January 2010

[Ally]

Does my Reno qualify for tax credit?

With the Jan. 31 deadline just around the corner, anyone who still wants to take advantage of the federal government`s popular home renovation tax credit had better hurry.

"The most important thing for people to know is that they still have 10 days to buy and take delivery of materials that they are thinking of using for renovations," Jamie Golombek, managing director of estate and tax planning with CIBC Private Wealth Management, said in an interview Wednesday.

Although it is likely too late to get the labour done in time, "anyone thinking of doing anything in their home in the next few months should try to get that material now... otherwise you are really losing out."

The home reno tax credit, introduced as a limited-time program in the 2009 federal budget, has proven extremely popular with housing-obsessed Canadians. "Anecdotally, it is the topic of almost every single presentation I give in terms of personal tax. The Canada Revenue Agency has responded to more technical interpretation questions in terms of what qualifies and what does not than any other topic in recent history," Mr. Golombek added

Read the full article here.

 

[Ally]

Recovery to pick up speed, Bank of Canada says

The Bank of Canada said the economy will grow faster than expected from the second quarter through early next year and raised its forecast for the United States, while warning a durable global recovery depends on debt-cutting measures in advanced nations and on countries such as China continuing to stoke spending on goods from abroad.

Much of the improved forecast for Canada is due to the better outlook for the critical U.S. market, the central bank said Thursday in its quarterly Monetary Policy Report. At the same time, the central bank said the U.S. and global gains – on which Canada`s fortunes rest to a large extent – may not be sustainable without more narrowing of the "large imbalances" that helped fuel the crisis, namely too much spending in the U.S. and too much saving in Asia.

"Sustained improvement over the medium term will require fiscal consolidation in the United States and several other advanced countries, together with policy-induced domestic demand growth and real exchange rate adjustment for surplus countries," Governor Mark Carney and his colleagues said. Without more progress in these areas, the bank said, "large imbalances" that narrowed during the crisis "may re-emerge." The central bank kept its estimate of 3.3-per-cent annual growth for the Canadian economy in the final three months of 2009 and said gross domestic product will expand at a 3.5 per cent annual rate from January to March, cutting its previous forecast of 3.8 per cent. But the economy will then grow by 4.3 per cent in the second quarter, 4 per cent from July to October, and 3.8 per cent in the fourth quarter and in the first three months of 2011 before slowing down.

That compares with policy makers` October projections, in which they said the economy would grow 3.8 per cent in each of the first and second quarters, followed by 3.7 per cent in the third quarter, 3.5 per cent in the fourth and 3.3 per cent in the first three months of next year.

Read the full article here.

 

[Ally]

China`s Economy soars

China easily beat its 2009 growth target after a blistering fourth-quarter performance that set the stage for further monetary tightening and put it on course to overtake Japan to become the world`s second-largest economy.

Gross domestic product surged 10.7 per cent between October and December, compared with a year earlier, a tad below market forecasts of 10.9 per cent, but up sharply from a revised 9.1 per cent in the third quarter.

China`s fastest quarterly growth in two years raised expectations that Beijing will lift interest rates some time in next few months after a series of smaller steps taken to contain buoyant lending and prevent the economy and its markets from overheating.

"Obviously the month-on-month growth momentum is very strong," said Xing Ziqiang, an economist at CICC in Beijing. "So I think the chances for us to see an interest rate rise in the first quarter are increasing."

For all of 2009, the economy grew 8.7 per cent. That handily exceeded the official target of 8 per cent, a goal deemed the minimum needed to create jobs and preserve social stability.

Read the full article here.

 

[Ally]

Inflation within Central Bank comfort zone

Inflation in Canada remains tame, giving the country`s central bank little reason to budge on its commitment to keep interest rates low until mid-year.

Consumer prices rose a less-than-expected 1.3 per cent in December from a year earlier after a 1-per-cent pace in November. Less volatile core prices, which the Bank of Canada monitors as a guide to future inflationary trends, stayed at 1.5 per cent, Statistics Canada said Wednesday.

