February 2010

[Ally]

Canadian job gains better than Economists` predictions

There were 12,000 more British Columbians working in January, Statistics Canada reported Friday, continuing an upward trend for job growth that began last July.

The province`s unemployment rate also dropped slightly, down 0.2 per cent to 8.1 per cent for the month.

Nationally, 43,000 Canadians got back into the workforce in January, about three times more than what economists were expecting.

The national unemployment rate fell to 8.3 per cent from a revised 8.4 per cent in December.

The national results were better than the expectations of economists, who were calling for 15,000 additional people working last month and a jobless rate of 8.5 per cent.

This comes after a revised loss of 28,300 people from the job market in December. But it was the fourth employment gain in six months.

Read the full article here.

 

[Ally]

Commodities Bubble likely, Economist says

LONDON - Ultra-low interest rates are bringing a wave of speculation to commodities, inflating a bubble that will inevitably burst some markets, the head of a London-based fund management company said yesterday.

Jonathan Compton, managing director of long-only equity investment group Bedlam Asset Management, which has around US$620-million in assets under management, said oil, copper and some other commodities are vulnerable to sharp corrections.

Disappointed by losses in stock markets and bonds in the recession, investors had turned to commodities in the hope of better returns, with many borrowing at very low interest rates.

"You will see a fantastic unwinding of the speculative longs the moment rates move up," said Mr. Compton.

"Commodities most vulnerable will be the ones that are most widely held: copper and oil ... and some very funny financials."

Read the full article here.

 

[Ally]

Know your marginal effective tax rate

It`s 2010 --do you know what your marginal effective tax rate is? Sure, you are probably familiar with the concept of your marginal tax rate -- the amount of tax you pay on an additional dollar of income above a certain amount. For example, this year, the top federal bracket of 29% begins at $127,021. That means that for every dollar above this amount, you would pay an additional 29¢ in federal tax.

You may also be familiar with the concept of your average tax rate, which is typically much lower than your marginal rate. Your average tax rate is simply the amount of tax you pay divided by your total income. So, for the same individual who earns $127,021, her federal tax liability in 2010 would be just over $25,000, allowing for only the basic personal credit. This results in an average tax rate federally of about 20% -- significantly below her 29% marginal rate.

But there is a third type of rate you need to begin paying more attention to and that`s your marginal effective tax rate (METR).

Similar to the marginal tax rate, the METR goes a step further by comparing the amount of tax paid on an additional dollar of income, taking into account not only the statutory federal and provincial income tax bracket thresholds and rates, but also the impact of tax deductions, credits and income-tested government benefits.

A recent C.D. Howe Institute report, titled "Saver`s Choice: Comparing the Marginal Effective Tax Burdens on RRSPs and TFSAs" sheds an enormous amount of light on how complex our tax system actually is.

Read the full article here.

 

[Ally]

Ottawa says Housing Bubble not a concern

Finance Minister Jim Flaherty appears to have no immediate plans to tighten Canadian mortgage rules despite the advice of senior bankers concerned about surging home prices.

Mr. Flaherty said he sees no evidence of a housing bubble in Canada.

Easy access to risky mortgages was at the heart of the global financial collapse. Some are calling on Canada to err on the side of caution in ensuring the economy is protected from an American-style wave of mortgage defaults by homeowners.

The Globe and Mail reported Saturday that the heads of the country`s six largest banks privately told Bank of Canada governor Mark Carney in November that they fear a potential collapse in house prices and the ensuing potential for economic damage.

The banks reportedly want Ottawa to mandate tighter rules on mortgages so that buyers will need a larger down payment - as much as 10 per cent. They also want Ottawa to reduce the maximum amortization period of a mortgage to 30 years from 35.

Read the full article here.

 

[Ally]

Housing rebound in Canada spurs talk of new bubble

TORONTO—Dominic Carrasco first tried to sell his studio apartment here in January 2009. The only offers the 42-year-old massage therapist got were well below the 166,900 Canadian dollars he`d paid for it five years earlier.

Last month, Mr. Carrasco tried again. The condominium was snapped up by the woman in charge of posting the information to the real-estate listing site, for C$209,900, or US$196,003, 40% more than the highest bid last year.

