Friday 25 January 2008

Homes to become more affordable this year: observers

Buying a home in Canada should become more affordable this year, with interest rates being lowered in hopes of avoiding a recession and mortgage rates declining, real estate observers suggest. In its latest housing affordability report released Thursday, the Royal Bank of Canada said that after homeownership costs climbed steadily in 2007, mainly because of higher prices in booming western Canadian cities, homes should become easier to buy and finance this year. As a result of the recent lowering of interest rates by the Bank of Canada that has led to lower rates on mortgages tied to the dropping prime rate, consumers should see affordability improve across all classes, said Derek Holt, assistant chief economist at RBC. "Longer-term mortgage rates will come down because the spreads charged for bank lending and borrowing in international markets are likely to come down a little bit, and that will get passed on to longer-term borrowers," said Holt. For short-term mortgages, the central banks are probably going to continue to push interest rates lower, he said. "We're expecting the Bank of Canada to cut rates by a further 100 basis points or a full percentage point from where they stand right now." Continue Article Let's face it, said Peter Norman of real estate research firm Altus Clayton, "if you have an expectation that mortgage interest rates are going to decline by 50 basis points or so, then it would be reasonable to expect that that would probably bring about an improvement in affordability." A basis point is one-hundredth of a percentage point. But it's important to also point out that the deterioration in affordability in the last couple of years hasn't been interest-rate driven per se, he said. "It's been mainly due to rising house prices in the West." Affordability steady in Toronto, Central Canada In fact, in markets like Toronto and elsewhere in Central Canada and the East, affordability has been reasonably steady. In Alberta, though, "there were very severe shortages of labour and materials, and other aspects that went into the production of housing," said Norman. This forced housing prices up, affecting affordability. Holt said almost every housing class in every province and major city saw affordability deteriorate last year. Unlike the late 1980s and early 1990s when double-digit unemployment rates and interest rates led to a housing crunch and declining affordability, the prime culprit this time around has been a long string of house price gains that have outstripped income gains, he said. The Royal's affordability report measures the proportion of pre-tax household income needed to service the costs of owning a home. All of Canada's big banks have been increasingly interested in tracking house trends across the country since a big chunk of their profits come from mortgage lending to homebuyers. Condos most affordable type of housing Across the country, the standard condo remained the most affordable housing type, requiring about 30 per cent of pre-tax household income. A standard townhouse was next at 34 per cent, followed by a detached bungalow at 42 per cent. A standard two-storey home remained the least affordable housing type at 47 per cent. New record highs for the amount of household income going towards home ownership costs are being set across most housing classes in British Columbia, Alberta and Saskatchewan, the report said. But there is some light at the end of the tunnel that should help affordability, besides declining mortgage rates, said Norman. In Alberta, "we're starting to see a reversal" in the deterioration of affordability. Many of the scarcities in labour and supplies "are starting to become addressed, and also the demand has gotten a little bit softer" as people have started to leave the province in search of work in other western provinces such the oilfields in Saskatchewan, he said. Both of these developments, said Norman, should bring the housing market much more back into balance into 2008. © The Canadian Press, 2008

