Vancouver, BC – October 15, 2008. British Columbia Real Estate Association (BCREA) reports residential sales dollar volume on the Multiple Listing Service® (MLS®) in BC declined 39 per cent to $2.1 billion in September, compared to September 2007. Residential unit sales were down 34 per cent to 5,107 units during the same period. The average MLS® residential price in the province was $412,149, down 7 per cent from September 2007.
“Weaker consumer demand and a large number of homes for sale are having an impact on home prices in the province,” said Cameron Muir, BCREA Chief Economist. “Despite relatively strong fundamentals, consumer confidence is low. The global liquidity crisis and volatile equity markets are intensifying this sentiment, causing many households to pull back spending on major purchases.”
“However, affordability is improving,” added Muir. “The carrying cost of the average home in the province is now lower than at any time since the end of 2006.”
Year-to-date MLS® residential sales dollar volume in the province declined 24 per cent to $27.5 billion compared to the same period last year. Provincial MLS® sales declined 28 per cent to 59,742 units, while the average residential price increased 6 per cent to $460,621 over the same period.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”
Wednesday, October 15, 2008
Friday, October 10, 2008
G7 finance officials pledge action to stem financial crisis
Finance officials from the G7 countries have announced a series of measures to try to slow the effects of a financial crisis that is crippling markets around the globe.
Finance ministers, as well as bank heads from the Group of Seven countries — the most powerful economic nations in the Western world — pledged Friday to take "decisive action and use all available tools" to ease the crisis.
The group issued a five-point plan Friday evening after a meeting in Washington with U.S. Treasury Secretary Henry Paulson and U.S. Federal Reserve Chairman Ben Bernanke.
Finance ministers, as well as bank heads from the Group of Seven countries — the most powerful economic nations in the Western world — pledged Friday to take "decisive action and use all available tools" to ease the crisis.
The group issued a five-point plan Friday evening after a meeting in Washington with U.S. Treasury Secretary Henry Paulson and U.S. Federal Reserve Chairman Ben Bernanke.
The measures include:
-Protection for major banks to prevent their failure.
-A commitment to help banks raise money from both public and private sources.
-A bolstering of deposit insurance.
-Help reviving the battered mortgage-financing market.
The Group of Seven countries are Canada, the United States, Japan, Germany, Britain, France and Italy. The finance officials are scheduled to meet with U.S. President George W. Bush Saturday at the White House.
Earlier in the day, Canadian Finance Minister Jim Flaherty announced his government's plan to buy the securities through the Canada Housing and Mortgage Corp. and provide much-needed cash to financial institutions that sell the so-called "National Housing Act mortgage-backed securities."
"This is going to make loans and mortgages more available and more affordable for ordinary Canadians and businesses," he said.
Flaherty, who attended the meeting in Washington, announced the new measures in an attempt to assuage concerns over the burgeoning global financial crisis and defuse criticism that the Conservative government was ignoring the spreading lending crisis.
He was expected to argue in Washington for tighter regulations of the kind that has kept Canada's banking system solvent in the middle of the global crisis.
Also Friday, Bush sought to assure the American public that governments worldwide were hard at work to counter the economic turmoil. He called for co-operation between the U.S. and other nations.
"We've seen that problems in the financial system are not isolated to the United States," he said in brief remarks from the White House Rose Garden.
"So we're working closely with partners around the world to ensure that our actions are co-ordinated and effective."
Members countries from the Group of 20 will meet with Paulson in Washington Saturday to discuss the crisis, which is also expected to dominate discussion at weekend meetings of the 185-nation International Monetary Fund and the World Bank in Washington.
CBC News Friday, October 10, 2008
Banks trim prime rate as Ottawa offers mortgage relief
Canada's big banks are lowering their prime lending rates in response to an announcement Friday from Finance Minister Jim Flaherty that the federal government will buy $25 billion worth of mortgage debt to help free up credit markets.
TD Canada Trust and CIBC said it will lower the rate by another 15-hundredths of a point to 4.35 per cent, effective next Tuesday.
"We believe this initiative will be put into effect in a way that will reduce our overall cost of funds and, as a result we are dropping our rate today," Tim Hockey, president and CEO of TD Canada Trust, said Friday.
"Financial markets are very turbulent, and funding costs are still high. However, we anticipate that our cost of funds will decrease with the implementation of this program, and therefore wanted to take action that will benefit our customers directly."
The Bank of Nova Scotia, the Royal and the Bank of Montreal announced shortly afterward that they are cutting their prime rate by 0.25 points to 4.25 per cent.
