Tuesday, January 12, 2010
New Year, Same Questions
There has been lots of chatter about where fixed rates are headed since the start of the year. I thought now would be a good time to comment on this. I track bond yields and spreads every day and everything that I see is pointing to rates going up. But that hasn't happened...yet. Why? There are a lot of reasons. Most "monoline" lenders are dependant on bond yields to price their fixed rate mortgages, however banks are not subject to the same considerations. They have deposit funds to lend against and the bank are very flush with those deposits right now. So even though it may make sense from the spreads that rates go up, competition with the banks is keeping rates down. The banks don't seem to be in any rush to raise rates and most of the monoline lenders don't want to be the first to raise rates and price themselves out of the market. If the banks were to make a move to increase rates, the monoline lenders are going to be hard on their heels doing the same. I don't think anyone wants to be labelled as the "bad guy" who raised rates first (even though no one will remember who fired the first shot in two weeks anyway). But rates will go up, eventually. An increase of 25 bps is not going to kill the housing market. Rates of 4.25% are excellent. The average interest rate since 1951 in Canada has been 9%. But there still a lot of fence sitters out there waiting for proof that we have hit the lowest point in order to make a move. Now is that time.
Tuesday, December 22, 2009
Down Payment Rules Could Change!
I know that I usually only post “good news” articles, but this is too important to ignore. Why would the federal government want to raise the minimum down payment requirement and stall the economy just when we are starting to see recovery? Making the minimum down payment 10% (rather than the current 5%) would lead to other issues. If they continue to allow borrowed down thru the Flex Down programs, then you will see larger exposure to consumer credit which Mark Carney has also warned of in recent weeks. Here is a suggestion…if they must make a change, leave the 5% minimum down on owner occupied homes and remove the borrowed down options. Make the requirement that the funds be from savings. That way the home buyer has some “skin in the game”. Don’t get me wrong, I want them to leave the rules alone. But if they are set on change, this is a good option and will elevate the possible “bubble” that they are so worried about. As a member of CAAMP you have a strong voice. I would suggest you contact your CAAMP Director (Todd Harris) and get him to carry your views to CAAMP nationally and on to Mr. Flaherty and Mr. Carney.
Canada may require higher mortgage downpayments: report
OTTAWA (Reuters) - Canada may require people taking out mortgages to come up with a larger downpayment if it looks like indebtedness is getting too high, Finance Minister Jim Flaherty said in a interview released late on Sunday.
Flaherty's remarks echoed concerns voiced last week by Bank of Canada Governor Mark Carney about households' ability to pay down debt. Household debt relative to income has risen sharply though it is below U.S. and British levels, and Carney warned consumers not to assume that interest rates will stay low.
"If we see further evidence that there is excessive demand in the housing market or that there's an indication that people are taking on obligations that they will not be able to handle in the future when interest rates rise, then we will take some action," CTV television quoted Flaherty as saying.
"The likely action we will take is to increase the size of the downpayment from 5 per cent to a higher number, reduce the amortization -- bring it down from 35 years to something less."
Shortening the amortization period would mean mortgage payments would have to go up to pay the loan off more quickly, and might make people think twice about taking on more debt.
The interview with Flaherty is expected to air on the program Question Period on Sunday.
(Reporting by Randall Palmer; editing by Rob Wilson)
Federal government urged to go slow on tightening mortgage-eligibility rules
By B.H. Mckenna, The Canadian Press
TORONTO - Hints by Finance Minister Jim Flaherty that Ottawa may tighten mortgage eligibility rules if it sees evidence of a housing bubble developing sent ripples through the industry Monday, with analysts urging a cautious approach.
"The main risk here is overshooting, over-responding and basically shutting down or slowing down significantly the housing market," CIBC senior economist Benjamin Tal said in an interview.
"That is a risk they have to take into account, because the housing market is a major, major contributor to overall economic growth and we are still in a very fragile state of the recovery."
Tal was reacting to reports based on a taped interview with a national news agency to be broadcast next weekend in which Flaherty said the government is worried Canadians may be taking on too much debt because of historically low interest rates and could get into trouble when rates inevitably rise.
In recent weeks, the Bank of Canada has called record household debt the top risk facing the country's financial system, a warning repeated in Toronto last week by the central bank's governor, Mark Carney.
The central bank did note that the risk to Canada's banking system was small, but worried that when interest rates rise to normal levels, up to 10 per cent of households could face difficulties in meeting monthly payment requirements.
Flaherty told a national news agency that if the government sees evidence of excessive demand developing in the housing market then it could take action.
One thing government might do is increase the minimum down payment on residential mortgages from five per cent "to a higher figure," he said.
The government could also reduce the amortization period from a maximum of 35 years "to something less," he said.
However, in an interview Monday with The Canadian Press, Flaherty emphasized that the prospect of a housing bubble is "not an immediate concern."
"If we needed to act, we could do what we've done before, in the summer of 2008, and that is to increase the down payment requirements for insured mortgages."
"I haven't looked at what we might do in terms of quantum (size of increase)," he said, adding that the government might also shorten the maximum amortization period or take other, unspecified measures to tighten lending requirements.
Gary Siegle, regional manager in Calgary for national mortgage broker Invis, said any stiffening of either down payment or amortization rules would "definitely" have an effect the marketplace.
"It's just a question of mathematics that there will be people who qualify today who wouldn't be able to qualify if those changes come into play," he said.
Siegle noted that with houses in Calgary selling for $350,000 to $400,000, the current five per cent down payment means buyers have to come up with $20,000.
"But if they decide to double it (the minimum down payment) to 10, then you looking at a $30,000-$40,000 down payment that they have to make."
Siegle said he would like to know the numbers Ottawa has in mind. "It would be really nice if they going to make that move it would be 7 1/2 instead of 10 (per cent) - a kind of middle-of-the-road solution just so that we could get not so dramatic an impact on the marketplace."
Otherwise, Siegle said it understandable for the government to worry about the effects of rising rates.
"Virtually everyone that I talk to agrees that its not a question if, its a question of when, they'll start to go up," he said.
"So when people are taking on mortgages that are $200,000 and $300,000 and $400,000... how are they going to adjust when they come up for renewal?"
