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Will there be a hold on the Prime rate increase in Sept.?
2010-08-19 | 09:55:30
CIBC World Markets Inc. trims forecast for rate hikes and currency strength in Canada as economic growth outlook dampens abroad
Canada NewsWire
TORONTO, Aug. 18 /CNW/ - Continuing weakness in the U.S. economy may force the Bank of Canada to put interest rate hikes on hold after September, notes a new report from CIBC World Markets Inc.
"North America's story is again darkening," says CIBC's Chief economist in the latest Global Positioning Strategy report. "We were looking for a material second-half slowdown for the U.S. but as it turns out, it's already happened."
Economic growth stateside from April to June is being revised downward, Mr. Shenfeld notes, and key indicators are pointing to growth that will be slower than anticipated by U.S. monetary policy makers.
And still ahead is a "further fiscal belt tightening in 2011 that will have to be softened, and accompanied by quantitative easing, if the U.S. is to stay out of recession in early 2011 and get back to potential growth by the end of that year.
"Forget about any rates hikes from the U.S. Federal Reserve until sometime in 2012 at the earliest."
While Canada is in much better economic shape - it leads the U.S., Eurozone, U.K. and Japan in first-half growth and has a record gap over the U.S. in the share of working age population holding a job - it "cannot move all the way to normalized interest rates while the U.S. Federal Reserve is still on hold," Mr. Shenfeld contends.
For starters, an interest rate differential of 300-400 basis points would take the loonie "substantially stronger" creating additional headwinds for Canadian economic growth, says Mr. Shenfeld.
Furthermore, the "external environment will be one of less-than-normal growth as fiscal tightening bites in Europe and the U.S., and with our own upcoming fiscal tightening also hitting domestic demand, monetary policy might have to be set at stimulative levels to allow the economy to return to potential and remain there. To keep moving at all, you have to step on the gas if your car is trying to roll up a steep incline."
Mr. Shenfeld doubts that the Bank of Canada "has been shocked enough to forestall a rate hike in September" but his forecast that Canadian growth in Q2 and Q3 will fall below the BoC's outlook will likely warrant a rethinking in the October Monetary Policy Report and in the months to follow.
The report also notes that there are limits to how far the Bank of Canada can diverge from the U.S. Federal Reserve without later regretting it. Episodes in recent years in which rate overnight rates were 2 per cent or more above those stateside resulted in sagging or sacrificed growth. These are "lessons learned, we hope," says Mr. Shenfeld.
"Since a hike at every rate setting date through 2011 would take rates substantially higher than 2%, a pause is coming on the road to tightening."
As a result of the dampened external growth outlook, Mr. Shenfeld has trimmed his call for rate hikes. He sees Canadian overnight rates going no higher than 2% next year as the U.S. Federal Reserve stays on hold.
A less hawkish monetary policy combined with a mixed outlook for commodity prices affected by slow global growth will also likely see the Canadian dollar roughly two cents weaker than earlier forecast over the same horizon, adds Mr. Shenfeld.
The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/gps_aug10.pdf
CIBC World Markets Inc. is the corporate and investment banking arm of CIBC. To deliver on our mandate as a premier client-focused and Canadian-based wholesale bank, we provide a wide range of credit, capital markets, investment banking, merchant banking and research products and services to government, institutional, corporate and retail clients in Canada and in key markets around the world.
Home sales tumble
2010-08-17 | 09:04:50
Garry Marr, Financial Post · Monday, Aug. 16, 2010
Housing sales were down 30% in July from a year ago, and the Canadian Real Estate Association is blaming the drop on the new harmonized sales tax in Ontario and British Columbia.
The Ottawa-based group, which represents 100 real estate boards across the country, said July sales plunged 6.8% on a seasonally adjusted basis from the previous month, a decline “almost entirely the result of fewer sales in British Columbia and Ontario,” where the HST went into effect on July 1.
The slowdown had been expected as consumers rushed to buy homes ahead of the July 1 implementation in those provinces. The HST only applies to services used in purchasing and selling an existing home, such as real estate commission, and not the actual sale price.
