A hot real estate market getting hotter
average sale price of a house in Canada increased 13.6% from a year ago.
• TSX -28.27 to 11,504(Reuters) on lower gold prices and disappointing U.S. earnings news
• DOW +144.80 to 10,062
• Dollar -.81c to 96.67
• Oil +$2.40 to $77.58US per barrel. Hits another 2009 high
• Gold -$14.100 to $1,049.80USD per ounce
• Canadian 5 yr bond yields +.03bps to • http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
Canada's annual inflation rate edged down one-tenth of a point in September, staying well below zero at minus-0.9 per cent
Canada a tale of two economies: as export sector staggers, domestic activity booms
By Julian Beltrame OTTAWA — Two reports Thursday reinforced recent trends that show a strong domestic Canadian economy propped up by floor-low interest rates and a recovering housing market, and a weak manufacturing sector hammered by the sky-high dollar and a squeeze on exports.
“What it’s telling us is that low interest rates are working in Canada,” said CIBC chief economist Avery Shenfeld. “We’ve had a number of disappointments on the export front. Where Canada is showing vigour, it’s on the domestic front in response to low interest rates.”
The most recent evidence is the outsized growth in house sales during the third quarter — given the still-weak overall economy.
The Canadian Real Estate Association reported that in real terms, sales of existing homes in the country have never been stronger than in the just-completed third quarter. The association said more than 135,000 units were sold in the July-to-September period — 18 per cent higher than the corresponding period last year before the recession hit.
Meanwhile, Statistics Canada figures released early Thursday showed factory shipments fell 2.1 per cent in August as the activity from the U.S. cash-for-clunkers program, which had artificially spurred auto sales in the United States, subsided.
As well, there are few signs of recovery ahead for the battered manufacturing sector as new orders have practically stagnated and unfilled orders fell 4.2 per cent.
“The fact remains that Canada’s manufacturing sector remains under duress,” said TD Bank economist Grant Bishop, noting the new challenge of a dollar that many expect to regain parity with the U.S. greenback by year’s end.
A perhaps even bigger barrier to a recovery in Canada’s export sector, which accounts for about one-third of the economy, is that consumer demand in the U.S. for what Canada has to sell — cars, parts, lumber and consumer items — isn’t about to pick up any time soon.
A new Conference Board of Canada forecast of the U.S. economy estimated that consumer spending will remain in the dumps throughout 2010, rising only about one per cent from already abysmal levels.
The problem faced by the Bank of Canada is that hinting it may raise rates sooner than next summer, when its conditional pledge to keep the policy rate at 0.25 per cent runs out, will only add fuel to the loonie’s flight and further harm exports and manufacturers. Suggesting that rates will remain as low as they are for a long time feeds into a housing asset bubble and risks inflation.
“The decisive rebound (in home sales) puts the Bank of Canada in a quandary — while the hot housing market cries out for rate hikes, the runaway loonie screams ‘No!’ ” is the way Doug Porter, deputy chief economist with BMO Capital Markets, puts it.
The big banks recently raised mortgage rates by up to a third of a point on many loans, a move that could slow down demand in some markets. However, mortgage rates are still extremely low by historic standards. The Canadian Press
A hot real estate market getting hotter
Garry Marr, Financial Post The statistics may not say it yet but Toronto real estate sales representative Kate Watson can already feel the ground shifting.
A new set of data from the Ottawa-based Canadian Real Estate Association (CREA) shows the market tighter than ever with the lack of supply in new listings conspiring to make a hot market even hotter.
CREA said Thursday the average sale price of a house in Canada reached $331,602 last month, a 13.6% increase from a year ago. There just isn't enough new product coming to market to meet demand. Last month, there was 80,816 new listings across the country, compared to 97,657 a year ago.
The supply problem is happening in almost every major Canadian city. Toronto new listings were down 25.3% last month from a year ago. Calgary was off 26.1%.
The number of months of inventory in the market -- which is based on the number of months it would take to sell current inventories based on current sales activity -- was 4.9 months in September. That figure was down slightly from August and way off the peak of 12.8 months reached in January.
