Financial Update

Rising financials limit losses on TSX; N.Y. surges on mixed data

· TSX -30.85pts (Reuters) a burst in financial stocks helped offset political events in Canada which kept the TSX from tagging along with a rise in U.S. stock markets along with sliding energy shares
· DOW +172.80pts after investors weighed projections of big job losses and some decent retail news. Traders were pleased at news from market research that online retail spending came in at $846m, 2days ago on so-called Cyber Monday, up 15%from a year ago
· Dollar -.16c to $79.78US.
· Oil -$.17 to $46.69US per barrel.
· Gold -12.80 to $770.50US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

Stimulus coming in January budget: Flaherty

Paul Vieira, Financial Post

OTTAWA -- The Finance Minister, Jim Flaherty, said Wednesday night there would be additional fiscal stimuli in the government's Jan. 27 budget because economic conditions are "deteriorating."

This marks the first confirmation from the Finance Minister that there will be stimuli in the coming budget. Canada, along with other Group of 20 nations, had agreed last month to spend 2% of its GDP to help pull the developed world out of a potentially protracted economic slowdown.

"There will be some additional stimulus, inevitably, in the budget given that we are seeing deteriorating fiscal conditions around the world," Mr. Flaherty said during a broadcast interview.
"It is quite clear the [economic] situation is getting worse. That is the reality and we are going to have to deal with that."

His comments emerged after news that the Prime Minister, Stephen Harper, will visit the Governor-General to ask that the current session of Parliament be terminated, or prorogued. If granted, the House of Commons would return Jan. 26, with a budget to follow the next day.

But more important, it would temporarily end a bid by the Opposition parties to bring down the government, on the basis that it failed to provide a fiscal stimulus package in last week's economic update.

Before Mr. Flaherty's interview, the Prime Minister, Stephen Harper, suggested in his address to the nation that additional measures aimed at stoking domestic demand would be part of the Jan. 27 budget.

Mr. Flaherty has been under the gun since the release of his fiscal update, which provided no new fiscal stimuli and said Canada - through previously legislated tax measures and scheduled infrastructure spending - would already be injecting roughly $30-billion into the economy next year.

But in his interview, Mr. Flaherty talked about possible measures he may introduce in the budget, such as: tax cuts; further liquidity injections into the financial system to spark more lending; new money toward infrastructure, on top of the $33-billion already allocated in the Building Canada fund; and help for the automotive sector.

The Liberal-NDP coalition that threatens to take down the Conservatives said its first priority would be a two-year fiscal stimulus package that would focus on infrastructure, housing construction and aid for ailing manufacturers.

The stimuli he is promising may add to the size of Ottawa's deficit next year. While the fiscal update projected a $100-million surplus for the 2009-10 fiscal year, most economists believe the shortfall will be in the $7-billion to $10-billion range.

Recession threat weighs on housing markets

BRENDA BOUW The Canadian Press

VANCOUVER — Housing prices will fall about 5 per cent across Canada by the end of 2009 as a slumping economy takes a bite out of consumer confidence, says the ReMax realtor company.
The biggest drops are expected to come in major cities in British Columbia, where prices have run up the most across Canada in recent years, and in manufacturing centres in southwestern Ontario hit with automotive and manufacturing job losses.

In a report released Wednesday, ReMax said Canada's average house price has retreated from 2007's record high and will fall three per cent this year to $300,000 and another 2 per cent next year to $293,000.

About 440,000 homes are expected to change hands in 2008, a drop of 15 per cent compared to 520,747 last year. ReMax predicts 2009 sales to be flat.

“The reason for that is purely consumer confidence, it's shaken terribly right now,” said Elton Ash, a ReMax regional vice-president located in Western Canada.

“There are a lot of questions over job prospects right now.”

The 3 per cent overall drop in prices predicted for 2008 comes despite gains in 22 major centres across Canada, with the exception of Calgary and Edmonton, where prices are expected to fall one per cent.

Mr. Ash said the national drop is driven by smaller centres, such as forestry, oil and gas, mining and manufacturing towns hard hit by a downturn in the economy that has resulted in layoffs and stalled project development.

“It's the smaller markets that have seen larger decreases as a result of economic performance,” said Mr. Ash.

In 2009, the largest drops are expected in both Victoria and Kelowna, B.C., where prices are predicted to fall 10 per cent in 2009 to an average of $440,000 and $378,000 respectively.

Prices in Vancouver, Canada's most expensive housing market, are predicted to slump seven per cent to $545,000 next year.

“B.C. had the biggest runup in prices nationally in recent years,” Mr. Ash said. “When you have that happen there is going to be a greater down cycle.”

Kitchener-Waterloo, Ont. is also expected to see a seven-per-cent price drop in housing in 2009, to an average of $250,000, followed by a four-per-cent drop in the nearby Hamilton-Burlington, Ont. region, to $268,000. Both are impacted by a downturn in the automotive and manufacturing sectors, which had laid off thousands of employees in recent months.

The Greater Toronto area, which includes manufacturing and the struggling financial services sector, is predicted to see a drop in house prices of two per cent to $376,000 next year.

On the upswing is St. John's, N.L., which is expected to see a 12-per-cent jump in house prices in 2009, which ReMax says is due to the “(Newfoundland Premier Danny) Williams effect on the overall economy.”

House prices in Regina are expected to rise nine per cent next year, while cities such as Ottawa, Edmonton, Calgary, Sudbury and Halifax are predicted to see prices remain flat next year.

Adrienne Warren, a senior economist at Scotiabank, said the ReMax estimates mirror her forecasts, although the bank's economists are predicting prices to end flat across the country this year compared to 2007 and by five-to-10 per cent in 2009.

“The big risk to the Canadian housing market right now is a more significant recession and more significant job losses as opposed to mortgage-specific related problems we are seeing in the U.S.,” Ms. Warren said.

“The price declines are driven by more supply and fewer buyers.”

The U.S. housing market crashed last year as a result of reckless lending practices that covered about one-third of mortgages. They eventually defaulted, which led to the toppling of the housing market and several financial institutions who backed the risky investments.

Merrill Lynch said recently that Canada's housing market is following the same troubled path that eventually led the US. market into a major downturn, but with a two-year lag. It said Canadian households are so deeply in debt that a “tipping point” is approaching for the overall real estate market.

Many economists, as well as the Canadian real estate industry, disagree the market here will be as bad as in the U.S., where prices have fallen 20 per cent since the peak in mid-2006, and are expected to fall another five per cent next year.

It its outlook released this week, the Canadian Association of Accredited Mortgage Professionals predicts mortgage approval activity (including new mortgages, transfers and refinancings) to fall nearly 12 per cent to $193-billion in 2008, compared to $218-billion in 2007.

Approvals are forecast to fall another 10 per cent to $174-billion in 2009 and another 1.6 per cent in 2010 to $171-billion. That follows a growth rate of about 11.5 per cent annually for the three years ended August 2008.

Putting a positive spin on its report Wednesday, ReMax said the drop in prices is good news for new home buyers.

“The depreciation of prices is certainly good news from a first-time home buyers perspective to bring affordability to the picture,” Mr. Ash said.

“For people moving from home A to home B, it doesn't matter as much.”