Financial Update

TSX get big lift from resource shares
· TSX +286.29pts its highest advance in 3 weeks, as investors snapped up energy stocks after U.S. inventory data showed a bigger than expected drawdown of gasoline stocks last week.(Reuters)
· Dow +68.88pts as the financial sector improved despite mounting worry and a growing conviction that the U.S. government will have to bail out government sponsored mortgage enterprises Freddie Mac and Fannie Mae.
· Dollar .02c to $94.23US
· Oil $.45to $114.98US per barrel as traders shrugged off a massive increase in U.S. crude inventories and a stronger U.S. dollar and focused on possible supply threats.
· Gold -$.80 to $810.30US per ounce

Weakness in Canadian economy helping homebuyers

Financial Post Garry Marr, Canwest News Service There is some good news in the falling housing market, affordability is improving.

Desjardins Economic Studies says that after eight years of rising prices, housing costs are going down. "For the second quarter in a row we have had an increase in affordability," said Hélène Bégin, senior economist with Desjardins.

However, she warned consumers should not get too excited about the market conditions because affordability is still very close to the all-time low reached in 1990.

The Desjardins Affordability Index is calculated by determining the ratio between average household disposable income and the income needed to obtain a mortgage on an average-priced home, known as the qualifying income.

The report from Desjardins said its affordability index climbed to 110.7 last quarter after dropping close to 100 at the end of 2007. In the early 1990s, the affordability index was as low as 93.6.

Desjardins says that affordability has increased by about 10% in the past two quarters because of falling home prices and lower mortgage rates.

The Canadian Real Estate Association said last week that the average price of a home sold in the country's major markets was $327,020, a 3.6% increase from a year ago. It was the second consecutive month prices had dropped on a year-over year basis.

Statistics Canada also said last month new homes prices grew only by 3.5% in June from a year earlier. It was the slowest rate of growth since March, 2002.

Desjardins noted that in the first half of the year, existing home prices rose by 4.4% compared to 10% a year earlier. The posted rate on a one-year mortgage also fell from 7.25% in March to 6.3% by the end of June. The posted rate on a five-year mortgage fell from 7.15% to 7.1% during the same period.

"House prices are just not going up as strongly as before and in some places in Western Canada, like Calgary, we have had some price drops. With the kind of return we have in Calgary, it has a big impact on affordability," said Ms. Bégin.

Prices in Calgary fell 7.8% in July from a year earlier, according to CREA.

They were off 5.8% in Edmonton during the same period. Desjardins says affordability in Calgary improved by 7.5% over the last three months.

Even with the improved conditions, affordability is still off almost 30% from the peak reached in late in 2001. Long-term Desjardins thinks affordability will continue to improve. "Prices are going to go up slowly,"

said Ms. Bégin. "Out west we've seen a turning point where prices are going down."
The drop in prices is good news for home builders, according to the chief operating officer of the Canadian Home Builders' Association.

"If you were sitting in my chair what you would be experiencing is one very busy housing industry from coast to coast," said John Kenward. "There has been a slowing down in certain markets and builders in those market say it's a return to a more normal market place."