Financial Update

TSX breaks losing streak

the Bank of Canada has an unofficial rule of thumb that says for every $10 decrease in the price of oil, the inflation rate drops 0.2 percentage points. With oil down more than $40 from its peak in July, the implication is for inflation falling roughly 0.8 percentage points. HEATHER SCOFFIELD , Globe and Mail

· TSX +350.39pts as investors shopped for bargains after days of losses on the TSX amid a sharp move away from commodities.
· Dow +38.19pts after U.S. investment bank Lehman Brothers said it will sell a majority stake in its investment management unit after losing $3.9 billion US in the third quarter
· Dollar +.07c to $93.48US.
· Oil -$.68 to $102.58US per barrel The price of oil, one of the most influential determinants on the TSX, closed slightly lower in jittery trading, as the strengthening U.S. dollar and signs of a slowing U.S. economy outweighed inventory drops and word that OPEC would cut production.
· Gold -$29.20 to $757.90US per ounce
Productivity down for third consecutive quarter The Canadian Press OTTAWA The labour productivity of Canadian businesses fell for a 3rd straight quarter, highlighting a marked deterioration in the country's competitiveness and a signal that growth is slowing and inflation becoming more of a risk, economists say. Statistics Canada reported yesterday that the 0.2% drop in the second quarter of the year came primarily from the mining and oil and gas extraction industries, as well as construction. It followed a drop-off of 0.6% in each of the previous 2 quarters, the most consecutive quarterly declines since 1990.

Another “BANK” to compete against you! Not mentioned in the article, and contributing to profit, is the Canadian Tire Mortgage that Manulife finances. Although the article says they “don’t want the challenges of bricks and mortar” they no longer do business in the mortgage broker channel… And below….. House prices overvalued in Canada

Banking revenues beef up Manulife financial picture

Michael Hammond RECORD STAFF WATERLOO

Don't expect Manulife Financial to open a bank branch anytime soon, but the insurance company's banking division has become a major source of revenue growth, Manulife Canada's chief executive said yesterday.

Paul Rooney said Manulife Bank of Canada loaned out $1 billion in the company's second quarter ended June 30, and that volume is growing by $1 billion a quarter.

Despite the surging fortunes of the banking unit, Rooney said he doesn't see it moving more toward a traditional banking model.

"I think the opportunity for us is to be the adviser's bank," he said at a financial services conference in Toronto yesterday. "I don't want the challenges of the bricks and mortar."

Manulife Bank, established in 1993, is geared toward the insurance company's clients who want to simplify their investments into a single account. Rooney, who works out of Manulife Canada's head office in Waterloo, said the concept has caught on in Australia, but is still in its infancy in Canada. The banking division's growth has been driven by the Manulife One product, which is billed as a flexible mortgage account. The product also serves as an everyday banking account. Whenever income is added into the account, the interest helps pay down a client's mortgage.
Rooney and Sun Life Financial Canada president Dean Connor spoke of another emerging growth opportunity at the conference -- serving the needs of the growing pool of baby boomers. Connor said his Waterloo-based company has developed an "aggressive" growth plan that is focused on the needs of aging boomers, especially their health-care requirements. He pointed out that this will be a key area of focus for insurers given that governments in developed countries have been shifting the cost of health care to individuals.

Rooney said a number of these boomers own their own small businesses, which will help create another big opportunity in the coming years. There are 2.4 million small businesses registered in Canada, he said, many of which are owned by people nearing retirement age. This means there are about $1.2 trillion in business assets that are set to change hands by 2010, he added.
"It's another area where we're going to be focusing," he said.

House prices overvalued in Canada

Eric Beauchesne, Canwest News Service

OTTAWA -- Canadian homeowners should be prepared for a fall in housing prices, warns a study that estimates homes in most cities are overvalued, and by as much as 25%.
With the exception of Toronto and Edmonton, houses in Canada's major cities are overvalued by anywhere from $32,000 to $87,000, says the study of prices in nine cities by researchers at the Sauder School of Business at the University of British Columbia.

The study, released Monday, looked at prices for single-family homes in the second quarter of this year in nine major Canadian cities, and compared prices in those cities with what they would be in a balanced market based on the relationship between house prices and rents.

Only in Toronto are prices in balance with rents, the study concluded. In Halifax, Montreal, Ottawa, Regina and Winnipeg prices would need to drop by at least 20% to be in balance and in Calgary by 7% and in Vancouver by 11%.

In contrast, Edmonton prices are actually below equilibrium, and would have to rise by 8% to be in balance, it said.

"The decade long boom in Canadian markets is over," Tsur Somerville, the study's lead author.
Housing affordability is a severe problem in some Canadian cities, limiting the ability of markets to continue to rise, says the report titled "Are Canadian Housing Markets Overpriced?"

The rapid price increases in many Canadian cities since 2001 along with the downturn in the U.S. housing market has raised concerns about the future of housing markets here, it noted.
"There are parallels between the path of house prices in Canadian and U.S. markets," it said.

During the U.S. housing boom, which ran from 1997 to 2006, prices rose 132%, while in Canada over the 2001-08 boom prices in the nine cities rose by an average of 87%.

While Canada's more conservative lending practices have prevented the speculative excess and severe downturn experienced in U.S. markets, they haven't prevented homes from becoming overpriced, it said.

The assessment of whether a housing market is in balance or equilibrium takes into account the ratio of rent to prices, mortgage rates and the cost of owning a house, and the expected long-term price appreciation.

In dollar terms, the amount by which house prices would have to fall to bring them back into balance in each of the overpriced cities was: Calgary $32,000, Halifax $58,000, Montreal $68,000, Ottawa $81,000, Regina $87,000, Vancouver $85,000 and Winnipeg $74,000.

That houses are overpriced doesn't, however, guarantee that they will fall, it said.

"Instead the market could return to equilibrium through an extended period of housing price appreciation that is above zero, but below the long run rate," it said.

The potential for price declines is greatest in cities that have a large supply of unsold inventory or a mismatch between the number of units and the number of households ready to occupy them, it says, adding that by that criteria Vancouver is the most at risk of a housing price correction, though compared with most of the other cities the decline would be relatively moderate.

While the study looked at prices for single-family homes, it noted that a concern in some housing markets is that the buyers of units are not living in them, it added.

"If markets turn, these investor-buyers might behave in a manner akin to other asset markets, dumping their units to avoid future greater perceived price declines," it said. "In contrast, owner occupiers, unless forced to sell, can remain in their units and wait out a weak market."

In contrast, prices in Edmonton would have to rise by $32,000 to bring them back into balance, and that's despite what has been an annual increase in prices of 13.4% during the 2001-08 housing boom.

Annual price increases during the 2001-08 housing boom for the other cities studied were 14.5% in Regina, 12.4% in Calgary, 10.6% in Vancouver, 10.2% in Winnipeg, 8.1% in Montreal, 5.7% in Halifax, 5.7% in Ottawa, and 7.2% in Toronto