Inflation remained muted as a drop in furniture, computer and mortgage interest costs took the edge off higher prices at the pump. The Bank of Canada said Tuesday that though core prices are running at slightly higher than it expected in recent months, it is sticking to its pledge of keeping rates at a record low until June, provided the outlook for inflation doesn`t change.

"There seems little likelihood that Canada or any of the other G7 countries will be experiencing a build up of inflation due to economic capacity constraints any time soon," said Stewart Hall, economist at HSBC Securities (Canada), in a morning note.

The Canadian dollar fell Wednesday morning and its decline picked up speed after the report was released. The loonie fell to a two-week low of 95.63 cents (U.S.) from Tuesday`s close of 97.02 cents.

Read the full article here.

 

[Ally]

Sooner or later, our economy will have to `reset`

Do you know what keeps me awake at night? It is the fact that the Canadian economy did not "reset" during the 2008-09 recession.

Recessions occur because economic or financial activities get out of touch with fundamentals. Inflation, wages, inventories, business investment or stock prices get out of touch with the underlying fundamentals of demand and supply, and a recession results that is supposed to correct the imbalances.

Market participants delude themselves if they think that economic and financial events are "different this time," believing that the relationship of these events to fundamentals has been altered either by technology, financial innovation, government intervention or the rise of emerging economies and so on. They are actually never different.

Markets and the economy gyrate from one extreme position to the next, driven by the cycle of overoptimism and overpessimism to which consumers, investors, corporate managers and other market participants are susceptible. Asset prices and the economy always revert to intrinsic value - a value that is driven by fundamentals.

Read the full article here.

 

[Ally]

Loonie hits 2010 low as investor confidence rattled

TORONTO (Reuters) - The Canadian dollar`s fall against the U.S. currency steepened on Tuesday as investors shunned risky assets, unnerved by China`s clampdown on lending and as Japan`s credit rating was put in the spotlight.

Beijing ordered some banks to comply immediately with a planned increase in reserves, rattling global markets and sending emerging market stocks down more than 2 percent.

Standard & Poor`s added to the sour mood by warning it would cut Japan`s credit rating unless it produced a credible plan to rein in its soaring debt.

"Put together they can have a destabilizing impact on risk assets for the simple reason that China`s position as a global leader is unparalleled in some way. If we see a slowdown in their growth performance it will definitely impact the pace of global economic growth," said Millan Mulraine, economics strategist at TD Securities.

The Canadian dollar touched a low C$1.0692 to the U.S. dollar, or 93.53 U.S. cents, its lowest level since December 21.

By 9:34 a.m., it was at C$1.0690 to the U.S. dollar, or 93.55 U.S. cents, down from its Monday close at C$1.0581 to the U.S. dollar, or 94.51 U.S. cents.

Read the full article here.

 

[Ally]

Break that contract, expect jolt of financial pain

Life is unpredictable. Unexpected events may cause a change in your plans.

Failure to repeat this mantra when entering into a consumer transaction can cost you thousands of dollars.

Here are some examples of people getting hit with whopping penalties when leaving a long-term relationship.

Mortgages: Suppose you have a fixed-rate loan for five years and you sell or refinance two years later, when rates have dropped. You will have to compensate the lender for the interest you would have paid over the next three years.

The interest-rate differential penalty is greater if there`s a wide gap between your rate and current rates and you still have a few years left on the mortgage term.

Read the full article here.

 

[Ally]

Demographia International Housing Survey

Click here to access the 2010 edition of the annual report.

Or download it below.

 

[Ally]

Canada set to be growth leader in 2010

Canada received another vote of confidence Tuesday as the International Monetary Fund raised its 2010 growth outlook for the country to 2.6 per cent, positioning it as one of the top performers among developed countries for this year and next.

The previous forecast was for 2010 growth of 2.1 per cent. With this upgrade, the IMF projection for the Canadian economy is closer to what the Bank of Canada envisages, which is 2.9 per cent expansion.

The IMF`s outlook for Canada in 2011 remains unchanged, at 3.6 per cent, which is in line with the Bank of Canada`s 3.5 per cent projection.