CREA expects the situation to ease in the coming months as sellers realize the type of prices they can get if they list. Ms. Watson, who works for Wright Real Estate Brokers Ltd., says the situation is already resolving itself.
"It was bit of as logjam but it is already starting to clear," she says. "You had a lot people waiting to list until after Thanksgiving because nobody wants to put their property for sale before a holiday."
The Canadian market has had a remarkable turnaround from a winter that was the worst Ms. Watson can remember in her six years on the job which have mostly witnessed a rising market. September sales across the country were up 1.5% from August. The latest bump in sales puts the market 63% above January low.
The same things continue to drive the housing market. "Low interest rates, rebounding consumer confidence and improving overall sense of economic security continue to draw homebuyers," said Dale Ripplinger, president of CREA.
CREA's chief economist Gregory Klump said the 1.5% increase in sales while impressive shows the market is beginning to cool to some degree. "Monthly sales activity remained on a strong upward trajectory throughout the third quarter in British Columbia while showing signs it may be topping out in other provinces. On balance, this suggest the sales activity may be starting to plateau after having climbed rapidly earlier this year," he said.
The total dollar figure for all sales in the third quarter reached $41-billion, the highest level on record for the period. British Columbia and Ontario reached new highs for dollar volume. Canada's largest cities are driving the housing market. Vancouver sales in the third quarter were up 34% from second. Toronto sales rose 11% during same period while Calgary climbed 19%.
Nationally, average national sales price in the third quarter was $327,736, an 11% increase from a year ago. Sellers sitting on the sidelines are expected to move in the coming months.
"Headline average price increases over the rest of the year are expected to prompt sellers to return to the market," said Mr. Klump. "An increase in new listings will help keep a lid on price increases."
Scotiabank economist Adrienne Warren says she's not too concerned about any sort of bubble building in the housing market. "I don't think so. This is just the strength of demand and a lack of listings," she said. "As the economy stabilizes, people will feel more confident to list their homes."
Friday, October 16, 2009
Thursday, October 15, 2009
Financial Update For Oct. 15, 2009
Dow passes 10,000 for 1st time in a year
The Canadian dollar zooms to its highest level in over 14 months
Oil hits 2009 high
• TSX +119.24 to 11,532(Reuters) TSX found strong support from the energy sector as the bullish reports from the U.S. raised hopes for higher crude demand.
• DOW +144.80 to 10,015.86 broke through the psychologically important 10,000 mark amid key earnings reports and a better than expected reading on retail sales in the United States.
• Dollar +1.00c to 97.48.
• Oil +$1.03 to $75.18US per barrel. Hits new 2009 high on economic optimism
• Gold -$.30 to $1,063.90USD per ounce Support was provided by the weak dollar which slipped to its lowest in more than a year, making dollar-denominated commodities like oil and gold more affordable for holders of other currencies
• Canadian 5 yr bond yields +.01bps to 2.85. The spread, based on the new MERIX 5 yr rate published of 4.34% is 1.49 so we are back in the centre of the comfort zone
• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.
Canadian Tire retires from the mortgage business
John Greenwood, Financial Post
Just two years after getting into the mortgage business, Canadian Tire is calling it quits.
The big-box retailer Wednesday said it has agreed to sell its relatively measly $167-million portfolio of home loans to National Bank of Canada for book value.
Canadian Tire Corp. launched its banking operation in 2006 just as the credit bubble was building, offering savings accounts, GICs as well as mortgages. At the end of the second quarter the banking business had $2.1-billion in deposits.
"We had been in pilot [stage] for a period of time with our mortgage business and we looked at the business and the market conditions and decided longer term that the best opportunities resided in our core business and retail banking," said Huw Thomas, the chief financial officer.
The company made only about a thousand home loans over the life of the program because it was operating only in a handful of markets and was focusing only on clients with top credit ratings, Mr. Thomas said.
Following the credit crunch and the seizing up of the securitization market, many non-bank lenders have been hit by soaring funding costs and declining profits. Industry insiders said several companies that are dependent on the securitization market have recently been forced to sell off small parts of their operation and there is speculation that larger deals could follow.