Canada's big banks were under fire earlier this week after they decided to pass only part of the Bank of Canada's half percentage point rate cut to consumers. The banks said the decision was made because of volatile credit markets.
Speaking in Ottawa Friday, Flaherty said the decision to buy the mortgage debt from Canadian banks was being made in an effort to stabilize the lending industry and encourage lower interest rates.
Flaherty made the announcement before heading to Washington to meet with other G-7 finance ministers to formulate a plan for dealing with the current economic turbulence.
He said the mortgage debt will be purchased by the Canadian Mortgage and Housing Corp.
Flaherty said that will ease pressure on lending institutions and prompt banks to lower their interest rates for Canadians, which could spark renewed buying activity.
He said the plan is "efficient, cost-effective and safe way to support lending in Canada that comes at no fiscal cost to taxpayers."
Don Drummond, chief economist for TD, called the plan "music to my ears" and said it should benefit everyone involved.
"I don't think there's a risk of loss to the government, so it strikes me that those three partners -- the government, the CMHC and the banks all win and that helps ease up to some degree the credit flow in Canada," he told CTV's Canada AM.
Derek Holt, of Scotia Capital, said the move is a "healthy, positive step" designed to make loans available for those who qualify.
"That's the hope, that by taking mortgage backed securities out of the banking system that are illiquid, that they cannot move, cannot sell to the marketplace, and giving cash instead, that banks will then turn around and use that cash to generate more loan growth to businesses and households in Canada," Holt said.
Flaherty maintained the position the Conservatives have taken since the election campaign began -- that the economy is still strong and well protected from U.S.-style economic turbulence brought on my the sub-prime mortgage crunch.
He said Canadian banks and financial institutions are "sound and well-capitalized, and less-leveraged than their international peers."
Not a bailout
Prime Minister Stephen Harper has also sought to reassure Canadians that the economy is stronger than its U.S. counterpart, and will weather the economic storm.
Just yesterday, Harper said the government would not be providing a bailout to banks.
During a campaign stop Friday in Brantford, Ont., Harper said the deal to buy mortgages was an asset swap, not a bailout.
"The government's main concern right now is obviously the cost and availability of credit," Harper said Friday. "Part of what has been happening is, because of the problems in the banking systems around the world, there's less and less inter-bank lending and therefore credit conditions are becoming tight even in Canada.
"...What we're trying to do today is make sure that the banks can take some good assets and turn those into cash so they can make that available to small business, to people seeking mortgages."
The opposition has accused Harper of taking a "do nothing" approach, but he maintains his government has been quietly preparing for the slowdown and shouldn't take drastic reactionary steps now.
Flaherty said the mortgage buyout has been talked about for months.
Meanwhile, Liberal Leader Stephane Dion accused Harper of contradicting his own words about taking action on the economy.
"After months of saying no action was required and his approach was sufficient, it appears, four days before Election Day, Stephen Harper has now had a change of heart," Dion said in a statement Friday.
"It is no surprise that many Canadians will believe that the Conservatives are playing partisan politics with their mortgages and savings in the dying days of a federal election."
Dion said the "11th hour conversion" will not reassure Canadians that Harper understands their needs.
Fri. Oct. 10 2008 CTV.ca News Staff
TD Canada Trust and CIBC said it will lower the rate by another 15-hundredths of a point to 4.35 per cent, effective next Tuesday.
"We believe this initiative will be put into effect in a way that will reduce our overall cost of funds and, as a result we are dropping our rate today," Tim Hockey, president and CEO of TD Canada Trust, said Friday.
"Financial markets are very turbulent, and funding costs are still high. However, we anticipate that our cost of funds will decrease with the implementation of this program, and therefore wanted to take action that will benefit our customers directly."
The Bank of Nova Scotia, the Royal and the Bank of Montreal announced shortly afterward that they are cutting their prime rate by 0.25 points to 4.25 per cent.
Canada's big banks were under fire earlier this week after they decided to pass only part of the Bank of Canada's half percentage point rate cut to consumers. The banks said the decision was made because of volatile credit markets.
Speaking in Ottawa Friday, Flaherty said the decision to buy the mortgage debt from Canadian banks was being made in an effort to stabilize the lending industry and encourage lower interest rates.
Flaherty made the announcement before heading to Washington to meet with other G-7 finance ministers to formulate a plan for dealing with the current economic turbulence.
He said the mortgage debt will be purchased by the Canadian Mortgage and Housing Corp.
Flaherty said that will ease pressure on lending institutions and prompt banks to lower their interest rates for Canadians, which could spark renewed buying activity.