Phil Soper, chief executive of Royal LePage Real Estate Services Ltd., said the HST, combined with tougher mortgage rules, expectations of higher interest rates and the bounceback from the recession, drove the market earlier this year. “You take those four things and add them together and you get a highly front-ended year, which we forecast,” he said.
The housing market did get some good news from Royal Bank of Canada, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Bank of Montreal, which all lowered interest rates Monday. The five-year, fixed-rate closed mortgage is down to 5.49%, which means that on a discounted basis, consumers can likely lock in a rate of less than 4% for five years.
But John Andrew, a professor of real estate at Queen’s University in Kingston, Ont., doubts the cut in bank rates will be enough to reverse a declining housing market.
“With homes sales down 30%, that’s surprising. I was expecting a drop, but nothing that big. I think prices are next [to decline] although they are holding their own now,” Prof. Andrew said.
“Thank goodness rates are as low as they are. If we were seeing significant increases in interest rates, it would disastrous for real estate prices,” Prof. Andrew said.
The average price of a home sold in July was $330,351, just a 1% increase from a year ago. However, the average price of a home sold in June was $342,662, so prices are off 3.6% from a month ago.
CREA said the lack of activity in British Columbia and Ontario — two of the country’s most expensive markets — likely skewed average prices down. In B.C., sales dropped 14.1% from a month ago on a seasonally adjusted annual basis. In Ontario, the decline was 8%.
The two provinces accounted for 85% of the change in national activity.
“The soft sales figures we’re seeing right now can be attributed in part to accelerated home purchases earlier in the year,” said Georges Pahud, CREA’s president.
He warned activity will be off for the rest of 2010.
“Activity may remain at lower levels for some time, but ultimately we expect a more stable market to emerge, with demand coming back into line with economic fundamentals,” Mr. Pahud said.
Prices are getting a boost from a drop in supply. The seasonally adjusted annual number of new residential listings fell 7.2% in July from the previous month, the third consecutive monthly decrease and the steepest drop in more than a decade.
However, the overall inventory rate, which reflects all housing on the market, is climbing. The number of months of inventory, which represents the number of months it would take to sell current inventories at the current rate of sales activity, was seven month in July. A year ago the number was 4.4 months.
Douglas Porter, deputy chief economist of BMO Capital Markets, said most consumers who were sitting on the sidelines already pushed their purchase ahead in the spring, so he’s also expecting a soft market for the next few months.
“Although with long-term mortgage rates dropping, employment improved and prices stabilized, the longer-term outlook is far from dire,” Mr. Porter said.
Financial Post
http://www.financialpost.com/news/Home+sales+tumble/3405783/story.html#ixzz0wsecFd5o
Canada's economic recovery by no means a sure thing'
2010-08-16 | 08:46:14
Janice Tibbetts, Postmedia News · Sunday, Aug. 15, 2010
NIAGARA FALLS, Ont. — Canada avoided the brutal financial meltdown that plagued the U.S. economy, but there are some red flags that make recovery for this country “by no means a sure thing,” says a leading U.S. economist.
Paul Krugman, a Nobel Prize winner, New York Times columnist and renowned economic pundit, described Canada as “a very calm, very happy story” during the world economic crisis.
Canada escaped relatively unscathed, through a combination of good luck and sound, conservative regulation of banking and consumer debt in which “it is not so easy to use your house as an ATM,” Mr. Krugman told the Canadian Bar Association.
“Canada is an example of the virtues of a relatively traditional approach, a country that did not get caught up in the euphoria of banking innovation,” he said in a speech to hundreds of lawyers.
However, he warned that Canadians’ lavish spending habits, stubbornly high unemployment, and rising housing costs are potential trouble spots that could potentially turn a good news story into a bad one.
“There are a few aspects of Canada that are not scary but a little disturbing,” warned Mr. Krugman, a Princeton University professor.
“Canada is by no means insulated. It’s by no means a sure thing that everything is going to be OK.”
Despite better banking regulation, Canadians tend to “spend and borrow and awful lot like Americans,” Mr. Krugman said in his speech.