Canadian Tire is a major player in the credit card business, one of Canada's largest MasterCard issuers. Before the financial crisis the business was funded largely through securitization -- packaging the loans and selling them off -- and while the disruption in that market has affected profit margins, the effect has been minimal since the company has been able to turn to its banking business for funding.
"We have no liquidity concerns about our credit card business," Mr. Thomas said, adding that the move away from securitization "has actually been reasonably cost effective."
In a statement, Canadian Tire said its "core credit card business has performed well in a difficult economic climate and the company is confident about its prospects for new growth as the economy returns to health."
The credit card portfolio has about $4-billion of loans which are still partly funded by securitization.
Mr. Thomas said Canadian Tire has no concerns about funding its credit card business "even if securitization doesn't come back."
The Canadian dollar zooms to its highest level in over 14 months
Oil hits 2009 high
• TSX +119.24 to 11,532(Reuters) TSX found strong support from the energy sector as the bullish reports from the U.S. raised hopes for higher crude demand.
• DOW +144.80 to 10,015.86 broke through the psychologically important 10,000 mark amid key earnings reports and a better than expected reading on retail sales in the United States.
• Dollar +1.00c to 97.48.
• Oil +$1.03 to $75.18US per barrel. Hits new 2009 high on economic optimism
• Gold -$.30 to $1,063.90USD per ounce Support was provided by the weak dollar which slipped to its lowest in more than a year, making dollar-denominated commodities like oil and gold more affordable for holders of other currencies
• Canadian 5 yr bond yields +.01bps to 2.85. The spread, based on the new MERIX 5 yr rate published of 4.34% is 1.49 so we are back in the centre of the comfort zone
• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.
Canadian Tire retires from the mortgage business
John Greenwood, Financial Post
Just two years after getting into the mortgage business, Canadian Tire is calling it quits.
The big-box retailer Wednesday said it has agreed to sell its relatively measly $167-million portfolio of home loans to National Bank of Canada for book value.
Canadian Tire Corp. launched its banking operation in 2006 just as the credit bubble was building, offering savings accounts, GICs as well as mortgages. At the end of the second quarter the banking business had $2.1-billion in deposits.
"We had been in pilot [stage] for a period of time with our mortgage business and we looked at the business and the market conditions and decided longer term that the best opportunities resided in our core business and retail banking," said Huw Thomas, the chief financial officer.
The company made only about a thousand home loans over the life of the program because it was operating only in a handful of markets and was focusing only on clients with top credit ratings, Mr. Thomas said.
Following the credit crunch and the seizing up of the securitization market, many non-bank lenders have been hit by soaring funding costs and declining profits. Industry insiders said several companies that are dependent on the securitization market have recently been forced to sell off small parts of their operation and there is speculation that larger deals could follow.
Canadian Tire is a major player in the credit card business, one of Canada's largest MasterCard issuers. Before the financial crisis the business was funded largely through securitization -- packaging the loans and selling them off -- and while the disruption in that market has affected profit margins, the effect has been minimal since the company has been able to turn to its banking business for funding.
"We have no liquidity concerns about our credit card business," Mr. Thomas said, adding that the move away from securitization "has actually been reasonably cost effective."
In a statement, Canadian Tire said its "core credit card business has performed well in a difficult economic climate and the company is confident about its prospects for new growth as the economy returns to health."
The credit card portfolio has about $4-billion of loans which are still partly funded by securitization.
Mr. Thomas said Canadian Tire has no concerns about funding its credit card business "even if securitization doesn't come back."
Wednesday, October 14, 2009
Financial Update For Oct. 14, 2009
Eyes turn to Bank of Canada as dollar continues to soar toward parity
Gold hits another all time high
• TSX -23.38 to 11,413(Reuters) as strength in commodity prices was not enough to offset a drop in banking shares
• DOW -14.74 Concern about a heavy slate of upcoming U.S. earnings reports also persuaded some investors to pocket profits.
• Dollar +.73c to 96.48.
• Oil +.88 to $74.15US per barrel. Hits another 2009 high
• Gold +$7.50 to $1,064.20USD per ounce hitting another all time high
• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.