He said the plan is "efficient, cost-effective and safe way to support lending in Canada that comes at no fiscal cost to taxpayers."
Don Drummond, chief economist for TD, called the plan "music to my ears" and said it should benefit everyone involved.
"I don't think there's a risk of loss to the government, so it strikes me that those three partners -- the government, the CMHC and the banks all win and that helps ease up to some degree the credit flow in Canada," he told CTV's Canada AM.
Derek Holt, of Scotia Capital, said the move is a "healthy, positive step" designed to make loans available for those who qualify.
"That's the hope, that by taking mortgage backed securities out of the banking system that are illiquid, that they cannot move, cannot sell to the marketplace, and giving cash instead, that banks will then turn around and use that cash to generate more loan growth to businesses and households in Canada," Holt said.
Flaherty maintained the position the Conservatives have taken since the election campaign began -- that the economy is still strong and well protected from U.S.-style economic turbulence brought on my the sub-prime mortgage crunch.
He said Canadian banks and financial institutions are "sound and well-capitalized, and less-leveraged than their international peers."
Not a bailout
Prime Minister Stephen Harper has also sought to reassure Canadians that the economy is stronger than its U.S. counterpart, and will weather the economic storm.
Just yesterday, Harper said the government would not be providing a bailout to banks.
During a campaign stop Friday in Brantford, Ont., Harper said the deal to buy mortgages was an asset swap, not a bailout.
"The government's main concern right now is obviously the cost and availability of credit," Harper said Friday. "Part of what has been happening is, because of the problems in the banking systems around the world, there's less and less inter-bank lending and therefore credit conditions are becoming tight even in Canada.
"...What we're trying to do today is make sure that the banks can take some good assets and turn those into cash so they can make that available to small business, to people seeking mortgages."
The opposition has accused Harper of taking a "do nothing" approach, but he maintains his government has been quietly preparing for the slowdown and shouldn't take drastic reactionary steps now.
Flaherty said the mortgage buyout has been talked about for months.
Meanwhile, Liberal Leader Stephane Dion accused Harper of contradicting his own words about taking action on the economy.
"After months of saying no action was required and his approach was sufficient, it appears, four days before Election Day, Stephen Harper has now had a change of heart," Dion said in a statement Friday.
"It is no surprise that many Canadians will believe that the Conservatives are playing partisan politics with their mortgages and savings in the dying days of a federal election."
Dion said the "11th hour conversion" will not reassure Canadians that Harper understands their needs.
Fri. Oct. 10 2008 CTV.ca News Staff
Canada Mortgage and Housing Corporation Supports Canadian Credit Markets
Canada Mortgage and Housing Corporation (CMHC) will purchase up to $25 billion in insured mortgage pools as part of the Government of Canada’s plan, announced today, to maintain the availability of longer-term credit in Canada.
The first purchase of $5 billion will be made October 16, 2008 through a competitive auction process. The mortgages involved are high-quality assets that are already guaranteed through government-backed mortgage insurance. The Government will announce a schedule of future purchase dates to take place over the coming weeks.
Canada Mortgage and Housing Corporation (CMHC) has been Canada’s national housing agency for more than 60 years. CMHC is committed to helping Canadians access a wide choice of quality, affordable homes, while making vibrant, healthy communities and cities a reality across the country.
CMHC OTTAWA, October 10, 2008
The first purchase of $5 billion will be made October 16, 2008 through a competitive auction process. The mortgages involved are high-quality assets that are already guaranteed through government-backed mortgage insurance. The Government will announce a schedule of future purchase dates to take place over the coming weeks.
Canada Mortgage and Housing Corporation (CMHC) has been Canada’s national housing agency for more than 60 years. CMHC is committed to helping Canadians access a wide choice of quality, affordable homes, while making vibrant, healthy communities and cities a reality across the country.
CMHC OTTAWA, October 10, 2008
Thursday, October 2, 2008
New MLS® home listings down in August
The number of properties listed via the MLS® systems of real estate boards in Canada retreated in August 2008 from record levels in the previous four months, according to statistics released today by The Canadian Real Estate Association (CREA). With new listings down from the recent peak, the resale housing market is stabilizing in most provinces.
“These days, REALTORS® in Canada face a lot of questions about the real estate market, real estate price bubbles, and the value of a home. That’s because we are at the end of an unusually active period in Canadian real estate – 2007 was a record year for many of the things we use to monitor the real estate market, including the average MLS® residential price,” said the President of The Canadian Real Estate Association, Calvin Lindberg.
“We must remember that all markets go through cycles, and remember that the national housing market is actually made up of different communities. Real estate markets are local, and every community, and every area, is different in terms of trends and pricing,” the CREA President added.