In contrast, the IMF also upgraded its U.S. outlook for this year to 2.7 per cent, but downgraded the forecast in 2011 to 2.4 per cent.

Inventory restocking, stable financial conditions and improved consumer confidence are behind the upgrades.

Overall, the world body now says the global economy is expected to expand 3.9 per cent this year and 4.3 per cent in 2011, led by emerging economies.Read the full article here.

 

[Ally]

UN Body tainted by advocacy, critics say

A senior Canadian climate scientist says the United Nations` panel on global warming has become tainted by political advocacy, that its chairman should resign and that its approach to science should be overhauled.

Andrew Weaver, a climatologist at the University of Victoria, says the leadership of the Intergovernmental Panel on Climate Change (IPCC) has allowed it to advocate for action on global warming, rather than serve simply as a neutral science advisory body.

"There`s been some dangerous crossing of that line," said Weaver on Tuesday, echoing the published sentiments of other top climate scientists in the U.S. and Europe this week.

"Some might argue we need a change in some of the upper leadership of the IPCC, who are perceived as becoming advocates," he told Canwest News Service. "I think that is a very legitimate question."

Weaver also says the IPCC has become too large and unwieldy. He says its periodic reports, such as the 3,000 page, 2007 report that won the Nobel Prize, are eating up valuable academic resources and driving scientists to produce work on tight, artificial deadlines, at the expense of other, longer-term inquiries that are equally important to understanding climate change.

Read the full article here.

 

[Ally]

Alberta Oilpatch vital to nation, report says

CALGARY - Western Canada`s oil and gas sector is a vital national industry that is underpinning the fiscal framework of the country, according to a report to be issued today by the Canada West Foundation dubbed Look Before You Leap: Oil and Gas, the Western Canadian Economy and National Prosperity.

As such, care must be taken not to impose economic and environmental policies that could unintentionally damage other regions and the country as a whole, said Roger Gibbins, the think-tank`s president and chief report author.

Unduly harsh greenhouse gas reduction targets, for example, would have a ripple effect that could hurt manufacturing in Ontario, employment in Newfoundland and transfer payments to provinces like Quebec.

Gibbins said too many people in the rest of Canada think that penalizing the energy industry will confine negative economic impacts to Alberta and the West. Although the West accounts for slightly more than half of Canada`s greenhouse gas emissions, there are "better and worse ways" to reduce them without negating the economic benefits of the energy sector, he said.

"To focus only on the production side, you target the western Canadian and the Alberta economy. I think that`s fundamentally wrong. There`s nothing really rocket science to this; it`s really a cautionary message," Gibbins told the Herald ahead of the report`s release. "The more immediate crisis is to the fiscal relationships that have been built in this country."

Read the full article here.

 

[Ally]

December U.S. new home sales drop despite incentives

New home sales unexpectedly fell 7.6 per cent last month, capping the industry`s weakest year on record.

The U.S. commerce department said December sales fell to a seasonally adjusted annual rate of 342,000 from an upwardly revised November pace of 370,000.

Economists surveyed had forecast a pace of 370,000 for December.

The weakest results since March indicated that demand remains sluggish, despite newly expanded tax incentives to spur sales, and fuel concern that the housing turnaround will falter when government support ends this spring.

Housing remains one of the weakest links in the economic recovery. On Wednesday, Federal Reserve policymakers wrapped up a two-day meeting but failed to mention housing. That was telling because it had asserted in recent months that the housing market was improving.

Read the full article here.

 

[Ally]

Variable or fixed? Both options have merit

Whether you prefer to go fixed or variable with your mortgage, there are developments you need to know about if you want protection against rising rates and ways to outsmart your bank.

Let`s start with fixed-rate mortgages, where we continue to see borrowing costs at close to historic lows. Most people go with a five-year term, but there`s a case to be made for choosing terms of seven or even 10 years.

Rubbish, you savvy borrowers are no doubt saying. The premium to lock in for seven years is too high to make it worthwhile.

"There`s not a right or wrong choice," replies Peter Majthenyi, a mortgage planner with Mortgage Architects in Toronto. "It`s capturing the temperament and risk tolerance of the client."