Eyes turn to Bank of Canada as dollar continues to soar toward parity
Canadian Press OTTAWA - The recent surge in the loonie could damage the pace of Canada's recovery, Prime Minister Stephen Harper warned Tuesday as pressure built on the Bank of Canada to intervene.
The Canadian dollar has risen more than five cents in the past two weeks, much of it in the last few days of trading.
It closed up 0.73 cents at 96.48 cents U.S. Tuesday from the central bank's posted rate Friday, although it had been above 97 cents for much of the day and was higher in overseas markets Monday when Canadian markets were closed for Thanksgiving.
Speaking in Vancouver, Harper said he was concerned, especially with the quick pace of the appreciation.
"As we said before, we're not out of the woods. There are many risks ... and obviously the value of the Canadian dollar is a risk to recovery," he said.
"I don't think it's a risk to choking off the recovery but if it goes up too rapidly it does have difficult effects on our economy."
The prime minister went on to say the currency is the responsibility of the Bank of Canada, but did not say what he believes governor Mark Carney should do, if anything.
Carney has taken to trying to jawbone the dollar down since it began its steady ascent from 76.53 cents on March 9 with little to show for it.
Avrim Lazar of the Forest Products Association of Canada said the time has come for Carney to match his words with action.
"This is not a penny mining stock we're talking about. It's our currency, the foundation of our economic growth," he said.
"I'm not going to tell Mark Carney how to do his business, but we're saying if you want to keep jobs in this country and you want to avoid destroying the recovery, he has to use the tools at his disposal."
The simplest way for the bank to intervene is to print Canadian dollars and use them to purchase the U.S. currency - in essence devaluing the loonie while increasing demand for the greenback.
Many economists have been forecasting the loonie would hit parity with the U.S. greenback in the middle of next year.
"It could happen middle of next week," said Derek Holt, vice-president of economics with Scotia Capital.
That is good news for consumers in Canada, who may see the prices of imported goods fall in what economists call a "back-door pay hike," and for vacationers or retirees who spend their winter months in the warm states.
However, a strong loonie is regarded as a net negative for the economy with about 35 per cent of the country's gross domestic product is tied of exports and three-quarters of those are destined for the U.S.
The Canadian Manufacturers and Exporters estimates a one per cent appreciation in the value of the loonie - roughly equivalent to one cent at current levels - reduces sales by about $2 billion, equating to about 25,000 jobs.
The bank's next opportunity to chime in on the dollar comes next week at its pre-scheduled policy rate announcement. Few Carney will intervene.
The problem is that Canada's currency is not the only one on the move. Since March 9, other so-called commodity plays have performed just as well, or as in the case of Australia, far better. The Aussie buck has risen about 43 per cent against the U.S. currency, to Canada's 26-per-cent appreciation.
"This is a freight train. There's only so much the Bank of Canada can do," said Douglas Porter, deputy chief economist with BMO Capital Markets.
Analysts say a number of factors are at play, including the fact that money seeking a safe haven in the world's most liquid currency during the crisis this past winter is moving elsewhere now that global growth appears to be resuming.
And the fundamentals favour Canada. Growth in China and other Asian countries is again leading to an increase in demand for commodities that Canada exports. As well, Canada is not as saddled with debt as the United States.
"Sentiment has turned very quickly, very negatively against the U.S. dollar. The market is very focused on the U.S. deficit and the plans for funding it... and the market is concerned about the general outlook for the U.S.," said Camilla Sutton, a currency analyst for Scotiabank.
In the past week, the loonie got additional turbo boosts from the surprisingly strong jobs gain reported on Friday - a net gain of 31,000 jobs - and the Australian central bank's decision to raise rates, leading to speculation the Bank of Canada would be among the next to move.
The loonie's strength, however, makes that even more improbable, noted Porter, since raising rates before the U.S. Federal Reserve does will only add more fuel to the loonie's boosters.
Gold hits another all time high
• TSX -23.38 to 11,413(Reuters) as strength in commodity prices was not enough to offset a drop in banking shares
• DOW -14.74 Concern about a heavy slate of upcoming U.S. earnings reports also persuaded some investors to pocket profits.