“Slower activity in some of Canada’s pricier housing markets compared to year-ago levels will continue weighing on the national average price,” explains CREA Chief Economist Gregory Klump.
“As our analysis shows, the Canadian housing market is stable and home sellers are not under pressure to sell. This is in stark contrast to the U.S. housing market, where there are a large number of distress sales. In Canada, with price gains diminishing and homebuyers taking more time to shop, the number of active MLS® listings may continue to ease so the Canadian housing market would stabilize further.”
CREA OTTAWA – September 30th, 2008
“These days, REALTORS® in Canada face a lot of questions about the real estate market, real estate price bubbles, and the value of a home. That’s because we are at the end of an unusually active period in Canadian real estate – 2007 was a record year for many of the things we use to monitor the real estate market, including the average MLS® residential price,” said the President of The Canadian Real Estate Association, Calvin Lindberg.
“We must remember that all markets go through cycles, and remember that the national housing market is actually made up of different communities. Real estate markets are local, and every community, and every area, is different in terms of trends and pricing,” the CREA President added.
“Slower activity in some of Canada’s pricier housing markets compared to year-ago levels will continue weighing on the national average price,” explains CREA Chief Economist Gregory Klump.
“As our analysis shows, the Canadian housing market is stable and home sellers are not under pressure to sell. This is in stark contrast to the U.S. housing market, where there are a large number of distress sales. In Canada, with price gains diminishing and homebuyers taking more time to shop, the number of active MLS® listings may continue to ease so the Canadian housing market would stabilize further.”
CREA OTTAWA – September 30th, 2008
Friday, September 26, 2008
Big banks raise residential mortgage rates on longer-term loans
Mortgage rates in Canada are heading higher as fears of inflation resonate through the bond market while U.S. legislators move towards agreement on a $700-billion US bailout plan for Wall Street banks.
TD Canada Trust and Bank of Montreal said late Thursday they have raised mortgage rates by more than a third of a percentage point on three-, four- and five-year loans.
The changes reflect the rising cost of borrowing in the bond market, an inflation-sensitive financial marketplace where banks finance their mortgage lending.
Effective Friday, a five-year mortgage at both banks increases by .35 of a percentage point to 7.2 per cent, while a three-year closed term rises by the same amount to 7.05 per cent.
A one-year closed mortgage loan at TD Canada Trust falls by .3 of a percentage point to 6.35 per cent.
The changes suggest bond markets are worried about the future inflationary pressures from the proposed $700-billion U.S. government bailout of Wall Street banks, said TD Bank chief economist Don Drummond.
"We always did figure that adding $700 billion to the deficit of the United States would probably cause something like a 25 basis point [quarter point] increase in the longer-term interest rates and that seems to have already happened," said Drummond.
"[The bailout] does increase the risk to bonds. In just plain good old demand and supply that means there has to be an awful lot of bond issuance and there's a limited supply of people that want to buy them so it's natural that the price goes up," he added.
The interest rates on mortgages and other short-term borrowing are set based on the price of bonds. With lower demand for bonds and fears of inflation, rates have to rise to lure investors willing to part with their money.
Other interest rates in the economy — from consumer and car loans to mortgage rates tied to the prime rate — are affected by the Bank of Canada trend-setting rate, which is expected to fall or remain stable over the next few months at least.
On Thursday, U.S. congressional Republicans and Democrats reported agreement in principle on a bailout of the financial industry. They said they would present it to the Bush administration in hopes of a vote within days.
The bailout is expected to push up inflation and force the U.S. Federal Reserve Board to raise rates in the future.
Thursday's mortgage rate increases also come a day after the Merrill Lynch brokerage warned that Canadian households are so indebted that it's only a matter of time before the housing market turns down, as has already happened in the United States.
The Merrill Lynch Canada report by economists David Wolf and Carolyn Kwan acknowledged that the analysis is more pessimistic than the prevailing view. However, there are parallels with what happened in the United States in early-to-mid 2006 when housing prices started going down.
"There are parallels here and there is risk here that's perhaps not being properly acknowledged," said Wolf. "We may have started from a better place but Canadians are over time starting to borrow as much as Americans and the British."
© The Canadian Press, 2008
TD Canada Trust and Bank of Montreal said late Thursday they have raised mortgage rates by more than a third of a percentage point on three-, four- and five-year loans.
The changes reflect the rising cost of borrowing in the bond market, an inflation-sensitive financial marketplace where banks finance their mortgage lending.
Effective Friday, a five-year mortgage at both banks increases by .35 of a percentage point to 7.2 per cent, while a three-year closed term rises by the same amount to 7.05 per cent.
