February 2010

[Ally]

There`s no housing bubble, just an overheated market

Are home prices getting ahead of themselves in Canada? Almost certainly. Can big price gains go on much longer? Probably not.

There`s little doubt about this view. It`s shared by economic analysts, bankers and even by Canada`s real estate industry itself. In fact, the Canadian Real Estate Association has just predicted a national drop in home prices next year.

So there`s no doubt that Canada`s housing market is in a bubble, right?

Wrong. All the agonizing over a possible bubble is actually very strong evidence that we don`t have one.

We do have an overheated market, and that means prices could stall or ease down within the next year. But that`s exactly what they should do in a normal real-estate cycle, points out economist Michael Gregory of BMO Capital Markets. After all, widespread worry about a bubble is the opposite of what drives a real one: the disappearance of normal caution, replaced by a near-universal delusion that no matter how costly an asset, it`s a good buy because prices can only go higher.

This delusion can last for years, as with the stock market`s tech bubble. It was 1996 when U.S. Federal Reserve chairman Alan Greenspan warned of "irrational exuberance" in the market. But prices kept soaring until the collapse began in 2000.

Read the full article here.

 

[Ally]

New-home prices climb 0.4% in December

New-home prices continued to rise in December, Statistics Canada reported yesterday, as low mortgage rates helped spur purchases.

The federal agency`s new housing price index rose 0.4 per cent during the month, matching November`s increase.

The December rise, the sixth straight monthly increase in new home prices, was above economists` forecasts of a 0.3-per-cent gain. Still, on an annual basis, prices were down 0.9 per cent from December 2008.

Out of 21 metropolitan centres survey, only Calgary and Victoria recorded declines during December - both falling 0.2 per cent.

The biggest gains were Ottawa-Gatineau, up 0.8 per cent, followed by St. John`s, Toronto and Oshawa, Ont., and Vancouver - all rising 0.7 per cent.

Read the full article here.

 

[Ally]

Claiming your home renovation tax credit

Click here to see the Canada Revenue Agency fact sheet.

 

[Ally]

Resale housing forecast extended to 2011

OTTAWA - February 8, 2010 - The Canadian Real Estate Association has revised its forecast for home sales via the MLS® Systems of Canadian real estate boards in 2010, and extended the forecast to 2011.

With Canadian economic growth rebounding from the recession, the unusually severe decline in sales activity in early 2009 is not expected to recur in 2010. Annual activity in 2010 is forecast to be well above the previous year`s level as a result.

CREA forecasts national activity will reach 527,300 units in 2010, up 13.3 per cent from 2009. This would represent a new annual record, standing 1.2 per cent above the previous peak in 2007. Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario.

To read the full article, click here.

 

[Ally]

Ottawa toughens mortgage rules

OTTAWA -- Amid warnings about "reckless" housing speculation and overextended homebuyers, Finance Minister Jim Flaherty said Tuesday the federal government would make it tougher for people to get a mortgage.

He said at a Tuesday morning media conference that Ottawa would require all borrowers meet standards for a five-year fixed-rate mortgage, even if the buyer wants a variable rate mortgage. This measure would apply to all first-time buyers. Homeowners with insured mortgages are not affected, unless they choose at a later date to extend the amortization or look to refinance.

Other rule changes unveiled would affect people looking to refinance their mortgages -- lowering the maximum amount that can be withdrawn to 90% from 95% -- and place a 20% minimum down payment for government-backed mortgage insurance on non-owner-occupied properties. This would affect people looking to buy condo units or duplexes for rental income. Previously, only a 5% down payment was required.

But Mr. Flaherty said the changes, to take affect April 19, were not meant to stop a possible housing bubble, as some warned was upon us unless Ottawa was prepared to act.

"There`s no clear evidence of a housing bubble, but we`re taking proactive, prudent and cautious steps today to help prevent one," Mr. Flaherty said.

Read the full article here.

 

[Ally]

New Mortgage Rules: Economists` reactions
Federal Finance Minister Jim Flaherty announced Tuesday new rules designed to make it tougher for first-time homeowners to get a mortgage, but stopped short of confirming a housing bubble in Canada. Here`s what Canada`s friendly neighbourhood economists have to say:

Derek Holt and Karen Cordes, economists, Scotia Capital

These rule changes will combine with several other factors to raise the odds of lower house prices arriving by 2010H2 and into 2011 and should probably give rise to lower forecasts for resales and starts. Those other factors include the return of supply through rising housing construction and resale listings, Scotia Economics` forecast for 200bps in higher short-rates and at least half that for 5 year fixed mortgages, and the introduction of the HST in Ontario and BC this summer. It seems to us that if one gets pre-approval on or before April 18th (one day before the new rules) then the new rules don`t truly apply until the rate commitment has expired up to three months later. That would mean that the Spring housing market has been spared, and the timing for the rules to begin to have a material impact will be pushed off into 2010H2.