• Dollar +.73c to 96.48.
• Oil +.88 to $74.15US per barrel. Hits another 2009 high
• Gold +$7.50 to $1,064.20USD per ounce hitting another all time high
• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.
Eyes turn to Bank of Canada as dollar continues to soar toward parity
Canadian Press OTTAWA - The recent surge in the loonie could damage the pace of Canada's recovery, Prime Minister Stephen Harper warned Tuesday as pressure built on the Bank of Canada to intervene.
The Canadian dollar has risen more than five cents in the past two weeks, much of it in the last few days of trading.
It closed up 0.73 cents at 96.48 cents U.S. Tuesday from the central bank's posted rate Friday, although it had been above 97 cents for much of the day and was higher in overseas markets Monday when Canadian markets were closed for Thanksgiving.
Speaking in Vancouver, Harper said he was concerned, especially with the quick pace of the appreciation.
"As we said before, we're not out of the woods. There are many risks ... and obviously the value of the Canadian dollar is a risk to recovery," he said.
"I don't think it's a risk to choking off the recovery but if it goes up too rapidly it does have difficult effects on our economy."
The prime minister went on to say the currency is the responsibility of the Bank of Canada, but did not say what he believes governor Mark Carney should do, if anything.
Carney has taken to trying to jawbone the dollar down since it began its steady ascent from 76.53 cents on March 9 with little to show for it.
Avrim Lazar of the Forest Products Association of Canada said the time has come for Carney to match his words with action.
"This is not a penny mining stock we're talking about. It's our currency, the foundation of our economic growth," he said.
"I'm not going to tell Mark Carney how to do his business, but we're saying if you want to keep jobs in this country and you want to avoid destroying the recovery, he has to use the tools at his disposal."
The simplest way for the bank to intervene is to print Canadian dollars and use them to purchase the U.S. currency - in essence devaluing the loonie while increasing demand for the greenback.
Many economists have been forecasting the loonie would hit parity with the U.S. greenback in the middle of next year.
"It could happen middle of next week," said Derek Holt, vice-president of economics with Scotia Capital.
That is good news for consumers in Canada, who may see the prices of imported goods fall in what economists call a "back-door pay hike," and for vacationers or retirees who spend their winter months in the warm states.
However, a strong loonie is regarded as a net negative for the economy with about 35 per cent of the country's gross domestic product is tied of exports and three-quarters of those are destined for the U.S.
The Canadian Manufacturers and Exporters estimates a one per cent appreciation in the value of the loonie - roughly equivalent to one cent at current levels - reduces sales by about $2 billion, equating to about 25,000 jobs.
The bank's next opportunity to chime in on the dollar comes next week at its pre-scheduled policy rate announcement. Few Carney will intervene.
The problem is that Canada's currency is not the only one on the move. Since March 9, other so-called commodity plays have performed just as well, or as in the case of Australia, far better. The Aussie buck has risen about 43 per cent against the U.S. currency, to Canada's 26-per-cent appreciation.
"This is a freight train. There's only so much the Bank of Canada can do," said Douglas Porter, deputy chief economist with BMO Capital Markets.
Analysts say a number of factors are at play, including the fact that money seeking a safe haven in the world's most liquid currency during the crisis this past winter is moving elsewhere now that global growth appears to be resuming.
And the fundamentals favour Canada. Growth in China and other Asian countries is again leading to an increase in demand for commodities that Canada exports. As well, Canada is not as saddled with debt as the United States.
"Sentiment has turned very quickly, very negatively against the U.S. dollar. The market is very focused on the U.S. deficit and the plans for funding it... and the market is concerned about the general outlook for the U.S.," said Camilla Sutton, a currency analyst for Scotiabank.
In the past week, the loonie got additional turbo boosts from the surprisingly strong jobs gain reported on Friday - a net gain of 31,000 jobs - and the Australian central bank's decision to raise rates, leading to speculation the Bank of Canada would be among the next to move.
The loonie's strength, however, makes that even more improbable, noted Porter, since raising rates before the U.S. Federal Reserve does will only add more fuel to the loonie's boosters.
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