"In my career, which spans 30-plus years, I've seen rates in the 20 per cent range. I don't think we're ever going to go there again, but even if they went to eight, what happens to people if their interest rate doubles?"
The effect of any move to reduce the maximum amortization period would be difficult to judge. The last time that happened, when the period was reduced from 40 years to 35, "was probably not significant because not a lot of people were going to 40 and we hadn't had it that long," Siegle said.
Meanwhile, Tal took some comfort from the fact that Flaherty was not specific as to the numbers it might consider.
"The trend (on consumer debt) is not extremely positive but the situation is not alarming," he said.
"I think they're concerned about the next 12 months and where we will find ourselves a year from now. So they're trying to be pre-emptive here and basically start to make sure the inflow of new business is of a higher quality."
"Therefore I don't expect this to be a huge increase (that would have)... an unreasonable and unnecessary impact."
Siegle said that while moves the government is likely to make would dampen the housing market "I wouldn't say it would kill it."
"They're still lots of people who want to get into houses and we're into a recovery, confidence (is) building in the consumer and rates are still at phenomenally low levels."
"So I think what will happen is it will take out some folks who aren't quite ready today. And the government's view probably is that if they're not quite ready, maybe they shouldn't be in the marketplace," he said.
Canada may require higher mortgage downpayments: report
OTTAWA (Reuters) - Canada may require people taking out mortgages to come up with a larger downpayment if it looks like indebtedness is getting too high, Finance Minister Jim Flaherty said in a interview released late on Sunday.
Flaherty's remarks echoed concerns voiced last week by Bank of Canada Governor Mark Carney about households' ability to pay down debt. Household debt relative to income has risen sharply though it is below U.S. and British levels, and Carney warned consumers not to assume that interest rates will stay low.
"If we see further evidence that there is excessive demand in the housing market or that there's an indication that people are taking on obligations that they will not be able to handle in the future when interest rates rise, then we will take some action," CTV television quoted Flaherty as saying.
"The likely action we will take is to increase the size of the downpayment from 5 per cent to a higher number, reduce the amortization -- bring it down from 35 years to something less."
Shortening the amortization period would mean mortgage payments would have to go up to pay the loan off more quickly, and might make people think twice about taking on more debt.
The interview with Flaherty is expected to air on the program Question Period on Sunday.
(Reporting by Randall Palmer; editing by Rob Wilson)
Federal government urged to go slow on tightening mortgage-eligibility rules
By B.H. Mckenna, The Canadian Press
TORONTO - Hints by Finance Minister Jim Flaherty that Ottawa may tighten mortgage eligibility rules if it sees evidence of a housing bubble developing sent ripples through the industry Monday, with analysts urging a cautious approach.
"The main risk here is overshooting, over-responding and basically shutting down or slowing down significantly the housing market," CIBC senior economist Benjamin Tal said in an interview.
"That is a risk they have to take into account, because the housing market is a major, major contributor to overall economic growth and we are still in a very fragile state of the recovery."
Tal was reacting to reports based on a taped interview with a national news agency to be broadcast next weekend in which Flaherty said the government is worried Canadians may be taking on too much debt because of historically low interest rates and could get into trouble when rates inevitably rise.
In recent weeks, the Bank of Canada has called record household debt the top risk facing the country's financial system, a warning repeated in Toronto last week by the central bank's governor, Mark Carney.
The central bank did note that the risk to Canada's banking system was small, but worried that when interest rates rise to normal levels, up to 10 per cent of households could face difficulties in meeting monthly payment requirements.
Flaherty told a national news agency that if the government sees evidence of excessive demand developing in the housing market then it could take action.
One thing government might do is increase the minimum down payment on residential mortgages from five per cent "to a higher figure," he said.
The government could also reduce the amortization period from a maximum of 35 years "to something less," he said.
However, in an interview Monday with The Canadian Press, Flaherty emphasized that the prospect of a housing bubble is "not an immediate concern."
"If we needed to act, we could do what we've done before, in the summer of 2008, and that is to increase the down payment requirements for insured mortgages."
"I haven't looked at what we might do in terms of quantum (size of increase)," he said, adding that the government might also shorten the maximum amortization period or take other, unspecified measures to tighten lending requirements.
Gary Siegle, regional manager in Calgary for national mortgage broker Invis, said any stiffening of either down payment or amortization rules would "definitely" have an effect the marketplace.
"It's just a question of mathematics that there will be people who qualify today who wouldn't be able to qualify if those changes come into play," he said.
Siegle noted that with houses in Calgary selling for $350,000 to $400,000, the current five per cent down payment means buyers have to come up with $20,000.
"But if they decide to double it (the minimum down payment) to 10, then you looking at a $30,000-$40,000 down payment that they have to make."
Siegle said he would like to know the numbers Ottawa has in mind. "It would be really nice if they going to make that move it would be 7 1/2 instead of 10 (per cent) - a kind of middle-of-the-road solution just so that we could get not so dramatic an impact on the marketplace."
Otherwise, Siegle said it understandable for the government to worry about the effects of rising rates.
"Virtually everyone that I talk to agrees that its not a question if, its a question of when, they'll start to go up," he said.
"So when people are taking on mortgages that are $200,000 and $300,000 and $400,000... how are they going to adjust when they come up for renewal?"
"In my career, which spans 30-plus years, I've seen rates in the 20 per cent range. I don't think we're ever going to go there again, but even if they went to eight, what happens to people if their interest rate doubles?"
The effect of any move to reduce the maximum amortization period would be difficult to judge. The last time that happened, when the period was reduced from 40 years to 35, "was probably not significant because not a lot of people were going to 40 and we hadn't had it that long," Siegle said.
Meanwhile, Tal took some comfort from the fact that Flaherty was not specific as to the numbers it might consider.
"The trend (on consumer debt) is not extremely positive but the situation is not alarming," he said.
"I think they're concerned about the next 12 months and where we will find ourselves a year from now. So they're trying to be pre-emptive here and basically start to make sure the inflow of new business is of a higher quality."
"Therefore I don't expect this to be a huge increase (that would have)... an unreasonable and unnecessary impact."
Siegle said that while moves the government is likely to make would dampen the housing market "I wouldn't say it would kill it."