A one-year closed mortgage loan at TD Canada Trust falls by .3 of a percentage point to 6.35 per cent.
The changes suggest bond markets are worried about the future inflationary pressures from the proposed $700-billion U.S. government bailout of Wall Street banks, said TD Bank chief economist Don Drummond.
"We always did figure that adding $700 billion to the deficit of the United States would probably cause something like a 25 basis point [quarter point] increase in the longer-term interest rates and that seems to have already happened," said Drummond.
"[The bailout] does increase the risk to bonds. In just plain good old demand and supply that means there has to be an awful lot of bond issuance and there's a limited supply of people that want to buy them so it's natural that the price goes up," he added.
The interest rates on mortgages and other short-term borrowing are set based on the price of bonds. With lower demand for bonds and fears of inflation, rates have to rise to lure investors willing to part with their money.
Other interest rates in the economy — from consumer and car loans to mortgage rates tied to the prime rate — are affected by the Bank of Canada trend-setting rate, which is expected to fall or remain stable over the next few months at least.
On Thursday, U.S. congressional Republicans and Democrats reported agreement in principle on a bailout of the financial industry. They said they would present it to the Bush administration in hopes of a vote within days.
The bailout is expected to push up inflation and force the U.S. Federal Reserve Board to raise rates in the future.
Thursday's mortgage rate increases also come a day after the Merrill Lynch brokerage warned that Canadian households are so indebted that it's only a matter of time before the housing market turns down, as has already happened in the United States.
The Merrill Lynch Canada report by economists David Wolf and Carolyn Kwan acknowledged that the analysis is more pessimistic than the prevailing view. However, there are parallels with what happened in the United States in early-to-mid 2006 when housing prices started going down.
"There are parallels here and there is risk here that's perhaps not being properly acknowledged," said Wolf. "We may have started from a better place but Canadians are over time starting to borrow as much as Americans and the British."
© The Canadian Press, 2008
Thursday, September 18, 2008
Fewer Homes Being Added to the Market
Vancouver, BC – September 12, 2008. British Columbia Real Estate Association (BCREA) reports residential sales dollar volume on the Multiple Listing Service® (MLS®) in BC declined 49 per cent to $2.2 billion in August, compared to August 2007.
Residential unit sales were down 47 per cent to 5,175 units during the same period. The average MLS® residential price in the province was $421,685, down 4.1 per cent from August 2007.
“Fewer home sales and larger inventories have tilted most BC housing markets in favor of homebuyers,” said Cameron Muir, BCREA Chief Economist. “However, a significant decline in new listings last month may be a signal that potential home sellers are now taking a wait and see approach.”
New MLS® residential listings in August fell 22 per cent from July on a seasonally adjusted basis, the second largest month-over-month decline in 25 years.
Compared to July, nearly 2,000 fewer active MLS® residential listings were available in the province, a decline of 3 per cent. “Home seller fatigue is now a possibility, as slower demand and competition among sellers lessen the chance of a timely sale,” added Muir.
Year-to-date MLS® residential sales dollar volume in the province declined 22 per cent to $25.4 billion compared to the same period last year. Transactions declined 27 per cent to 54,635 units, while the average residential price increased 7 per cent to $465,132 over the same period.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”
Residential unit sales were down 47 per cent to 5,175 units during the same period. The average MLS® residential price in the province was $421,685, down 4.1 per cent from August 2007.
“Fewer home sales and larger inventories have tilted most BC housing markets in favor of homebuyers,” said Cameron Muir, BCREA Chief Economist. “However, a significant decline in new listings last month may be a signal that potential home sellers are now taking a wait and see approach.”
New MLS® residential listings in August fell 22 per cent from July on a seasonally adjusted basis, the second largest month-over-month decline in 25 years.
Compared to July, nearly 2,000 fewer active MLS® residential listings were available in the province, a decline of 3 per cent. “Home seller fatigue is now a possibility, as slower demand and competition among sellers lessen the chance of a timely sale,” added Muir.
Year-to-date MLS® residential sales dollar volume in the province declined 22 per cent to $25.4 billion compared to the same period last year. Transactions declined 27 per cent to 54,635 units, while the average residential price increased 7 per cent to $465,132 over the same period.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”
MORTGAGE RATES STEADY INTO 2009
Posted Canadian mortgage rates moved up in mid-June and July before settling lower in August. Borrowing costs on one-, three- and five-year fixed-rate mortgages fell during the second week of August by 30 basis point (bps) compared to a week earlier. This decline brought the average one- and five-year rates down to 6.7 and 6.9 per cent in August, 30 bps below the same month in 2007
BCREA forecasts mortgage rates to remain near current levels, albeit with a slight upward trend through to the end of 2008 into 2009.