"I couldn`t believe it," says Mr. Carrasco, who says he`s both relieved and unsettled by his change in fortune. "If my condo can go up that much in one year, it doesn`t make sense."

As the U.S. struggles to get out of its housing slump, its neighbor to the north faces a different challenge: Canada`s housing recovery has been so rapid that some here are worrying about a bubble.

Last Wednesday, a housing-price index for Canada`s six biggest cities posted its seventh straight monthly gain, showing home prices in November are now back to their prerecession peak. Another broader measure shows the average home price in 2009 hitting a record. Home building has picked up too, with housing starts in December jumping to their highest level since October 2008. Economists expect that growth to continue when January figures are released Monday.

Read the full article here.

 

[Ally]

Tilt toward me-first thinking undercuts economic recovery The good news, of course, is that the global economy narrowly avoided a second Great Depression in 2009.

Vincent Lauerman, president of Geopolitics Central, a Calgary firm that studies global energy issues, admits the odds didn`t look so promising 12 months ago.

"It`s quite amazing the degree of co-operation we`ve had between the major powers," says Lauerman, who spoke at a Canaccord investor seminar on Saturday.

"A year ago, things were looking rather glum. But wow, things are looking pretty good as of now."

Thanks to a massive, co-ordinated response by central governments -- including trillions of dollars in federal bailouts, $12 trillion of stimulus spending, and near-zero interest rates -- the worst global economic meltdown since the 1930s was brought to a halt.

The bad news? With Western economies still propped up by vast amounts of public money, the planet isn`t out of the woods yet. Far from it.

Read the full article here.

 

[Ally]

Tax changes you should know about

The fast approaching income tax and Registered Retirement Savings Plan, or RRSP, contribution deadlines have Canadians scrambling to gather their receipts, forms and other paperwork. The braver and more patient will complete those returns themselves. Others, who are less able or less willing to keep up with tax code complexities, will dump them on their accountants.

As in previous years, the Canada Revenue Agency, or CRA, has listed many of the major tax code and regulation changes on its website. Of particular interest this year are a slew of changes related to home ownership.

Revise your tax strategy regularly

According to one expert, all tax return filers, even those who farm out their preparation services, need to take an interest in major changes made to the tax code. "Your tax adviser is only as good as the information that you provide him," says Sonny Bernard, who oversees taxation services at the Montreal offices of Bessner Gallay Kreisman. "The more that you are aware of new taxation issues that may affect you, the better the questions that you will be able to ask, and thus the more guidance you will get."

According to Bernard, effective tax planning includes assessing the impact of changes as they occur but also regularly re-evaluating your own position. For example: "Last year, the government introduced Tax-Free Savings Accounts, or TFSAs, which entitle savers to contribute $5,000 a year into interest-free accounts," says Bernard. "However, those who were unable to contribute can carry the unclaimed amount forward to this year."

That said, according to Bernard, TFSAs are not necessarily for everyone. "Many people prefer to invest either in RRSPs or to use their savings to pay down their mortgages," he says. "Both strategies carry significant advantages. An RRSP contribution generally entitles the taxpayer to a significant refund. But because mortgage payments are made in after-tax dollars, paying down housing debt is often the safest, surest and most profitable investment that most people will ever make."

Read the full article here.

 

[Ally]

CREA Proposals would shake pillars of Real Estate

The Canadian Real Estate Association has proposed an overhaul of its rules in the wake of allegations by the federal competition watchdog that some of CREA`s practices are anti-competitive, according to internal documents obtained by the Financial Post.

The documents show the proposed amendments, which will be voted on on March 22, will ultimately give consumers some ability to decide how much they use a realtor on a transaction and allow consumers to conduct parts of a transaction without using a realtor.

The Ottawa-based association will present the proposed modifications to its bylaws to the representatives of the 100 real estate boards that comprise its membership.

The rule revision comes after the federal Competition Bureau filed an application with the Competition Tribunal five days ago. The dispute centres around the Multiple Listing Service system, owned by CREA, that handles about 90% of the real estate transactions in Canada each year.

A source familiar with the discussions said many of the proposed rule changes to be voted on are similar to those the Competition Bureau has already rejected.