Read the full article here.

 

[Ally]

Summary of Flaherty`s mortgage changes

On Tuesday, the Department of Finance announced three changes to the standards governing government-backed mortgages, that come into force April 19. Here are a summary of the changes.

QUALIFYING FOR A FIVE-YEAR RATE

The adjustments to the mortgage framework will require mortgage insurers to ensure that new borrowers qualify for a five-year fixed rate mortgage when calculating the gross debt service and total debt service ratios. The measure is intended to protect Canadians by providing them with additional flexibility to support mortgage payments at higher interest rates in the future.

LIMIT THE MAXIMUM REFINANCING

Borrowers seeking financial flexibility can currently refinance their mortgage and increase the amount they are borrowing on the security of their home up to a limit of 95% of the value of the property. The adjustment will lower the maximum amount of the mortgage loan in a refinancing of a government-backed high-ratio mortgage loan to 90% of the value of the property, consistent with the principle that home ownership is a tool for savings.

Read the full article here.

 

[Ally]

Canadian job market gains 43,000 in January

There were 43,000 more Canadians working in January, Statistics Canada said Friday, about three times more than what economists were expecting.

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

The results were better than the expectations of economists polled by Bloomberg, who were calling for 15,000 additional people working last month and a jobless rate of 8.5%.

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.

The employment growth in January was largely driven by women and youth. It was the first notable increase in employment among young people since the jobs slump started in the fall of 2008, Statistics Canada said.

Read the full article here.

 

[Ally]

CREA says existing home sales rose 58% from a year earlier

OTTAWA - Canadian home resales made a rebound last month and lifted from the lowest levels in a decade set a year earlier in January 2009.

The Canadian Real Estate Association says 25,671 homes were sold across the country in January. That`s up 58 per cent from the same month in 2008, when the global credit crunch pounded consumer confidence and dried up buying and lending activity.

The national average price for homes listed on CREA`s Multiple Listing Service was $328,537, up 19.6 per cent from a year ago.

Read the full article here.

 

[Ally]

Canadian Housing market up 58% from year ago levels

CALGARY - National activity in the resale housing market declined in January from the previous month but was up 58 per cent from year-ago levels, when national home sales activity reached the lowest level in a decade.

In releasing its January MLS data on Wednesday, the Canadian Real Estate Association said the average price of all homes sold through the MLS systems of Canadian real estate boards last month was $328,537, which was up 19.6 per cent from a year ago.

"In January 2009, the average residential sale price fell to the lowest level in almost three years," said the association which represents more than 96,000 realtors working through more than 100 real estate boards and associations.

"Year-over-year average price gains are being stretched by weakness one year ago, and are expected to shrink beginning next month."

In Calgary, MLS sales in January increased by 52.5 per cent from last year to 1,466 units for an average sale price of $397,518, up by 5.8 per cent. New listings fell by 6.7 per cent to 3,919 units and dollar volume jumped by 61.4 per cent to $582.8 million.

Read the full article here.

 

[Ally]

Tightened mortgage rules could slow home sales

OTTAWA — Finance Minister Jim Flaherty tightened mortgage rules on Tuesday and, in doing so, may have taken the steam out of a housing market that had seen prices and sales activity rise rapidly over the last year.

For most consumers, the changes are unlikely to make it more difficult to get a mortgage but it could reduce the size of the mortgage an individual consumer can negotiate with a lender.

"The changes (he) announced today . . . will actually impact the experience that all Canadians have when they go into banks to get loans," said Craig Alexander, deputy chief economist at TDBank Financial Group.

Flaherty`s changes apply to any mortgage backed by the federal Canada Mortgage and Housing Corp. (CMHC).

But Alexander said the practical effect of any changes to the rules around CMHC-backed mortgages is that lenders tend to extend at least some of those provisions to all mortgages.

Read the full article here.

 

[Ally]

The Real Estate industry can change without help from the federal government

Almost everyone who has contemplated buying or selling a house has at least a nodding acquaintance with MLS, the Multiple Listing Service system of the Canadian Real Estate Association. Roughly 90 per cent of residential property transactions involve MLS to some degree, mainly because it offers the most comprehensive database of properties for sale in the country.