"They're still lots of people who want to get into houses and we're into a recovery, confidence (is) building in the consumer and rates are still at phenomenally low levels."
"So I think what will happen is it will take out some folks who aren't quite ready today. And the government's view probably is that if they're not quite ready, maybe they shouldn't be in the marketplace," he said.
Tuesday, December 15, 2009
Economies in Atlantic Canada set for growth
Economies in Atlantic Canada set for growth: RBC Economics
Rising global demand for key exports will boost East Coast prospects
TORONTO, Dec. 14 /CNW/ - All four Atlantic Canada provinces are set to experience growth in 2010, after successfully weathering the recession's negative impact on key export sectors during 2009, according to a new report by RBC Economics.
"While many challenges will remain, 2010 promises a new chapter of widespread positive economic performance," noted Craig Wright, senior vice-president and chief economist, RBC.
In Nova Scotia, better than expected results kept the economy afloat during a tumultuous 2009 and limited declines in consumer spending. Job losses in manufacturing have been fully offset by employment gains in the services sector and public administration. The provincial government's $800 million infrastructure boost has helped support growth in non-residential construction. Weak demand for Nova Scotia's natural resources and manufactured goods, combined with falling commodity prices, took a significant toll on exports.
RBC forecasts a flat 0.0 per cent growth for Nova Scotia for 2009. This is revised slightly upward from the -0.4 per cent contraction projected in the September Outlook, with economic growth forecast at 2.8 per cent in 2010.
"We're expecting the province's key exports to get a boost from a strengthening U.S. economy, which in turn should lead to increased production in the energy sector and help revive the hard-hit forestry sector," said Wright.
New Brunswick's manufacturing and export sectors were severely impacted by soft commodity prices and weak North American demand. This impact was slightly offset by the provincial government's large stimulus program ($1.6 billion over two years), which helped fuel non-residential investment as well as employment. New Brunswick is expected to be one of only three provinces to experience employment growth in 2009.
According to the RBC report, New Brunswick's economy is expected to grow in 2010 as a planned 34 per cent increase in capital project investments for 2010-2011, a $258 million provincial income tax cut in January and as well as further improvement in the job market, should boost consumer spending and housing demand.
"With a stronger U.S. economy on the horizon and commodity prices staying on a firming trend throughout the upcoming year, boosting prospects for exports, the elements should be in place for the New Brunswick economy to start expanding again," explained Wright. "We're forecasting real GDP growth of 2.9 per cent, revised upward from our September projection of 2.7 per cent."
In Newfoundland and Labrador, RBC anticipates that the province's resource sector - representing approximately 30 per cent of real GDP in the province - will jump back into growth mode in 2010. Major declines in mining and crude oil production during 2009 are expected to reverse, with stronger global demand for iron ore.
Capital investment should continue to be a key driver of activity in the province. An aggressive infrastructure plan, $800 million in both 2009-2010 and 2010-2011, should help advance several projects and improve consumer spending and boost employment. Retail sales are projected to grow by 4.2 per cent in 2010, up from a respectable 2.0 per cent in 2009, which is the only increase among provinces.
"We forecast real GDP growth for Newfoundland and Labrador in 2010 at 2.4 per cent, revised upward from 2.0 per cent projected in our September Outlook," said Wright. "GDP growth for 2009 has been revised downward to -4.5 per cent, reflecting the past year's slump in mining and oil and gas extraction."
According to the RBC report, Prince Edward Island has come through the recession in better shape than many of Canada's other provinces. Weak demand for the island's traditional tourism and seafood sectors was almost entirely offset by significant growth in the island's emergent technology industries. A dramatic decline in seafood exports was countered by strong demand for potato products. Due to export gains in technology and potato products, Prince Edward Island was the only province to show an increase in merchandise products (0.4 per cent) for the first nine months of 2009.
The provincial government has allocated $133 million for capital projects, which should help non-residential investment maintain its strong pace in 2010. Further growth is also expected in Prince Edward Island's aerospace and bioscience industries, which should boost employment growth to a nation-leading 2.1 per cent.
"An increased demand for shellfish exports and tourism, as global economic conditions improve, should support modest growth in Prince Edward Island's economy," Wright said. "We've revised growth projections for the province upward to 2.2 per cent for 2010, which is up slightly from our September forecast of 2.0 per cent. We expect 3.4 per cent growth in 2011."
The main theme of the RBC Economics Provincial Outlook is that a mild economic recovery is expected to be widespread among provinces in 2010, after a significant contraction spread across the country in 2009 (with only Manitoba and Nova Scotia barely avoiding a decline in activity). The full force of fiscal and monetary stimulus should positively contribute to growth in 2010. The price tag for that stimulus however, will be huge budget deficits. While such deficits might cause some discomfort, the alternative was even less attractive given the severity of the economic downturn. Returning to balance over the medium term will be a challenge involving difficult choices. Provincial economies are expected to be in solid growth territory in 2011, with the Prairie provinces - led by Saskatchewan - benefitting from strengthening commodity prices and hitting higher growth rates than the 3.9 per cent national average.
The RBC Economics Provincial Outlook assesses the provinces according to economic growth, employment growth, unemployment rates, retail sales and housing starts.