In a move widely expected by economists, the Bank of Canada (BoC) held its trend-setting interest rate at 3 per cent on September 3. This move came despite the recent slide in prices for commodities such as crude oil, a weak US economy and the continued slowdown in the Canadian economy that calmed inflationary pressures and fuelled speculation that rates may be cut. Financial markets had priced in the potential that the BoC would cut rates by 25 bps leading into the decision.
BCREA expects the BoC will keep its trendsetting trend setting overnight rate unchanged at 3 per cent through 2008 and into 2009 given BoC’s statement that the “target for the overnight rate remains appropriately accommodative.” BCREA expects an interest rate hike in the second half of 2009 in response to signs of a recovery in the US economy and higher US interest rates. The expectations of a future rate increase should provide upward pressure on Canadian mortgage rates as 2008 progresses.
However, BCREA anticipates improved credit market conditions to offset some of this increase. Tighter credit conditions have been the norm since August 2007 when the credit crunch drove up the cost of funds, including monies used to fund part of the mortgage loan market. This resulted in higher mortgage rates than would otherwise have been expected, given the historic relationships
between mortgage rates and yields on financial instruments with similar maturities. A recovery in the US economy will likely coincide with an improvement in credit market conditions, resulting in lower risk premiums which should partly offset the impact of higher interest rate expectations in Canada.
Inflation Risk Tempered by Crude Price
The accelerating pace of inflation is likely to slow in the coming months as energy prices moderate. Recently, higher inflation has been a concern as July’s total inflation breached 3 per cent for the second consecutive month and remained well above the BoC’s target band of 1 to 3 per cent. Despite a low core inflation rate, which excludes the most volatile items and is a good indicator of underlying inflation, the high headline rate fuelled speculation that rates could rise to stem inflationary pressures.
Rapid increases in energy prices have been the main contributor to higher inflation levels. The energy component of consumer price inflation increased by 21.1 per cent in July from a year earlier. Excluding energy, inflation amounted to only 1.6 per cent. However, after reaching $145 per barrel on July 14, the spot price of crude oil has tumbled 25 per cent to $109 at the beginning of September (Fig. 3). Crude futures for October delivery, the best indicator of future crude
price, has fallen below $105. This is well below the BoC’s projection of $140 assumed in its July Monetary Policy Update, and provides a cushion against upward inflation risk and interest rate hikes.
However, several factors may offset downward inflation pressure. The BoC noted volatility in commodity prices and global inflation in its September 3 communiqué. Additionally, while high crude prices have con contributed to a stronger Canadian dollar, a significant drop in the price of crude may have the opposite effect, resulting in higher import prices and inflation pressures.
The Canadian dollar continues to be historically high, but its value compared to the US dollar has declined nearly 6 per cent since July.
Economy Remains Soft in Q2
Canada’s economy remained sluggish in the second quarter, expanding at an annualized rate of 0.3 per cent. This followed a first quarter decline of 0.8 per cent. A relatively high Canadian dollar and softer US and global demand has resulted in a slowdown in export activity. However, domestic demand has remained strong despite a moderate slowdown in the second quarter. Overall activity was deemed by the BoC to be near production capacity, reflecting solid economic conditions in Canada.
In its September 3 communiqué, the BoC found that its current trend-setting interest rate was “appropriately accommodative.” The BoC expects total and core inflation will still converge to its target of 2 per cent by the second half of 2009. Given that the downside risks outlined in its Monetary Policy Update were realized, and the BoC still left rates unchanged, BCREA expects no
change in the rate until mid-2009 when economic growth is expected to improve. However, future rate increases should be offset in part by lower risk premiums, yielding stable mortgage rates for consumers.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”
BCREA forecasts mortgage rates to remain near current levels, albeit with a slight upward trend through to the end of 2008 into 2009.
In a move widely expected by economists, the Bank of Canada (BoC) held its trend-setting interest rate at 3 per cent on September 3. This move came despite the recent slide in prices for commodities such as crude oil, a weak US economy and the continued slowdown in the Canadian economy that calmed inflationary pressures and fuelled speculation that rates may be cut. Financial markets had priced in the potential that the BoC would cut rates by 25 bps leading into the decision.