In order for real estate agents to post listings on the MLS system they must be members of the Canadian Real Estate Association (CREA) and pay annual dues. A member -- there are 98,000 of them -- is entitled to use the term Realtor, which is a CREA trademark. A Realtor listing a property on the MLS system must act as agent for the seller.

Now, there`s nothing wrong with a private club restricting access to its members; however, MLS is no ordinary club. CREA says 465,251 homes were traded through the MLS system in 2009, while the average residential sale price was $320,333. That works out to an annual $149 billion, which is bigger than Canada`s petroleum industry.

Too big to ignore, the MLS system was targeted by the federal Competition Bureau in 2007. In the bureau`s view, CREA`s rules regarding the MLS system "prevented or lessened competition" in the market for residential real estate brokerage services, such that brokers wishing to offer fewer services at a reduced cost were unable to do so, limiting consumer choice.

Unable to negotiate a settlement with CREA, the bureau has filed a complaint with the Competition Tribunal, which has the power to strike down rules deemed to be in violation of Canada`s Competition Act.

Read the full article here.

 

[Ally]

Don`t worry, home loan rules can still be bent

The good news or bad news, depending on your perspective, is you can still buy a home in Canada with almost no money.

Really, you say? If you have a job with steady income, you need about $16,000 to buy the average Canadian house. You can pay back the $304,000 you owe over the next 35 years -- with the little matter of about $243,000 in interest, based on a 3.79% rate and monthly payments.

Nothing has changed with yesterday`s news that the government has tightened lending rules in Canada. You too can still pay almost double for your house.

The new rules mean first-time buyers -- the people with those tiny down payments who the government is targeting-- will still be able to purchase a home with just 5% down.

The difference is they now have to meet an income test that says they can make payments based on the five-year fixed rate, in case interest rates start to spike. That measure is to target consumers who are taking out variable-rate mortgages that are now as low as 1.95%. If they were to take out a mortgage after April 19, they would have to qualify based on the usually higher five-year rate.

Read the full article here.

 

[Ally]

Mortgage changes target `reckless` buyers: Flaherty

OTTAWA -- Jim Flaherty, the Finance Minister, says he is targeting "reckless" speculators who buy up multiple condominium units in the country`s biggest cities with new rules introduced yesterday that will make it tougher for Canadians to get a mortgage.

The reforms were submitted after nearly a week of non-stop warnings from people ranging from a prominent money manager to former Bank of Canada governor David Dodge about an impending housing bubble. The concern was that the real estate market was getting ahead of itself, as buyers took advantage of record-low interest rates to acquire homes.

In introducing the tougher mortgage requirements, Mr. Flaherty said there was "no clear evidence" of a real estate bubble in this country, the kind of which sideswiped the U.S. economy and sparked the worldwide financial crisis.

"The measures will not affect the ability of a Canadian family to buy a house. It will affect those who are speculating," the Finance Minister said. "What we`re getting at is the speculation in multiple condominium units in particular which we see in Vancouver, Montreal, Toronto and in some other places in Canada."

Home builders were taken aback by the measures introduced, saying they could result in "severe implications" for the condo and housing markets.

Read the full article here.

 

[Ally]

Natural gas big and growing part of Canadian economy: study

CALGARY -- The natural gas industry employs almost 600,000 people in Canada, a number that could grow as Canada increases production of the cleaner burning fuel, a new report said Tuesday.

According to the study prepared by IHS Global Insight for the America`s Natural Gas Alliance, gas accounted for about $106-billion of Canada`s gross domestic product in 2008 -- a little less than 7% -- including $73-billion in direct contributions and another $33-billion in indirect benefits.

Direct and indirect employment of 599,000 accounted for 3.5% of Canadian jobs and $31-billion in payrolls.

"I found that to be surprising. . . . Those points were larger than what I had expected," said Eric Marsh, EnCana Corp.`s executive vice-president of natural gas economy. "What is really significant is the opportunity to grow in the future."

The study was commissioned by America`s Natural Gas Alliance (ANGA), an industry advocacy group formed last March, representing 33 of North America`s largest independent natural gas exploration and production companies.

Read the full article here.

 

[Ally]

Canada ratifies `Buy American` agreement

Canada has ratified an agreement with the U.S. on its "Buy American" purchasing rules, allowing domestic companies to bid on government-funded projects south of the border, Trade Minister Peter Van Loan said.

"Today marks an important day in Canada-U. S. trade," Van Loan said Tuesday. "The agreement is now in effect."