Read the full article here.

 

[Ally]

The rush begins to steal a piece of MLS action

A new front has opened in the assault on organized real estate , as a surge of well-financed companies accelerate their plans to steal business from the country`s most popular listings site.

Emboldened by the Competition Bureau`s attack on the Canadian Real Estate Association (CREA) and its Multiple Listing Service (MLS), websites that have been operating on the fringes are ramping up their efforts to gather and market listings.

CREA runs the country`s most popular listings site at Realtor.ca, and is powered by the MLS data gathered by agents across the country. Web-ranking services place it as the 60th most popular site in Canada, tucked comfortably between the New York Times and the Bank of Montreal.

Realtor.ca is also the key marketing tool for the industry, pointing consumers toward real estate agents who earn billions of dollars of commissions from the referrals. Anyone who lists on the site must employ – and pay a commission to – an agent through the entire process, a rule that is at the heart of the Competition Bureau`s complaint against the association.

Competitors see an opportunity to draw listings toward their more technologically advanced sites by offering lower listing fees and a wider range of services than are available on Realtor.ca. They hope the industry follows the U.S. – where a relaxation in the country`s access to MLS data led to a slew of websites that offered enhanced listings, such as Zillow and Redfin.

Read the full article here.

 

[Ally]

Economic Outlook boosts Canadian dollar

The Canadian dollar (CAD/USD-I0.95-0.0007-0.07%) jumped to a two-week high against the U.S. currency Thursday, as a stable economic backdrop boosted investors` confidence and appetite for risk.

Overnight, the Canadian currency reacted positively to stronger than expected Australian jobs data, which sent the greenback lower, as well as a rise in commodity prices .

"We`ve seen quite a big move in some of the Canadian dollar crosses," said Shaun Osborne, chief currency strategist at TD Securities, referring to the Canadian dollar reaching its strongest level against the euro since December 2007.

"It continues to highlight just how Canada has really held up over the course of the last few weeks in the period of fairly significant uncertainty and broader market volatility ," he said.

"The financial sector is holding up relatively well, the fiscal situation in Canada being much more sustainable than some of its larger economy peers, and people like the Canadian dollar story at the moment," Mr. Osborne said.

Read the full article here.

 

[Ally]

Fraser call for private mortgage insurance

The Canadian government should sell Canada Mortgage and Housing Corp.`s mortgage insurance business and stop backstopping residential mortgages, which will eliminate the risk to taxpayers of having to pay for losses on home loans, according to a report from the Fraser Institute.

The Canadian government, through CMHC, provides most of the mortgage insurance in Canada. In addition, the government offers guarantees on the insurance sold by CMHC and its private competitors, so taxpayers bear the risk should a housing crash lead to losses on mortgages that are more than the insurers can handle.

That risk is real, according to the study by the conservative think tank. The study points out that in the early 1980s the CMHC piled up losses in its insurance business amid a tough mortgage market , and the government had to inject more than $200-million to eliminate the deficit in the insurance fund.

"It`s not like we can pretend it will never happen, because it actually has happened," said Brett Skinner, the Fraser Institute`s director of insurance policy research. "We`re not immune to this and we know that there are business cycles that occur regularly, so we have to do what we can on the policy front to minimize taxpayer exposure to such liabilities."

The think tank, which according to its website appeals to those who "support greater choice, less government intervention, and more personal responsibility," argues that the experience in Australia shows privatization works and doesn`t hurt the housing sector.

Read the full article here.

 

[Ally]

No U.S.-style market seen in MLS push

The Competition Bureau`s move to force the real estate industry to loosen its rules governing the multiple listing service will not bring to Canada the huge range of house-hunting tools available in the United States.

That`s because the bureau`s actions - if successful - are designed specifically to let sellers cheaply list their properties on MLS and avoid full-service commissions, not to broaden the availability of MLS data.

The bureau`s challenge, to be heard by the quasi-judicial competition tribunal, addresses the Canadian Real Estate Association`s (CREA) rules that force sellers to buy a full range of agents` services, and thus pay full commissions, if they list on MLS.