BCREA expects the BoC will keep its trendsetting trend setting overnight rate unchanged at 3 per cent through 2008 and into 2009 given BoC’s statement that the “target for the overnight rate remains appropriately accommodative.” BCREA expects an interest rate hike in the second half of 2009 in response to signs of a recovery in the US economy and higher US interest rates. The expectations of a future rate increase should provide upward pressure on Canadian mortgage rates as 2008 progresses.
However, BCREA anticipates improved credit market conditions to offset some of this increase. Tighter credit conditions have been the norm since August 2007 when the credit crunch drove up the cost of funds, including monies used to fund part of the mortgage loan market. This resulted in higher mortgage rates than would otherwise have been expected, given the historic relationships
between mortgage rates and yields on financial instruments with similar maturities. A recovery in the US economy will likely coincide with an improvement in credit market conditions, resulting in lower risk premiums which should partly offset the impact of higher interest rate expectations in Canada.
Inflation Risk Tempered by Crude Price
The accelerating pace of inflation is likely to slow in the coming months as energy prices moderate. Recently, higher inflation has been a concern as July’s total inflation breached 3 per cent for the second consecutive month and remained well above the BoC’s target band of 1 to 3 per cent. Despite a low core inflation rate, which excludes the most volatile items and is a good indicator of underlying inflation, the high headline rate fuelled speculation that rates could rise to stem inflationary pressures.
Rapid increases in energy prices have been the main contributor to higher inflation levels. The energy component of consumer price inflation increased by 21.1 per cent in July from a year earlier. Excluding energy, inflation amounted to only 1.6 per cent. However, after reaching $145 per barrel on July 14, the spot price of crude oil has tumbled 25 per cent to $109 at the beginning of September (Fig. 3). Crude futures for October delivery, the best indicator of future crude
price, has fallen below $105. This is well below the BoC’s projection of $140 assumed in its July Monetary Policy Update, and provides a cushion against upward inflation risk and interest rate hikes.
However, several factors may offset downward inflation pressure. The BoC noted volatility in commodity prices and global inflation in its September 3 communiqué. Additionally, while high crude prices have con contributed to a stronger Canadian dollar, a significant drop in the price of crude may have the opposite effect, resulting in higher import prices and inflation pressures.
The Canadian dollar continues to be historically high, but its value compared to the US dollar has declined nearly 6 per cent since July.
Economy Remains Soft in Q2
Canada’s economy remained sluggish in the second quarter, expanding at an annualized rate of 0.3 per cent. This followed a first quarter decline of 0.8 per cent. A relatively high Canadian dollar and softer US and global demand has resulted in a slowdown in export activity. However, domestic demand has remained strong despite a moderate slowdown in the second quarter. Overall activity was deemed by the BoC to be near production capacity, reflecting solid economic conditions in Canada.
In its September 3 communiqué, the BoC found that its current trend-setting interest rate was “appropriately accommodative.” The BoC expects total and core inflation will still converge to its target of 2 per cent by the second half of 2009. Given that the downside risks outlined in its Monetary Policy Update were realized, and the BoC still left rates unchanged, BCREA expects no
change in the rate until mid-2009 when economic growth is expected to improve. However, future rate increases should be offset in part by lower risk premiums, yielding stable mortgage rates for consumers.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”
MLS® Home Sales Generate $2 Billion in GDP and 28,800 Jobs
Vancouver, BC – September 2, 2008. British Columbia Real Estate Association (BCREA) released today a report on the economic impact of Multiple Listing Service® (MLS®) residential sales to the provincial economy in 2007. A typical MLS® residential sale generated nearly $42,000 in economic output, $20,000 in Gross Domestic Product (GDP) and $13,000 in household income. Tax revenues to federal, provincial and municipal governments exceeded $9,800. A typical MLS® residential sale also generated 0.28 full time equivalent jobs (FTE).
“MLS® residential sales provide a significant contribution to BC economy,” said Cameron Muir, BCREA chief economist. Every 100 transactions in 2007 generated nearly $4.2 million in economic output and $2 million in GDP.
“While a single home sale has a relatively small impact, the cumulative effect of thousands of transactions is noteworthy,” added Muir. The province recorded 102,892 MLS® residential sales last year, contributing $4.3 billion to economic output and $2 billion to provincial GDP.
Home sales also create employment. For every 100 MLS® residential sales, 28 full-time equivalent (FTE) jobs were generated in 2007. This means 28,800 FTE jobs were needed to service the total number of MLS® residential sales last year.
100 typical MLS® residential transactions added nearly $1.3 million to household income. Total MLS® residential sales in 2007 contributed to more than $1.3 billion in BC household income.