According to the report, available online as of 8 a.m. EST today at www.rbc.com/economics/market/pdf/provfcst.pdf, provincial forecast details are as follows:
Real Housing Retail
GDP starts sales
Y/Y % Change Thousands Y/Y % Change
09 10 11 09 10 11 09 10 11
-- -- -- -- -- -- -- -- --
N.& L. -4.5 2.4 1.5 3.0 3.0 3.1 2.0 4.2 5.4
P.E.I. -0.1 2.2 3.4 0.7 0.8 0.8 -0.7 3.7 4.4
N.S. 0.0 2.8 3.8 3.7 4.1 4.1 -0.3 4.4 4.9
N.B. -0.3 2.9 3.7 3.6 3.7 3.5 -0.4 3.7 4.1
QUE. -1.6 2.2 3.7 41.5 42.0 44.0 -0.9 4.3 5.1
ONT. -3.2 2.4 4.0 50.5 65.0 68.0 -2.7 3.8 5.6
MAN. 0.2 3.0 4.0 4.2 5.4 5.5 -1.3 5.1 5.8
SASK. -1.6 3.9 4.6 3.4 4.1 4.4 -2.3 5.5 6.1
ALTA. -3.4 2.4 4.4 19.2 28.5 30.5 -8.5 4.9 7.0
B.C. -2.6 3.2 3.4 15.6 24.5 27.5 -5.8 5.7 4.6
CANADA -2.5 2.6 3.9 145.4 181 191 -3.3 4.4 5.5
Unemployment
Employment rate CPI
Y/Y % Change % Y/Y % Change
09 10 11 09 10 11 09 10 11
-- -- -- -- -- -- -- -- --
N.& L. -2.5 0.6 1.8 15.5 15.7 14.9 0.4 1.8 2.3
P.E.I. -1.3 2.1 1.2 12.2 12.0 11.7 0.0 2.2 2.4
N.S. 0.0 1.3 2.0 9.2 9.4 8.8 0.0 2.1 2.4
N.B. 0.1 1.3 1.5 8.9 8.9 8.5 0.3 2.0 2.3
QUE. -1.0 1.1 2.2 8.5 8.8 8.1 0.6 1.6 2.2
ONT. -2.4 1.1 2.5 9.1 9.7 8.5 0.3 1.3 2.1
MAN. 0.2 1.4 2.2 5.2 5.5 4.9 0.7 1.8 2.3
SASK. 1.5 1.2 2.7 4.8 5.1 4.5 1.3 2.3 2.9
ALTA. -1.2 1.2 3.1 6.6 6.9 5.9 -0.2 1.3 2.0
B.C. -2.4 2.1 1.7 7.6 7.5 6.9 0.1 1.2 2.0
CANADA -1.5 1.3 2.3 8.3 8.7 7.8 0.3 1.5 2.2
Rising global demand for key exports will boost East Coast prospects
TORONTO, Dec. 14 /CNW/ - All four Atlantic Canada provinces are set to experience growth in 2010, after successfully weathering the recession's negative impact on key export sectors during 2009, according to a new report by RBC Economics.
"While many challenges will remain, 2010 promises a new chapter of widespread positive economic performance," noted Craig Wright, senior vice-president and chief economist, RBC.
In Nova Scotia, better than expected results kept the economy afloat during a tumultuous 2009 and limited declines in consumer spending. Job losses in manufacturing have been fully offset by employment gains in the services sector and public administration. The provincial government's $800 million infrastructure boost has helped support growth in non-residential construction. Weak demand for Nova Scotia's natural resources and manufactured goods, combined with falling commodity prices, took a significant toll on exports.
RBC forecasts a flat 0.0 per cent growth for Nova Scotia for 2009. This is revised slightly upward from the -0.4 per cent contraction projected in the September Outlook, with economic growth forecast at 2.8 per cent in 2010.
"We're expecting the province's key exports to get a boost from a strengthening U.S. economy, which in turn should lead to increased production in the energy sector and help revive the hard-hit forestry sector," said Wright.
New Brunswick's manufacturing and export sectors were severely impacted by soft commodity prices and weak North American demand. This impact was slightly offset by the provincial government's large stimulus program ($1.6 billion over two years), which helped fuel non-residential investment as well as employment. New Brunswick is expected to be one of only three provinces to experience employment growth in 2009.
According to the RBC report, New Brunswick's economy is expected to grow in 2010 as a planned 34 per cent increase in capital project investments for 2010-2011, a $258 million provincial income tax cut in January and as well as further improvement in the job market, should boost consumer spending and housing demand.
"With a stronger U.S. economy on the horizon and commodity prices staying on a firming trend throughout the upcoming year, boosting prospects for exports, the elements should be in place for the New Brunswick economy to start expanding again," explained Wright. "We're forecasting real GDP growth of 2.9 per cent, revised upward from our September projection of 2.7 per cent."
In Newfoundland and Labrador, RBC anticipates that the province's resource sector - representing approximately 30 per cent of real GDP in the province - will jump back into growth mode in 2010. Major declines in mining and crude oil production during 2009 are expected to reverse, with stronger global demand for iron ore.
Capital investment should continue to be a key driver of activity in the province. An aggressive infrastructure plan, $800 million in both 2009-2010 and 2010-2011, should help advance several projects and improve consumer spending and boost employment. Retail sales are projected to grow by 4.2 per cent in 2010, up from a respectable 2.0 per cent in 2009, which is the only increase among provinces.
"We forecast real GDP growth for Newfoundland and Labrador in 2010 at 2.4 per cent, revised upward from 2.0 per cent projected in our September Outlook," said Wright. "GDP growth for 2009 has been revised downward to -4.5 per cent, reflecting the past year's slump in mining and oil and gas extraction."
According to the RBC report, Prince Edward Island has come through the recession in better shape than many of Canada's other provinces. Weak demand for the island's traditional tourism and seafood sectors was almost entirely offset by significant growth in the island's emergent technology industries. A dramatic decline in seafood exports was countered by strong demand for potato products. Due to export gains in technology and potato products, Prince Edward Island was the only province to show an increase in merchandise products (0.4 per cent) for the first nine months of 2009.
The provincial government has allocated $133 million for capital projects, which should help non-residential investment maintain its strong pace in 2010. Further growth is also expected in Prince Edward Island's aerospace and bioscience industries, which should boost employment growth to a nation-leading 2.1 per cent.
"An increased demand for shellfish exports and tourism, as global economic conditions improve, should support modest growth in Prince Edward Island's economy," Wright said. "We've revised growth projections for the province upward to 2.2 per cent for 2010, which is up slightly from our September forecast of 2.0 per cent. We expect 3.4 per cent growth in 2011."
The main theme of the RBC Economics Provincial Outlook is that a mild economic recovery is expected to be widespread among provinces in 2010, after a significant contraction spread across the country in 2009 (with only Manitoba and Nova Scotia barely avoiding a decline in activity). The full force of fiscal and monetary stimulus should positively contribute to growth in 2010. The price tag for that stimulus however, will be huge budget deficits. While such deficits might cause some discomfort, the alternative was even less attractive given the severity of the economic downturn. Returning to balance over the medium term will be a challenge involving difficult choices. Provincial economies are expected to be in solid growth territory in 2011, with the Prairie provinces - led by Saskatchewan - benefitting from strengthening commodity prices and hitting higher growth rates than the 3.9 per cent national average.