“Household debt relative to total income is very high here, not quite as high as the United States but getting close.”
On the plus side, however, Canadian confidence in the financial sector has not been shot, and it is helpful for Canada to have its own floating currency, Mr. Krugman said.
The Bank of Canada, in an economic forecast late last month, acknowledged that the global recovery would slow down as a result of an increased focus on budget-cutting at the household and government levels.
As a result, the central bank trimmed its growth outlook for the Canadian economy to 3.5% this year and 2.9 per cent in 2011, compared with earlier estimates of 3.7% and 3.1% expansion.
The Bank of Canada reported that economic growth petered out in the second quarter of this year, following softer household spending and declining real-estate activity.
In a separate speech on Sunday, Canada’s chief justice also weighed in on the foundation of a solid and sustainable economy, saying that it depends on a strong justice system and commitment to human rights.
“In the short term, a country that violates human rights can appear to be just and experience economic growth,” said Beverley McLachlin.
“But in the long term, instability and the waste of human potential, which are a direct result of a systematic suppression of individual rights and economic freedom, will invariably cause its downfall.”
With files from Paul Vieira, National Post
Good deals for homebuyers, says expert.
2010-08-16 | 08:33:00
Industry keeps eye on situation
It's kind of early to tell exactly what's going to happen to the resale housing market in Calgary as we move deeper into the second half of what has been an up and down year.
The biggest problems facing the industry are an oversupply of homes for sale joined by an undersupply of willing buyers.
For the past two months, Calgary Real Estate Board figures show that sales of used single-family home have lagged behind those in 2009 -- after five consecutive months of being ahead.
On the condo side of the ledger, July marked the first time the year-over-year sales comparison dipped into the red.
In terms of the level of inventory, the number of detached single-family homes for sale climbed steadily, more than doubling between January and the end of June to 5,991.
But last month, inventory fell back to 5,525. Condos, meanwhile, declined for the second straight month after peaking at 2,656 in May.
Is this the start of a trend? Or just a more typical summer when people are away on holidays and don't want to be bothered selling or buying homes?
Your guess is as good as anybody's.
CREB president Sano Stante has his own take on what's going on in the marketplace.
"Calgary's housing market is cooling off after its record-setting pace in the post-recession period," he says -- adding that the slowdown is not all that surprising given that mortgages have undergone some changes due to tighter regulations and rising interest rates.
Couple this with a decline in migration of people to Calgary and weaker job creation, and nobody's in any hurry to buy.
"The post-recession rally we saw in the summer of 2009 was unique and that pace couldn't be sustained," says Stante.
Just so you know, mortgage rates have been decreasing of late. Among the most recent moves was a decline of 0.10 to 0.20 per cent in mortgages with terms of one to 10 years.
When reports started to circulate about the likelihood of rising rates, plenty of folks decided to push up their purchase dates, thereby stealing business away from later markets.
There was a sense of urgency -- but no longer. Well, at least not yet, Stante seems to suggest.
"Rising mortgage rates and increased inventories will be the primary headwind facing Calgary's housing market. But improving job prospects will offer some tailwinds in the latter half of 2010 and into 2011."
While sales are down compared to the same period last year and listings are up, the average and median prices are holding pretty well. Median refers to the middle of the range of market prices.
So far this year, the average for single-family homes is $467,397, about eight per cent ahead of 2009. The condo average for the first seven months of this year was $291,790, slightly more than four per cent ahead of 2009.
Stante terms it relative stability.
"A gradual return to moderate interest rates will not trigger any kind of steep decline in prices in our housing market," he says. "Prices will soften in select markets where inventory has bulked up -- but for the most part, they will remain relatively sticky as the economy improves."
Ted Zaharko, broker/owner of Royal LePage Foothills, recently suggested that come the first three months of 2011, the market could turn dramatically and become one that favours sellers.
We'll wait and see on that one. Meanwhile, Stante says the current market makes for some great deals out there for those who want to take some summer air and go shopping.
