to buy homes ahead of a central bank rate hike that could come as early as July 2010 and the implementation of the harmonized sales tax in British Columbia and Ontario that takes effect a month later.

Read the full article here.

 

[Ally]

Flaherty ready to deflate any Housing Bubble

OTTAWA - The federal government is ready to clamp down further on mortgage rules if the boom in the Canadian housing market turns into a bubble, says Finance Minister Jim Mr. Flaherty.

In an exclusive interview with Canwest News Service and Global National, Mr. Flaherty said the government is closely monitoring the red-hot housing market for signs that it is reaching "irrational" levels.

"The reality is we have low mortgage rates . . . so we can expect some upward pressure on housing," he said. "That`s OK, as long as it doesn`t become a bubble. We`re watching that."

If necessary, the government is prepared to further tighten the conditions under which the Canada Mortgage Housing Corporation insures mortgages, the finance minister said.

In July 2008, amid the fallout from the subprime mortgage crisis in the United States, the Finance Department announced that CMHC would shorten the maximum amortization period that it will accept to 35 years from 40, as well as require a down payment of at least 5% of the value of the home. The new rules, which came into effect in October 2008, effectively made it more difficult for prospective homeowners to receive government-backed mortgages.

Read the full article here.

 

[Ally]

Stimulus and Housing give Economy One-Two Punch

The Canadian economy strung together back-to-back months of growth for the first time in almost two years, but economists warn that consumers and government stimulus have been "carrying the ball" by fuelling a booming real-estate market that is ultimately unsustainable.

Canada`s economy grew a modest 0.2% in October, the latest figures from Statistics Canada show. That followed a 0.4% increase in September.

Stewart Hall, economist with HSBC Securities Canada, said the country`s real-estate market has been a major factor, fuelling spending in everything from renovations to new furnishings and even new cars to go in new garages.

"Financial, insurance and real estate have continued to be that pillar of strength, consistently showing growth through much of this economic recession," he said. "And we know that is the housing market, a reflection of the remarkable strength in the existing-home sales market."

October figures from Statistics Canada show a 7.2% rise in existing-home sales activity from real-estate agents and brokers. However, construction activity was up only 0.1%.

Meanwhile, after posting a 1% rise in September, the key manufacturing category fell flat in October.

Read the full article here.

 

[Ally]

Lumber could be the new Oil

Shares of several of Canada`s largest lumber exporters have skyrocketed in the past two months as new building codes in China allowing wood in construction have cracked open a previously inaccessible market for Canada`s long-suffering forestry industry.

Since Oct. 1, shares in International Forest Products Ltd. have soared 58.3%, while Canfor Corp. and West Fraser Timber Co. Ltd. shares jumped 31.4% and 28.4%, respectively.

The advances come in the wake of quiet implementation of new wood-frame construction codes in Shanghai in September. Lisa Raitt, Minister of Natural Resources, later attended a launch in the city in early November. "We are confident that the Shanghai Local Code provides a framework that will be easily adaptable to other cities and provinces across China," she said.

David Watt, a currency strategist with RBC Capital Markets, sees this development as a breakthrough for both the lumber industry and the loonie. "This is an opportunity the Canadian lumber industry has been dreaming about for years," he said. "This gives us a chance to take advantage of a huge market that has suddenly overcome an aversion to your product."

And the price of lumber has so far reflected that excitement, with lumber futures on the Chicago Mercantile Exchange for January 2010 rising 21% since October, closing Wednesday at US$231.

Read the full article here.

 

[Ally]

Dollar surges to highest level since October

The Canadian dollar Monday surged to about 96.16 cents U.S., or the highest level since last October, after the international oil price rose to $81 U.S. and China`s economic growth rate appeared to be moving up to 10 per cent at an annual rate with strong gains in its manufacturing industry.

Key commodities, besides oil, continued to climb in world markets. Copper for March delivery gained two per cent to $3.41 U.S. a pound on the New York Mercantile Exchange after touching $3.429 U.S. a pound, the highest price since August, 2008. Gold was up 2.15 per cent, or $23.60 U.S., to $1,123.20 U.S. an ounce.

Read the full article here.

 

[Ally]

Falling Job anxiety boosts Consumer confidence: RBC

OTTAWA — A marked decline in Canadians` anxiety over losing their jobs and a diminishing inclination to delay major purchases helped boost consumer confidence in December, according to a survey released Monday by Royal Bank of Canada.

RBC`s consumer outlook index rose to a reading of 108 in December from 100 in November, when the survey was first launched, its poll of 1,018 Canadians showed.

"We think the numbers are consistent with what we see in the data flow but also consistent with our view of cautious optimism toward the economy," RBC chief economist Craig Wright said.

"There is still considerable uncertainty in terms of where we are but less uncertainty in terms of where we are going."

That uncertainty is reflected in Canadians` divided assessment of the state of the economy, with 51 per cent saying it`s in good shape and 49 per cent saying the opposite. In November, optimism was higher, at 56 per cent.

It was also reflected in the polling about job security. The percentage of Canadians saying a member of their household is worried about losing their job or being laid off fell from 27 per cent to 21 per cent as job markets firmed in the second half.

Read the full article here.