The RBC Economics Provincial Outlook assesses the provinces according to economic growth, employment growth, unemployment rates, retail sales and housing starts.
According to the report, available online as of 8 a.m. EST today at www.rbc.com/economics/market/pdf/provfcst.pdf, provincial forecast details are as follows:
Real Housing Retail
GDP starts sales
Y/Y % Change Thousands Y/Y % Change
09 10 11 09 10 11 09 10 11
-- -- -- -- -- -- -- -- --
N.& L. -4.5 2.4 1.5 3.0 3.0 3.1 2.0 4.2 5.4
P.E.I. -0.1 2.2 3.4 0.7 0.8 0.8 -0.7 3.7 4.4
N.S. 0.0 2.8 3.8 3.7 4.1 4.1 -0.3 4.4 4.9
N.B. -0.3 2.9 3.7 3.6 3.7 3.5 -0.4 3.7 4.1
QUE. -1.6 2.2 3.7 41.5 42.0 44.0 -0.9 4.3 5.1
ONT. -3.2 2.4 4.0 50.5 65.0 68.0 -2.7 3.8 5.6
MAN. 0.2 3.0 4.0 4.2 5.4 5.5 -1.3 5.1 5.8
SASK. -1.6 3.9 4.6 3.4 4.1 4.4 -2.3 5.5 6.1
ALTA. -3.4 2.4 4.4 19.2 28.5 30.5 -8.5 4.9 7.0
B.C. -2.6 3.2 3.4 15.6 24.5 27.5 -5.8 5.7 4.6
CANADA -2.5 2.6 3.9 145.4 181 191 -3.3 4.4 5.5
Unemployment
Employment rate CPI
Y/Y % Change % Y/Y % Change
09 10 11 09 10 11 09 10 11
-- -- -- -- -- -- -- -- --
N.& L. -2.5 0.6 1.8 15.5 15.7 14.9 0.4 1.8 2.3
P.E.I. -1.3 2.1 1.2 12.2 12.0 11.7 0.0 2.2 2.4
N.S. 0.0 1.3 2.0 9.2 9.4 8.8 0.0 2.1 2.4
N.B. 0.1 1.3 1.5 8.9 8.9 8.5 0.3 2.0 2.3
QUE. -1.0 1.1 2.2 8.5 8.8 8.1 0.6 1.6 2.2
ONT. -2.4 1.1 2.5 9.1 9.7 8.5 0.3 1.3 2.1
MAN. 0.2 1.4 2.2 5.2 5.5 4.9 0.7 1.8 2.3
SASK. 1.5 1.2 2.7 4.8 5.1 4.5 1.3 2.3 2.9
ALTA. -1.2 1.2 3.1 6.6 6.9 5.9 -0.2 1.3 2.0
B.C. -2.4 2.1 1.7 7.6 7.5 6.9 0.1 1.2 2.0
CANADA -1.5 1.3 2.3 8.3 8.7 7.8 0.3 1.5 2.2
Wednesday, November 25, 2009
Housing market in Atlantic Canada ranks among country's most affordable
November 25, 2009 05:00
Housing market in Atlantic Canada ranks among country's most affordable, says RBC Economics
TORONTO, Nov. 25 /CNW/ - Atlantic Canada continues to have one of the most affordable housing markets in the country, after experiencing relatively modest increases in homeownership costs during the third quarter, according to the latest housing report released today by RBC Economics.
"Despite rising for the first time in a year, Atlantic Canada's homeownership costs showed some of the smallest increases among all the provinces," said Robert Hogue, senior economist at RBC. "The past few months have seen steady but moderate gains in property values, which has worked to limit declines in affordability."
The RBC Affordability measure for Atlantic Canada, which captures the proportion of pre-tax household income needed to service the costs of owning a home, rose across all four housing classes in the third quarter of 2009, yet remain mostly well below long-term averages. Affordability of the benchmark detached bungalow moved up to 31.2 per cent, the standard townhouse to 26.7 per cent, the standard condo to 24.6 per cent and the standard two-storey home to 35.9 per cent (the higher the measure, the more expensive it is to afford a home).
According to the RBC Report, St. John's still stands out as one of the hottest markets in Canada, although it has shown signs of cooling off. Increases in home prices have slowed slightly in Halifax, but are still relatively solid in Saint John.
"Resale activity has picked up in the region since last winter, but the rebound has been relatively modest compared to other parts of the country," noted Hogue. "Factors weighing on affordability in the past few months include a rise in property values and increases in key mortgage rates."
RBC's Affordability measure for a detached bungalow for Canada's largest cities is as follows: Vancouver 66.8 per cent, Toronto 48.6 per cent, Ottawa 39.2 per cent, Montreal 37.5 per cent and Calgary 36.7 per cent.
The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Halifax, Saint John and St. John's. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.
The property benchmark for the Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condo. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Following five consecutive declines, homeownership
costs rose in B.C. during the third quarter. With housing demand
growing faster than the supply, prices have been rising again. This
development likely marks the end of the affordability upswing in
B.C., with indications that homeownership costs will remain well
above long-term averages.
- Alberta: The province experienced the first increase in homeownership
costs since late-2007, in the third quarter. Housing market activity
has picked up and stabilized with the modest rise in costs
attributable to higher mortgage costs rather than a rise in property
values. Attractive affordability levels and a return to economic
growth should fuel housing demand in Alberta next year.
- Saskatchewan: With mortgage rates rising slightly and properties
gaining value, owning a home became slightly less affordable in the
province, following steady improvement for more than a year. However,
homeownership costs remain historically high in Saskatchewan as a
result of the sharp price appreciation that took place during the
recent housing boom.
- Manitoba: Despite slight increases in the cost of homeownership - the
smallest amongst all provinces in the third quarter - Manitoba's
housing market remained relatively affordable. Market conditions in
the province appear tightly balanced, which should sustain solid
resale activity in the near-term. Job growth and a faster economic
expansion next year should maintain solid housing demand.
- Ontario: After a period of declining property values, the Ontario
housing market appears to be bouncing back with home resale prices
returning to and, in some cases, surpassing earlier peaks. While this
reversal has brought confidence back into the market, third quarter
affordability levels have deteriorated for the first time in over a
year.