Besides getting pre approved: 10 things to check before you buy a new home
2010-08-13 | 12:08:57
10 things to check before you buy a new home
The process of buying a new home—especially if it’s your first time—is incredibly intimidating. And while there are certain things you may know you’re going to want to change upon moving in (like paint colors or retiling), if you’ve never gone through this before you may not know what else to watch out for before you sign the dotted line (just because a home is gorgeous on the outside, it’s not impervious to having a bunch of costly-to-fix issues that go way beyond the surface—remember The Money Pit?). Here, via apartmenttherapy.com, a handy checklist of all kinds of things a potential buyer should be mindful of:
1. Check the drains to make sure they’re not backed-up. To test, do a load of laundry, fill up the tub and sinks, and try to drain them all at the same time.
2. Open all the windows all the way to make sure they’re able to open and shut completely—fixing them is not only a pain, but a financial drain.
3. Turn on all the faucets and make sure they’re in working order.
4. Light a fire in the fireplace. While cleaning them is pretty easy (just call a professional chimney sweeper), you should also make sure they draft correctly.
5. Taste the water. Even if the city you live in has great water, if you’ve got old pipes, they may send out debris into yours.
6. Flush the toilets. Make sure that the toilets are able to flush toilet paper.
7. Open the electrical panel. Watch out for loose wires or ones that simply don’t connect to anything, which could be a sign of live wires inside!
8. Turn on the heat/air. Not only do you want to ensure they turn out, but check to see if they heat/cool to their designated temperatures.
9. Pull the carpets back. Peel away a corner of the carpet to verify what’s underneath (often there’s hardwood under there) and to make sure it’s not mildewing.
10. Basement moisture. Check for signs of dampness, not just on the walls, but near things like dehumidifiers, which suck water out of the air.
Okay, you pick the article you like and would encourage:
2010-04-20 | 08:41:53
Interest rates must rise, but some analysts wonder what's the hurry
By Julian The Canadian Press
http://ca.news.finance.yahoo.com/s/19042010/2/biz-finance-interest-rates-must-rise-analysts-wonder-s-hurry.html
OTTAWA — It’s a minority view, but some economists are advising the Bank of Canada to hold off on raising rates — for a long time.
The reason, says Carl Weinberg of U.S.-based High Frequency Economics, is that the Canadian economy is not nearly as strong as recent data suggests and inflation is at acceptable levels.
He says Canada’s central bank could easily keep interest rates at record lows until next year and not worry about inflation getting out of hand.
That flies in the face of the prevailing view of economists, who believe Bank of Canada governor Mark Carney will start raising rates in July — or possibly even in June.
Carney is expected to give a strong hint into his thinking this week, starting on Tuesday with a scheduled interest rate announcement.
No one thinks he will move this week on the policy rate, which is at an emergency level of 0.25 per cent, but the governor is expected to issue a new forecast on both growth and inflation that will tip off when he will act.
Carney made a conditional pledge last spring not to raise rates until the end of the second quarter of 2010 unless inflation becomes a worry.
That’s going to be a high hurdle for him to jump if he does intend to move early, says Michael Gregory of BMO Capital Markets.
“If they go before June, there’s only one reason if they wanted to maintain their credibility, and that’s the inflation projection has changed,” he said.
“But that’s sending a pretty sharp inflation warning and I’m not sure what’s on the ground now justifies ringing that alarm bell.”
Statistics Canada reported last month that the core inflation rate, which the Bank of Canada watches closely, was 2.1 per cent in February while overall inflation was 1.6 per cent.
Both are within the central bank’s target range for the annual inflation rate, set at between one and three per cent.
The Canadian Press
Or
Bank of Canada sets stage for rate hike
By Paul Vieira, Fi...nancial Post
http://www.canada.com/business/Bank+Canada+sets+stage+interest+rate+hike/2928579/story.html
OTTAWA — The Bank of Canada on Tuesday scrapped its conditional commitment on interest rates, setting the stage for a June hike if it so chooses.
The Canadian dollar surged above parity to the U.S. currency shortly after the central bank's monetary statement was released at 9 a.m.