Read the full article here.

 

[Ally]

Vancouver to lead economic growth, Conference Board of Canada says

It`s not just because of the Olympics, but they help.

Vancouver is expected to top economic growth among Canadian cities this year, the Conference Board of Canada predicted Wednesday. The boost from spending related to the 2010 Winter Olympics is a chief reason, but a rebound in housing construction and consumer spending will also spur growth, the report said.

The city is expected to tally economic growth of 4.5 per cent this year, the biggest expansion among all 27 cities in the report`s metropolitan outlook. It`s a reversal for the city that saw a 1.8-per-cent contraction last year amid factory and construction woes.

"Vancouver is poised for a substantial rebound," said Mario Lefebvre, director of the Centre for Municipal Studies.

The report didn`t specify how much the Olympics will contribute to the local economy; they will certainly juice the services side of the economy, though slowing the pace of non-residential construction in the first half of the year.

The report comes as Canadians are divided on the price tag associated with hosting the Games, which begin next month. Forty-eight per cent of Canadians think too much is being spent, while 45 per cent say it`s the right amount, according to an EKOS poll last week. The price tag is still being tallied, but at least $1-billion is being spent on security alone.

Read the full article here.

 

[Ally]

IMF boosts Canadian growth forecast

The International Monetary Fund lifted its forecast for Canada`s economic growth Tuesday, saying it will likely expand 2.6 per cent in 2010.

Its previous forecast was 2.1 per cent growth this year. The Canadian economy will expand 3.6 per cent in 2011, the IMF said in an update to its world economic outlook.

The global economic recovery is stronger than the IMF had expected as global trade stabilizes and commodity prices climb. It boosted its outlook for global output to 3.9 per cent this year from its October prediction of 3.1 per cent.

Read the full article here.

 

[Ally]

Recovery to pick up speed, Bank of Canada says

The Bank of Canada said the economy will grow faster than expected from the second quarter through early next year and raised its forecast for the United States, while warning a durable global recovery depends on debt-cutting measures in advanced nations and on countries such as China continuing to stoke spending on goods from abroad.

Much of the improved forecast for Canada is due to the better outlook for the critical U.S. market, the central bank said Thursday in its quarterly Monetary Policy Report. At the same time, the central bank said the U.S. and global gains – on which Canada`s fortunes rest to a large extent – may not be sustainable without more narrowing of the "large imbalances" that helped fuel the crisis, namely too much spending in the U.S. and too much saving in Asia.

"Sustained improvement over the medium term will require fiscal consolidation in the United States and several other advanced countries, together with policy-induced domestic demand growth and real exchange rate adjustment for surplus countries," Governor Mark Carney and his colleagues said. Without more progress in these areas, the bank said, "large imbalances" that narrowed during the crisis "may re-emerge." The central bank kept its estimate of 3.3-per-cent annual growth for the Canadian economy in the final three months of 2009 and said gross domestic product will expand at a 3.5 per cent annual rate from January to March, cutting its previous forecast of 3.8 per cent. But the economy will then grow by 4.3 per cent in the second quarter, 4 per cent from July to October, and 3.8 per cent in the fourth quarter and in the first three months of 2011 before slowing down.

That compares with policy makers` October projections, in which they said the economy would grow 3.8 per cent in each of the first and second quarters, followed by 3.7 per cent in the third quarter, 3.5 per cent in the fourth and 3.3 per cent in the first three months of next year.

At a press conference after releasing his report, Mr. Carney said the pickup in growth will help reduce unemployment and that he sees "gradual improvement" in the labour market now that the "deterioration has stopped." Canada`s economy lost about 400,000 jobs over the course of the recession, he said.

Read the full article here.

 

[Ally]

Canadian economy `gathering momentume` with 0.4% growth

OTTAWA --Canada`s economy grew more than expected in November, led by the wholesale trade and oil and mining sectors, Statistics Canada reported Friday.

Gross domestic product rose 0.4 per cent during the month, the third consecutive monthly increase, the federal agency said. "As was the case in September and October, most major industrial sectors increased their production," it said.