- Quebec: Broad-based vigour in the housing market fueled by the
earlier drop in mortgage rates to historically low levels, has sent
property values to new highs in many parts of Quebec. Consequently,
housing affordability deteriorated in the province for the first time
in more than a year during the third quarter.
The full RBC Housing Affordability report is available online, as of 8 a.m. EST today at www.rbc.com/economics/market/pdf.house.pdf.
Housing market in Atlantic Canada ranks among country's most affordable, says RBC Economics
TORONTO, Nov. 25 /CNW/ - Atlantic Canada continues to have one of the most affordable housing markets in the country, after experiencing relatively modest increases in homeownership costs during the third quarter, according to the latest housing report released today by RBC Economics.
"Despite rising for the first time in a year, Atlantic Canada's homeownership costs showed some of the smallest increases among all the provinces," said Robert Hogue, senior economist at RBC. "The past few months have seen steady but moderate gains in property values, which has worked to limit declines in affordability."
The RBC Affordability measure for Atlantic Canada, which captures the proportion of pre-tax household income needed to service the costs of owning a home, rose across all four housing classes in the third quarter of 2009, yet remain mostly well below long-term averages. Affordability of the benchmark detached bungalow moved up to 31.2 per cent, the standard townhouse to 26.7 per cent, the standard condo to 24.6 per cent and the standard two-storey home to 35.9 per cent (the higher the measure, the more expensive it is to afford a home).
According to the RBC Report, St. John's still stands out as one of the hottest markets in Canada, although it has shown signs of cooling off. Increases in home prices have slowed slightly in Halifax, but are still relatively solid in Saint John.
"Resale activity has picked up in the region since last winter, but the rebound has been relatively modest compared to other parts of the country," noted Hogue. "Factors weighing on affordability in the past few months include a rise in property values and increases in key mortgage rates."
RBC's Affordability measure for a detached bungalow for Canada's largest cities is as follows: Vancouver 66.8 per cent, Toronto 48.6 per cent, Ottawa 39.2 per cent, Montreal 37.5 per cent and Calgary 36.7 per cent.
The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Halifax, Saint John and St. John's. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.
The property benchmark for the Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condo. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Following five consecutive declines, homeownership
costs rose in B.C. during the third quarter. With housing demand
growing faster than the supply, prices have been rising again. This
development likely marks the end of the affordability upswing in
B.C., with indications that homeownership costs will remain well
above long-term averages.
- Alberta: The province experienced the first increase in homeownership
costs since late-2007, in the third quarter. Housing market activity
has picked up and stabilized with the modest rise in costs
attributable to higher mortgage costs rather than a rise in property
values. Attractive affordability levels and a return to economic
growth should fuel housing demand in Alberta next year.
- Saskatchewan: With mortgage rates rising slightly and properties
gaining value, owning a home became slightly less affordable in the
province, following steady improvement for more than a year. However,
homeownership costs remain historically high in Saskatchewan as a
result of the sharp price appreciation that took place during the
recent housing boom.
- Manitoba: Despite slight increases in the cost of homeownership - the
smallest amongst all provinces in the third quarter - Manitoba's
housing market remained relatively affordable. Market conditions in
the province appear tightly balanced, which should sustain solid
resale activity in the near-term. Job growth and a faster economic
expansion next year should maintain solid housing demand.
- Ontario: After a period of declining property values, the Ontario
housing market appears to be bouncing back with home resale prices
returning to and, in some cases, surpassing earlier peaks. While this
reversal has brought confidence back into the market, third quarter
affordability levels have deteriorated for the first time in over a
year.
- Quebec: Broad-based vigour in the housing market fueled by the
earlier drop in mortgage rates to historically low levels, has sent
property values to new highs in many parts of Quebec. Consequently,
housing affordability deteriorated in the province for the first time
in more than a year during the third quarter.
The full RBC Housing Affordability report is available online, as of 8 a.m. EST today at www.rbc.com/economics/market/pdf.house.pdf.
Friday, October 9, 2009
Three Good News Articles
It has been a while since I have sent out a “good news” article, but here are three in one day. That is great!
1. The country's real estate market is so hot cities are running out of properties to sell
2. Canada's unemployment rate falls to 8.4%, first decline since recession
3. Surprise! U.S. sales rise in September
Average Canadian home prices up slightly, says Royal LePage survey
The Canadian Press
TORONTO - The housing market may be recovering, but is experiencing an undersupply of homes for sale in southern Ontario and elsewhere in Canada.
That's according to the latest house price survey by Royal LePage. It says with the recession retreating, home prices are stabilizing and unit sales are increasingly driven by improved affordability.
Royal LePage says the average price of a two storey home in Canada is up just 0.1 per cent from a year ago at $409,335.
Average bungalow values grew 0.06 per cent year-over-year to $341,146, while the price of an average condo increased 0.09 per cent to $243,748.
Royal LePage says a shortage in housing supply is leading to bidding wars in several cities, including Toronto, Montreal, St. John's, N.L.; St. John, N.B. Moncton, Edmonton, Calgary, North and West Vancouver, and Victoria.
While the Atlantic provinces saw a strong recovery in home prices, western provinces have been slower to recover from significant price corrections in 2008, particularly in British Columbia and Alberta.
Ontario and Quebec saw home prices stabilize or gain slightly year-over-year with much of the recovery occurring in a strong third quarter.
Canada's unemployment rate falls to 8.4%, first decline since recession
By Julian Beltrame, The Canadian Press
OTTAWA - Canada's unemployment rate fell for the first time in nearly a year to 8.4 per cent last month, in perhaps the clearest indication the hard-hit labour market may be recovering sooner than expected.
The September jobs pick-up of 30,600 was five times larger than the economist consensus forecast of 5,000 and - along with a slight decrease in the number of workers looking for jobs - helped drop the national unemployment rate by 0.3 percentage points.
This was the second consecutive month of employment gains.
There was more good news - actual hours worked increased by 1.6 per cent.
More impressive, the agency said 91,600 full-time jobs were added in September, more than offsetting the 61,000 loss in part-time employment.
This reverses the pattern observed most of the past year as employers cut back by first reducing full-time workers to part-time status.