The announcement marked a "dramatic change in tone" from the central bank, said Douglas Porter, deputy chief economist at BMO Capital Markets.
"A rate hike in June is now very much on the table," he said, adding that increases of 50-basis-points can't be ruled out.
The bank's decision is based on a new hawkish inflation forecast that envisages consumer price increases hovering above the key two per cent level over the next 12 months. In its previous forecast, the central bank did not expect inflation to hit two per cent until the third quarter of 2011 at the earliest. The central bank sets its key policy rate to achieve and maintain two per cent inflation.
Further, the economic recovery "is proceeding somewhat more rapidly" than anticipated as consumers took advantage of record-low rates, the central bank said. As such, it has revised upward its growth projection for this year, to 3.7 per cent expansion from its previous 2.9 per cent forecast, and moved up the timing at which time the Canadian economy is expected to hit full potential — now scheduled to happen in the second quarter of next year, as opposed to the third quarter.
These developments led the central bank's governing council to ditch its conditional commitment on rates, issued roughly a year ago. The pledge was to keep its key policy rate at its lowest-possible level, 0.25 per cent, until July in an effort to pump up the economy. But the commitment was conditional on its forecast on inflation — which has exceeded expectations.
"With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus," the central bank said in its statement. "The extent and timing will depend on the outlook for economic activity and inflation, and will be consistent with achieving the two per cent inflation target."
In another stimulus-removing move, the governing council also announced it would cease undertaking special liquidity operations that pump cash into the marketplace. The last such undertaking happened on April 12, and no more are planned. These financing activities were launched at the onset of the financial crisis, to ensure there was enough cash in the system to flow to creditworthy households and businesses.
"The Bank of Canada statement is more hawkish than we thought," said Jonathan Basile, vice-president of economics at Credit Suisse in New York. "Dropping the conditional commitment opens the door for a June rate hike."
Andrew Pyle, wealth adviser and markets commentator with ScotiaMcLeod, said the statement indicated there's no reason to keep rates at emergency levels any further. "The big question now is how far rates can move before the bank has to release its foot from the brake pedal."
In its last rate statement, on March 2, the central bank took its first steps toward returning the country to more normal rates by signalling a more hawkish tone on inflation and acknowledging the stronger-than-anticipated economy. A few weeks later, Bank of Canada governor Mark Carney delivered a speech in which he emphasized that his rate commitment "expressly conditional," leading analysts to revisit their outlook and pencil in the possibility of a June increase.
Prior to the Tuesday rate announcement, the market had priced in a 33 per cent chance of a June rate hike — down from the 50 per cent-plus odds built into bankers' acceptance futures last week, according to BMO Capital Markets in a note. Traders had also anticipated increases in the central bank benchmark rate of up to 125 basis points for the remainder of 2010.
The statement provided some details regarding the revised central bank's outlook, to be released on Thursday. The forecast period now extends out to the end of 2012, and the biggest change relates to inflation.
Headline inflation is now expected to be "slightly higher" than two per cent over the coming year before returning to the two per cent target in the second half of 2011. The previous expectation was for inflation to hover below two per cent until slowly reaching that mark in the third quarter of 2011.
Meanwhile, core inflation, which strips volatile-priced items such as food and energy, is expected to ease slightly this quarter but remain "near" two per cent through to the end of 2012.
Recent data for February suggested core inflation surpassed the two per cent level.
Economic growth in 2010 has been bumped up, to 3.7 per cent from 2.9 per cent, but then downgraded to 3.1 per cent in 2011 from the previous 3.5 per cent estimate. The Canadian economy is benefiting from noticeable "momentum" in the emerging markets, whereas the recovery the developed economies remains "relatively subdued" due to overextended household and government balance sheets.
"Despite recent progress, considerable uncertainty remains about the durability of the global recovery," the statement said.
The Bank of Canada has pencilled in 1.9 per cent growth for that year — a level at which the bank had warned about unless Canadian productivity improved.
"The persistent strength of the Canadian dollar, Canada's poor relative productivity performance and the low absolute level of U.S. demand will continue to act as significant drags on economic activity in Canada," the central bank said.
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