The accord allows the use of Canadian products in many local U.S. projects funded by the Obama administration`s stimulus program, the Canadian and U.S. governments said on Feb. 5 when they announced the accord. Canada agreed to sign up its provinces to the World Trade Organization`s government procurement agreement, which it had refused to do when the WTO was formed in 1995.

Read the full article here.

 

[Ally]

Canada January home resales dip from December

TORONTO (Reuters) - Sales of existing homes in Canada cooled in January from December`s level, but they surged on a year-over-year basis, suggesting the housing sector is still a major factor in the country`s economic recovery.

A total of 43,910 homes changed hands in January, down 2.8 percent from December, the Canadian Real Estate Association said on Wednesday. But sales were up 58 percent from January 2009, when the market hit bottom in the wake of the global financial crisis.

Economists warned that year-over-year comparisons are likely to shrink in coming months because the recovery of the housing market started in February 2009.

Encouraged by low interest rates and rising consumer confidence, the average national resale house price rose 5 percent to C$320,333 in 2009. Year-over-year price comparisons were often in double digits, skewed higher because of rebounding activity in some of the more expensive markets.

The real estate association said the national average price in January rose 19.6 percent from a year earlier to C$328,537 ($305,901).

Read the full article here.

 

[Ally]

Household debt is not a crisis. Let`s make sure it stays that way

The latest report from the Vanier Institute of the Family paints a grim portrait of household finances in Canada, but its findings are open to interpretation.

The media went into alarm mode, highlighting an increase in Canadian household debt to $96,000 last year, which the study warned brings the debt-to-income ratio to 145 per cent. However, debt-to-income is a largely meaningless measure out of context. If government debt was gauged this way, the debt-to-revenue ratio would be 195 per cent. Instead, government debt is measured against gross domestic product, which produced a ratio of 19.5 per cent when the economy was booming but appears headed for something north of 40 per cent as a result of increased spending during the recession.

Similarly, household debt should be measured against household assets, and that gives us a far less ominous picture. Household net worth has been climbing since last March, hit $5.7 trillion ($168,800 per capita) in the third quarter of 2009, an increase of 1.8 per cent over the previous quarter and, given the rebound in share prices, can be expected to recover at least to the $6 trillion level reached in the second quarter of 2008.

What`s more, financial institutions don`t calculate debt load this way when determining credit worthiness. They plot monthly debt obligations -- such as mortgage, car loan and credit card payments, not total debt -- against pre-tax income. In the third quarter, only six per cent of Canadian households had a debt-service ratio that exceeded 40 per cent.

The Vanier study stoops to scare-mongering when it cites a 50-per-cent increase of mortgages in arrears as of last October, compared with the same month a year earlier, without noting the negligible arrears rate of 0.37 per cent, nor the fact that mortgage defaults in Canada are so rare as to be statistically insignificant.

Read the full article here.

 

[Ally]

Spending cuts on the way, Day says

The political battle over the March 4 federal budget heated up Wednesday, as the Harper government dropped hints of spending cuts to balance the books and the opposition demanded major investments of public funds to help the unemployed.

Treasury Board President Stockwell Day told reporters the upcoming budget will begin laying out specific areas where the Conservatives will rein in public spending.

"What we have to do is send the signal out that we realize that, just as families can`t take on debt indefinitely ... they expect the government to do the same," said Day. "What you`ll see with Minister Flaherty in the budget is the beginning of this road map. You`ll see some of the specifics; other areas that will be more general (is) where we`ll want ongoing input from Canadians."

In a cabinet shuffle last month, Day was appointed to head the Treasury Board, where he is overseeing the government`s belt-tightening efforts.

On Wednesday morning, Day met with public-sector union leaders, who have expressed concern the government will scale back the generous pensions of federal public servants.

Read the full article here.

 

[Ally]

Inflation rises 1.9% in January

OTTAWA -- Canada`s annual rate of inflation rose to 1.9% in January, mainly due to rising gasoline prices, Statistics Canada said Thursday.

Economists had expected annual inflation of 1.8% during the month after December`s pace of 1.3%.

"Gasoline prices exerted upward pressure on the [Consumer Price Index] for the third consecutive month, as a result of price volatility in the second half of 2008 and the first half of 2009," the federal agency said.

In January, gasoline prices were 23.9% higher than they were in January 2009, following a 25.6% rise in December 2009. Excluding energy, the CPI rose 1.3% in January, compared with a 0.8% increase in December.

Statistics Canada also vehicle prices exerted upward pressure on the inflation rate in January, a turnaround after being a significant source of downward pressure for an extended period.

Read the full article here.