Economists consider employment a lagging indicator because employers usually will wait until they see clear signs that a recovery is underway and will be sustained before beginning to re-hire.
By contrast, the U.S. is still reporting massive monthly job losses even though most believe the economy there has turned the corner and begun to grow.
Canada has seen a fitful rebound from the downturn, although the most recent data on gross domestic product only extends to July and does not capture the next two months of job gains.
If there was a downside to the Canadian jobs data for September, it was that hourly wage growth slowed to 2.5 per cent, the lowest year-over-year wage gain in 2 1/2 years, and that all and more of the net job growth was in the public sector.
Also, adult men continue to have difficulty finding work. September saw a decline on employment among men aged 25 to 55, while women in the same age group saw employment rise by 41,000.
Since October, most of the employment losses have occurred among adult men and youth.
But Statistics Canada noted that the trend of Canada's labour market has been improving steadily forward since the outsized job losses of last winter.
"Since the peak in October 2008, employment has fallen 2.1 per cent (357,000), with the bulk of the decline occurring between October and march 2009," the agency noted.
"Since then, the trend in employment has levelled, with the number of employed almost the same in September as it was in March."
The biggest jobs gains came in industries that have been hardest hit by the recession. Manufacturers added 26,000 workers last month, and the construction trade, which may have been boosted by federal stimulus money, picked up 25,000 workers, the second consecutive gain.
Workers in education services also saw improvement with 18,000 jobs added to the sector last month, when students returned to schools, colleges and universities following the summer break.
Meanwhile, employment in transportation and warehousing slipped by 21,000.
Regionally, British Columbia, New Brunswick and Prince Edward Island saw significant job gains in September. Nova Scotia, Quebec and Manitoba saw outright job losses.
Surprise! U.S. sales rise in September
Up by 0.6%
Jessica Wohl, Reuters
U.S. retailers gave investors an early Christmas present, posting their first monthly sales increase in more than a year and suggesting that wounded consumers might begin to heal in time for the crucial holiday season.
Store chains that included Macy's Inc., Abercrombie & Fitch and Kohl's Corp. surprised Wall Street yesterday with better-than-expected September sales.
The Standard&Poor's retail index rose 1.6%, with shares of Macy's up 2.9% and Abercrombie rising 6%.
Based on 30 retailers, sales at stores open at least a year climbed 0.6%, compared with expectations for a 1.1% decline, according to Thomson Reuters data. Nearly 80% of the companies beat expectations.
The last time sales rose was in August 2008, when retailers notched a 0.2% gain. That was just before a financial collapse in September constricted credit worldwide and sent jobless rates climbing.
Retail experts cautioned that the sales results did not yet presage a consumer-driven recovery to the U.S. economy.
"You need to see sales coming through, margins holding and overall profit rising," said Michael Niemira, chief economist of the International Council of Shopping Centers. "That overall story needs to play out for retail recovery to be solid."
The ICSC said October same-store sales should be about flat with a year earlier, when retailers averaged a 4.1% drop, said Thomson Reuters data.
One factor in the higher September sales was an easier comparison with previous results. Same-store sales fell 0.9% in September 2008, Thomson Reuters data said.
"We only get better or stronger from here, given the weak comparisons with a year ago," Mr. Niemira said.
This year's later Labour Day holiday pushed a good chunk of sales from August into September, but analysts had wondered if rising unemployment would weigh more heavily on spending.
Yesterday, a U.S. Labor Department report showed new U.S. jobless claims hit a nine-month low, suggesting the employment market was healing despite a September setback.
Sales of clothing for the back-to-school season fuelled many retailers' performances, especially in the early part of the month. Several chains raised their profit forecasts for the current quarter, although Target Corp. said it still had a cautious view of its fiscal fourth quarter, which includes the holiday season.
1. The country's real estate market is so hot cities are running out of properties to sell
2. Canada's unemployment rate falls to 8.4%, first decline since recession
3. Surprise! U.S. sales rise in September
Average Canadian home prices up slightly, says Royal LePage survey
The Canadian Press
TORONTO - The housing market may be recovering, but is experiencing an undersupply of homes for sale in southern Ontario and elsewhere in Canada.
That's according to the latest house price survey by Royal LePage. It says with the recession retreating, home prices are stabilizing and unit sales are increasingly driven by improved affordability.
Royal LePage says the average price of a two storey home in Canada is up just 0.1 per cent from a year ago at $409,335.
Average bungalow values grew 0.06 per cent year-over-year to $341,146, while the price of an average condo increased 0.09 per cent to $243,748.
Royal LePage says a shortage in housing supply is leading to bidding wars in several cities, including Toronto, Montreal, St. John's, N.L.; St. John, N.B. Moncton, Edmonton, Calgary, North and West Vancouver, and Victoria.
While the Atlantic provinces saw a strong recovery in home prices, western provinces have been slower to recover from significant price corrections in 2008, particularly in British Columbia and Alberta.
Ontario and Quebec saw home prices stabilize or gain slightly year-over-year with much of the recovery occurring in a strong third quarter.
Canada's unemployment rate falls to 8.4%, first decline since recession
By Julian Beltrame, The Canadian Press
OTTAWA - Canada's unemployment rate fell for the first time in nearly a year to 8.4 per cent last month, in perhaps the clearest indication the hard-hit labour market may be recovering sooner than expected.
The September jobs pick-up of 30,600 was five times larger than the economist consensus forecast of 5,000 and - along with a slight decrease in the number of workers looking for jobs - helped drop the national unemployment rate by 0.3 percentage points.
This was the second consecutive month of employment gains.
There was more good news - actual hours worked increased by 1.6 per cent.
More impressive, the agency said 91,600 full-time jobs were added in September, more than offsetting the 61,000 loss in part-time employment.
This reverses the pattern observed most of the past year as employers cut back by first reducing full-time workers to part-time status.
Economists consider employment a lagging indicator because employers usually will wait until they see clear signs that a recovery is underway and will be sustained before beginning to re-hire.
By contrast, the U.S. is still reporting massive monthly job losses even though most believe the economy there has turned the corner and begun to grow.
Canada has seen a fitful rebound from the downturn, although the most recent data on gross domestic product only extends to July and does not capture the next two months of job gains.