Residential transactions generate significant tax revenue. Every 100 MLS® residential sales in 2007 accounted for nearly $300,000 in federal taxes, $660,000 in provincial taxes and $32,000 in municipal taxes. Total MLS® residential sales in 2007 generated approximately $300 million in federal taxes, $680 million in provincial taxes and $33 million in municipal taxes. In total, MLS® residential transactions contributed more than $1 billion to government coffers.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”
“MLS® residential sales provide a significant contribution to BC economy,” said Cameron Muir, BCREA chief economist. Every 100 transactions in 2007 generated nearly $4.2 million in economic output and $2 million in GDP.
“While a single home sale has a relatively small impact, the cumulative effect of thousands of transactions is noteworthy,” added Muir. The province recorded 102,892 MLS® residential sales last year, contributing $4.3 billion to economic output and $2 billion to provincial GDP.
Home sales also create employment. For every 100 MLS® residential sales, 28 full-time equivalent (FTE) jobs were generated in 2007. This means 28,800 FTE jobs were needed to service the total number of MLS® residential sales last year.
100 typical MLS® residential transactions added nearly $1.3 million to household income. Total MLS® residential sales in 2007 contributed to more than $1.3 billion in BC household income.
Residential transactions generate significant tax revenue. Every 100 MLS® residential sales in 2007 accounted for nearly $300,000 in federal taxes, $660,000 in provincial taxes and $32,000 in municipal taxes. Total MLS® residential sales in 2007 generated approximately $300 million in federal taxes, $680 million in provincial taxes and $33 million in municipal taxes. In total, MLS® residential transactions contributed more than $1 billion to government coffers.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”
Housing Starts Up in August
OTTAWA, September 9, 2008 — The seasonally adjusted annual rate1 of housing starts was 211,000 units in August, up from 186,500 units in July, according to Canada Mortgage and Housing Corporation (CMHC).
“After a brief pause in July, the volatile multiple segment bounced back to a level of activity that is more consistent with our forecast for this year,” said Bob Dugan, Chief Economist at CMHC's Market Analysis Centre. “Most of the volatility in housing starts over the last three months reflected swings in multiple starts in Ontario.”
The seasonally adjusted annual rate of urban starts rose 15.2 per cent in August compared to July. Both urban multiples and singles moved higher, with an increase of 25.2 per cent for multiples to 114,700 units, and a 2.0 per cent increase for singles to 71,200 units.
The seasonally adjusted annual rate of urban starts was down in every region except Ontario where housing starts jumped 81.0 per cent to 86,500. Urban starts sagged 22.5 per cent to 23,700 units in the Prairies and dropped 11.5 in Atlantic Canada. Smaller declines of 8.7 per cent and 8.2 per cent were recorded in Quebec (37,600 units) and British Columbia (30,400 units) respectively.
Rural starts were estimated at a seasonally adjusted annual rate of 25,100 units in August2.
For the first eight months of 2008, actual starts in rural and urban areas combined were down an estimated 4.3 per cent compared to the same period last year. Year-to-date actual starts in urban areas have increased by an estimated 1.0 per cent over the same period in 2007. Actual urban single starts for the January to August period of this year were 16.8 per cent lower than they were a year earlier, while urban multiple starts were up by 17.6 per cent over the same period.
CMHC September 9, 2008
“After a brief pause in July, the volatile multiple segment bounced back to a level of activity that is more consistent with our forecast for this year,” said Bob Dugan, Chief Economist at CMHC's Market Analysis Centre. “Most of the volatility in housing starts over the last three months reflected swings in multiple starts in Ontario.”
The seasonally adjusted annual rate of urban starts rose 15.2 per cent in August compared to July. Both urban multiples and singles moved higher, with an increase of 25.2 per cent for multiples to 114,700 units, and a 2.0 per cent increase for singles to 71,200 units.
The seasonally adjusted annual rate of urban starts was down in every region except Ontario where housing starts jumped 81.0 per cent to 86,500. Urban starts sagged 22.5 per cent to 23,700 units in the Prairies and dropped 11.5 in Atlantic Canada. Smaller declines of 8.7 per cent and 8.2 per cent were recorded in Quebec (37,600 units) and British Columbia (30,400 units) respectively.
Rural starts were estimated at a seasonally adjusted annual rate of 25,100 units in August2.
For the first eight months of 2008, actual starts in rural and urban areas combined were down an estimated 4.3 per cent compared to the same period last year. Year-to-date actual starts in urban areas have increased by an estimated 1.0 per cent over the same period in 2007. Actual urban single starts for the January to August period of this year were 16.8 per cent lower than they were a year earlier, while urban multiple starts were up by 17.6 per cent over the same period.
CMHC September 9, 2008
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