"Mining and oil and gas extraction, and wholesale trade accounted for about 60 per cent of the overall growth," the agency said. Goods-producing industries were up 0.6 per cent, while the services sector increased 0.4 per cent.

Economists had expected growth of between 0.1 and 0.3 per cent in November.

"The Canadian economy does indeed appear to be gathering momentum, despite some recent disappointments on the employment front," said Douglas Porter, deputy chief economist at BMO Capital Markets.

Read the full article here.

 

[Ally]

Foreign stimulus boosted Canada

OTTAWA - The Canadian economy got a bigger kick from the massive stimulus packages of other leading economies than from the $62-billion in planned recession-busting spending by the provinces and Ottawa, research from the Bank of Canada indicates.

Its analysis suggests Canada recorded the second-best economic gain from global stimulus, trailing only the European Union.

Because Canada is a small open economy, that "sharply curtails the effectiveness of [the] domestic stimulus," the analysis said, as money is spent acquiring imports.

"In contrast," it said, "Canada reaps the benefits of more growth in the United States and improving terms of trade following the global fiscal impulse and its effect on oil and commodity prices."

Bank of Canada models show that domestic stimulus allowed the level of Canada`s gross domestic product to grow 0.7% year-over-year in the fourth quarter, but when combined with global efforts the level of GDP growth was 2.05%.

Read the full article here.

 

[Ally]

U.S. Housing crash means slow growth for years

The first U.S. housing crash since the Second World War means economic growth will be subdued for years to come but there is little chance of a double-dip recession and the rally in equities and bonds will grind on, say economists at Goldman Sachs Group Inc.

"The oft-heard story that deeper U.S. recessions are followed by sharper recoveries misses the fact that this is overwhelmingly not the case in the typical housing bust," economists Dominic Wilson and Alex Kelston say in a new report from the U.S. bank.

Goldman Sachs estimates GDP to grow just 2.6% in the United States this year, versus a slightly higher consensus estimate of 2.7%. Many economists have lamented the fact that a more normal rate of growth following previous U.S. recessions has been near 5% to 6%.

However, the U.S. economy has never collapsed from a housing bust in the post-war period, making past downturns in the country poor guides for today`s recovery, Mr. Wilson and Mr. Kelston said.

Instead, a comparison to other world economies that have rebounded from real-estate crunches offers far better guidance.

Read the full article here.

 

[Ally]

How much do your neighbours owe on their mortgage?

One of the economic conundrums of the past year has been the great divergence in the Canadian and U.S. housing markets. While American home prices swooned in 2009, the Canadian market only stumbled before resuming its inexorable climb upward. As Barrie McKenna reported in The Globe and Mail recently, there are two schools of thought as to what`s behind this discrepancy. One suggests that Canada, with its fiscally sound banks, simply avoided the bubble. The other, bruited by David Rosenberg—chief strategist at Toronto-based Gluskin Sheff + Associates Inc.—is more pessimistic. His assessment: The Canadian housing market is overvalued, in the range of 15% to 35%. In other words, we are dangerously close to bubbledom.

During the early days of the Great Recession, most commentators focused blame on two culprits: American banks—for underestimating the risk associated with their new-fangled financial instruments—and American consumers. The latter had overextended themselves, the thinking went, first taking on ridiculously large mortgages, and then using their houses as virtual ATMs to finance lavish lifestyles.

If our banks are solid, what of Canadian consumers? Are we so parsimonious—so virtuous—that we can avoid the leverage trap that ensnared so many Americans? In the numbers below, we explore this question. We picked a street in a new development in Toronto, and had our research team pull up buyers` mortgage information.What we were after was a sense of how homeowners finance their high-flying lives.

Here`s a sample of what we dug up: John and Sarah purchased their detached house in February of 2007 for $1.25 million. Their mortgage rang in at just over $1 million (a five-year term, at 4.9%), with monthly payments of $5,811. In March, 2008, they secured a line of credit for $92,000 (prime plus 5%). A year later, they took out a second mortgage for $975,000 (another five-year term, at 3.8%).

Read the full article here.