Sunday 13 January 2008

No recession in Canada, bank economists say

Canada's economic growth will slow down this year, but will avoid a recession, top economists at Canada's biggest banks agreed Wednesday. TD Bank chief economist Don Drummond, speaking at a forum at the Economic Club of Toronto, is forecasting GDP growth of 1.9 per cent in Canada this year, while Sherry Cooper of BMO Capital Markets is calling for 2.2 per cent — the same as the Bank of Canada predicted in its last economic outlook in October. The five economists don't see a recession in the U.S. either, although some say it will be close. "We sure are not far from it and it will feel like a recession," said Cooper, chief economist at BMO, calling the decline in the U.S. housing market "without precedent." "The [U.S.] recovery is going to be very very lethargic," said Scotiabank chief economist Warren Jestin. "We're going into a recuperative period that may very well span all of the 2009 calendar." CIBC World Markets chief economist Avery Shenfeld said people shouldn't assume a U.S. recession is automatic if weak economic numbers start to emerge in the first quarter. Continue Article "We should remind ourselves that other slowdowns in the past looked like recessions, but didn't end up being so," he said. And TD's Drummond suggested that people stop with the fixation on the "r" word. "The economy's going to be weak, we've all said that," he said. "I think that's the key thing. The challenge is going to be there whether it satisfies the technical [definition of]recession or not." Merrill Lynch Canada said its own outlook calls for the Canadian economy to grow by just 1.7 per cent this year. Merrill Lynch Canada economist David Wolf is predicting the Bank of Canada will slash its key lending rate to just three per cent this year — 1.25 percentage points below where it is now. The central bank is widely expected to cut its overnight lending rate by a quarter of a percentage point at its next policy meeting on Jan. 22. Meanwhile, another major U.S. investment bank is forecasting that a U.S. recession is likely this year. "The recent data suggest that the U.S. economy is falling into recession," Goldman Sachs economists said in a research note Wednesday. But they say the recession will be "relatively mild by historical standards" and should last two or three quarters. Goldman Sachs said the U.S. Federal Reserve would end up slashing its key overnight lending rate by 1.75 percentage points to 2.5 per cent. A day earlier, a Merrill Lynch report said the U.S. economy was already in recession. But most economists are still leaning against the possibility of a U.S. recession, according to a survey by Bloomberg. The news agency polled 47 economists and found only five said the U.S. economy would contract in the next year. Canadians' pessimism grows A majority of Canadians (61 per cent) say the U.S. economy will worsen this year, a new poll suggests. Only 17 per cent see a healthier American economy, according to a Pollara survey. The weakening U.S. economy, reduced optimism about Canada's employment picture — especially in Ontario and Quebec — and fears of rising inflation have combined to make Canadians more cautious about their outlook for the coming year, the polling firm said. Half of all Canadians surveyed said they expect their household income to fall behind the cost of living this year. That's the most pessimistic personal outlook the annual survey has uncovered in its 24-year history. "This is not just a baseless prediction," said Pollara chair Michael Marzolini. "The number of Canadians who say they lost ground in 2007 has doubled [to 40 per cent] from the year before," he said. The survey's results were based on 4,589 online responses between Dec. 14 and Dec. 21. The results are considered accurate to within 1.5 percentage points, 19 times out of 20. CBC News

Saturday 5 January 2008

Two New Records Set In First Two Weeks of December!

TORONTO, December 19, 2007 -- The Greater Toronto resale home market reached two new heights during the first half of this month Toronto Real Estate Board President Maureen O’Neill announced today. “The 2,868 transactions recorded during the first two weeks of December have made this the first year that sales have exceeded 90,000,” said Ms. O’Neill. This activity also represents a 3 per cent increase over the 2,783 sales recorded during the first two weeks of December 2006. This year’s record activity has been matched by record prices. “The average price is now $404,707, which is the first time it has exceeded $400,000,” said Ms. O’Neill. The current average price has increased 3 per cent since last month and 19 per cent compared to the same timeframe a year ago. In the Danforth area (E03) transactions are up 24 per cent compared to mid-December 2006, as a result of strong semi-detached sales. New Toronto transactions (W06) are up 43 per cent compared to the same timeframe a year ago, as a result of strong condominium apartment sales. Condominium apartment transactions Downtown (C01) also pushed overall sales in that area up 28 per cent compared to the first half of December 2006. In North York (C14) detached home transactions led to an overall sales increase of 34 per cent in the area compared to mid-December 2006. “The two new precedents set in the last two weeks is certainly positive news, said Ms. O’Neill. It’s shaping up to be a busy holiday season for homebuyers and sellers alike.” Toronto Real Estate Board.

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