The bureau decided it would not push for further changes that would allow brokers or others to repackage MLS data with ancillary data, creating the kind of feature-rich websites that Americans have grown to love.

Currently, Canadian brokers cannot take MLS listings, enhance them with more information, and provide that to the public on a searchable website.

Read the full article here.

 

[Ally]

Investors awake and tired of sitting on their cash

There are signs that retail investors are beginning to move substantial amounts of money back into the stock market, providing a possible safety net under equity prices and beefing up Canada`s underweight retirement accounts in the process.

It might seem contrary to logic for small investors to jump into the market just as it`s dropped between seven and eight per cent over the past month in Canada and the U.S. But it`s entirely consistent with history, points out economist Derek Holt at Scotia Capital, one of those who`s pointed out the return of retail investors to the stock market.

Small investors, sometimes derided by professional money managers for their poor sense of market timing, in fact, do take a lot of time to react to turning points in the stock market, Holt has noticed.

Their behaviour during the past couple of decades strongly suggests it takes about six to nine months after the market has a major change of direction for small investors to react, which means that they should be jumping aboard last year`s market uptrend just about now.

And that`s exactly what is happening, Holt and Benjamin Tal, an economist at CIBC, have found. In separate reports over the past week, they`ve noted that Canadian investors are moving back into the stock market, beginning to deploy a mountain of low-yielding cash they built up after the global financial crisis frightened many into avoiding the risks of investing.

Read the full article here.

 

[Ally]

Chinese investors eye Canadian housing boom

Forget about competing with the family up the street the next time you bid on a new home – the real competition may be sitting at a computer in Shanghai.

With their government worried about a domestic housing bubble, more mainland Chinese investors are looking toward Canada`s booming housing market as a haven for their dollars.

"The world continues to get smaller and smaller," said Don Lawby, president of Century 21 Canada Ltd. "There`s investment coming from all over the world, but especially from countries that have any sort of restriction on ownership."

Chinese officials – alarmed by housing prices that increased by 7.8 per cent in the country`s 70 biggest cities in 2009 – imposed a sales tax late last year on homes sold within five years of their purchase, in a bid to dampen speculation.

This has investors casting their eyes out of the country, with some Chinese entrepreneurs offering tours in the United States so investors can see properties in person.

Read the full article here.

 

[Ally]

U.S. facing bleak outlook on property, new jobs

As the U.S. Congress pushes ahead with another stimulus package, two sobering government reports paint a picture of an economy that still faces huge hurdles - absorbing losses in commercial real estate, and creating jobs.

Half of the roughly $1.4-trillion (U.S.) worth of commercial loans coming due over the next four years are already "under water" and could trigger bank losses reaching as much as $300-billion per year, according to a Congressional oversight panel report released yesterday. A loan is considered underwater when a borrower owes more than the underlying property is worth.

The panel, headed by Elizabeth Warren, said it is "deeply concerned" that faltering loans on malls, condos and office buildings could cause hundreds of small and mid-sized banks to fail, dragging down the broader economy.

"A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American," the 189-page report concluded.

"In the worst case scenario, hundreds more community and mid-sized banks could face insolvency ... Their widespread failure could disrupt local communities, undermine the economic recovery, and extend an already painful recession."

Read the full article here.

 

[Ally]

Foreign investors flock to Canada

As the sovereign debt crisis fuels a flight to quality, Canada is increasingly looking like a favourable landing spot for foreign capital, experts say.

"We`re not problem-free, but on a relative basis we look great," said Mark Chandler, fixed-income strategist at RBC Dominion Securities Inc.

Canada`s financial attributes today include one of the strongest credit ratings in the world, relatively low debt as a percentage of gross domestic product, a stable currency, a resilient banking system and a flexible monetary position.

Foreign investor interest in Canadian debt - and the currency needed to buy it - has been growing during the sovereign debt crisis, kicked off last year by Dubai. Greece`s struggle to manage its debt appears to be accelerating the trend.

The Canadian dollar rose against major currencies yesterday, gaining more than a cent on the U.S. greenback. The rise followed news from a summit of European Union leaders in Brussels that they would "take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area as a whole."

Read the full article here.

 

[Ally]

Home prices on course to hit a record high in 2010

A rush to buy, sparked by expectations of higher mortgage rates and the pending harmonized sales tax in Ontario and British Columbia, is fuelling an ever sharper rebound in the real estate market.

Already an extraordinary turnaround story in the wake of the recession, new home construction is picking up and resale prices are now forecast to hit fresh records this year. In some areas, such as Vancouver, the country`s richest market, prices are now at the point where detached homes are out of reach for many home buyers – even with extremely low interest rates .

Home prices in Canada will surge to new highs this year, led by strength in the Western provinces and Quebec, says a new forecast by the Canadian Real Estate Association. The group sees average prices rising to $337,500, up more than 5 per cent from last year, while sales activity will also reach a record before cooling next year, the Canadian Real Estate Association (CREA) predicted Monday.

The projection is likely to raise the temperature on the debate over whether the recent price increases are sustainable, given that the Canadian economy is only just emerging from a sharp recession, job creation remains muted and interest rates are set to rise. Home prices in December were 19 per cent higher than they were a year earlier, a startling jump that has alarmed the country`s top bankers.

Some bankers have privately urged the government to cool the market by tightening the rules for mortgages.

Read the full article here.

 

[Ally]

The making of a Housing Bubble

A bubble is a bit like the famous description of hard-core pornography uttered by the late U.S. Supreme Court justice Potter Stewart, who could not come up with a definition: "I know it when I see it."

Or do we?

Bubbles remain hard to define, difficult to measure and, like recessions, can only be accurately assessed after they have burst. Economists have wrestled with bubbles for generations, but have yet to devise an adequate scientific means of analyzing them, comparing them or providing us with an early warning system that would safeguard from their worst effects.

But lately, bubbles – or bubble fears – seem to be everywhere. From Chinese real estate to U.S. Treasury bills to global commodities, analysts point to a flood of easy credit that has helped to inflate values.

Now, soaring prices are triggering bubble fright on the Canadian housing front.

Read the full article here.

 

[Ally]

Ottawa weighs stricter mortgage rules

Ottawa is considering new rules that would force banks to use tougher criteria to evaluate mortgage borrowers, a move to ensure that consumers aren`t taking on more debt than they can handle when they buy a home .

The key proposal under discussion would see the creation of new conditions the banks would have to follow when determining whether a customer can afford a mortgage, according to sources. Those rules would require banks to consider whether a person who takes out a variable-rate mortgage on a home can continue to make the payments if interest rates were to go up significantly.

Finance Minister Jim Flaherty is under pressure from a number of experts, including executives of major Canadian banks, to take action in the face of surprising strength in the country`s housing market, which shows no signs of letting up. The fear is that many of the borrowers who are buying homes because of unusually low mortgage rates will struggle with their monthly payments when interest rates rise. That could have a dampening effect on the broader economy by prompting consumers to cut back their spending as they direct all their money toward their mortgages.

Senior bankers have privately urged government officials to increase the minimum down payment on homes from 5 per cent, or shorten the maximum time over which borrowers can spread out their payments, which is currently 35 years.

Mr. Flaherty and officials within the Finance Department and Canada Mortgage and Housing Corp. have been meeting with various players in the mortgage industry to consider options.

Read the full article here.

 

[Ally]

Clock ticking for interest rate hikes

It’s probably time to start the countdown on interest rates going up.

The Bank of Canada only pledged -- conditionally -- to keep its record-low lending rate until the end of the second quarter, so that leaves us with slightly more than four months before the housing market falls apart. At least that’s what some national magazines and economists predict will happen when rates start to rise.

“Some people say they could go up in April, but I don’t buy that,” says Benjamin Tal, senior economist with CIBC World Markets and one of the more sane voices out there. He predicts a pullback in housing, but not the collapse we’ve seen in the United States.

So, what do you do in the face of this inevitable march of interest-rate hikes coming our way, likely at the Bank of Canada’s first meeting in July?

“I think people will start locking in their rates very soon and that’s already happening,” says Mr. Tal, referring to the variable-rate crowd that has mortgages tied to prime. “The five-year [fixed] rate [mortgage] will be moving [up] well ahead of the bank rate in anticipation of an increase.”

Read the full article here.