If there was a downside to the Canadian jobs data for September, it was that hourly wage growth slowed to 2.5 per cent, the lowest year-over-year wage gain in 2 1/2 years, and that all and more of the net job growth was in the public sector.
Also, adult men continue to have difficulty finding work. September saw a decline on employment among men aged 25 to 55, while women in the same age group saw employment rise by 41,000.
Since October, most of the employment losses have occurred among adult men and youth.
But Statistics Canada noted that the trend of Canada's labour market has been improving steadily forward since the outsized job losses of last winter.
"Since the peak in October 2008, employment has fallen 2.1 per cent (357,000), with the bulk of the decline occurring between October and march 2009," the agency noted.
"Since then, the trend in employment has levelled, with the number of employed almost the same in September as it was in March."
The biggest jobs gains came in industries that have been hardest hit by the recession. Manufacturers added 26,000 workers last month, and the construction trade, which may have been boosted by federal stimulus money, picked up 25,000 workers, the second consecutive gain.
Workers in education services also saw improvement with 18,000 jobs added to the sector last month, when students returned to schools, colleges and universities following the summer break.
Meanwhile, employment in transportation and warehousing slipped by 21,000.
Regionally, British Columbia, New Brunswick and Prince Edward Island saw significant job gains in September. Nova Scotia, Quebec and Manitoba saw outright job losses.
Surprise! U.S. sales rise in September
Up by 0.6%
Jessica Wohl, Reuters
U.S. retailers gave investors an early Christmas present, posting their first monthly sales increase in more than a year and suggesting that wounded consumers might begin to heal in time for the crucial holiday season.
Store chains that included Macy's Inc., Abercrombie & Fitch and Kohl's Corp. surprised Wall Street yesterday with better-than-expected September sales.
The Standard&Poor's retail index rose 1.6%, with shares of Macy's up 2.9% and Abercrombie rising 6%.
Based on 30 retailers, sales at stores open at least a year climbed 0.6%, compared with expectations for a 1.1% decline, according to Thomson Reuters data. Nearly 80% of the companies beat expectations.
The last time sales rose was in August 2008, when retailers notched a 0.2% gain. That was just before a financial collapse in September constricted credit worldwide and sent jobless rates climbing.
Retail experts cautioned that the sales results did not yet presage a consumer-driven recovery to the U.S. economy.
"You need to see sales coming through, margins holding and overall profit rising," said Michael Niemira, chief economist of the International Council of Shopping Centers. "That overall story needs to play out for retail recovery to be solid."
The ICSC said October same-store sales should be about flat with a year earlier, when retailers averaged a 4.1% drop, said Thomson Reuters data.
One factor in the higher September sales was an easier comparison with previous results. Same-store sales fell 0.9% in September 2008, Thomson Reuters data said.
"We only get better or stronger from here, given the weak comparisons with a year ago," Mr. Niemira said.
This year's later Labour Day holiday pushed a good chunk of sales from August into September, but analysts had wondered if rising unemployment would weigh more heavily on spending.
Yesterday, a U.S. Labor Department report showed new U.S. jobless claims hit a nine-month low, suggesting the employment market was healing despite a September setback.
Sales of clothing for the back-to-school season fuelled many retailers' performances, especially in the early part of the month. Several chains raised their profit forecasts for the current quarter, although Target Corp. said it still had a cautious view of its fiscal fourth quarter, which includes the holiday season.
Wednesday, October 7, 2009
The rate hike heard round the world
Here is an interesting article. Could this give the Bank of Canada an excuse to raise Prime earlier than 2010? Who knows, but it is shows how up and down the rate landscape is.
The rate hike heard round the world
Paul Vieira, Financial Post
OTTAWA -- The Reserve Bank of Australia has become the first major central bank to raise interest rates since the financial crisis, citing rising home and stock prices along with the traditional focus on growth and inflation - factors other central bankers are expected to make more prominent as they seek to prevent a repeat of debilitating asset bubbles.
The surprise move by Australian central banker Glenn Stevens was greeted with enthusiasm by markets, as it was interpreted as a sign a global economic recovery was on track. Equities, commodity prices and the Canadian dollar surged on the move, although giving up some gains in later trading.
The Australian rate increase now puts the spotlight on other central banks, such as Canada's, which has been steadfast in setting rates to ensure a 2% inflation target. But inflation in Canada is expected to remain benign until 2011, forecasters say, due to excess manufacturing capacity in the economy and a strong Canadian dollar that will keep a lid on import prices.
The loonie reached a one-year high Tuesday of US94.82¢, before closing at US94.38¢, up 0.93¢ from Monday's close.
"Inflation is not going to be a problem. Consumer spending, and the consumer response to cheap money, however, may be a problem," said Stewart Hall, economist with HSBC Securities Canada.
The consumer response is what might push the Bank of Canada, just like its Australian counterpart. In its decision, Australia's central bank cited solid gains in housing prices and a "significant" recovery in equity markets for raising its benchmark rate 25 basis points, to 3.25%.
"I do get the sense asset prices are going to be play a greater role in the formation of monetary policy," said Michael Gregory, senior economist at BMO Capital Markets. "Because the amount of stimulus is unprecedented, and at emergency levels, removing it won't follow the same rules of thumb."
As a result, he said, central bankers might be looking at new measures to determine when to raise rates. As opposed to looking strictly at inflation and growth, Mr. Gregory said central banks might be forced to pay as much attention to asset prices and credit spreads.
In Australia, the central bank has always paid close attention to housing prices - which are a national obsession and have been on a tear over the past decade - and view them as a guage of the overall strength of the economy.
One of the main debates in the aftermath of the financial crisis is the role central banks should play in averting future meltdowns, and what powers they should be granted to execute this task. By taking on a beefed-up role as overseeing the financial system, central banks would be expected to identify asset bubbles and pop them before they burst. The collapse of the U.S. real estate market, fuelled by low lending rates that attracted less-creditworthy buyers, sparked a credit crisis and global recession.
"The general view before the calamity was that monetary policy was not an effective tool in dealing with asset bubbles," said Craig Alexander, deputy chief economist at Toronto-Dominion Bank.
"But given how much damage was caused by the U.S. housing bubble, the view now is that cleaning up the mess afterward can be far too costly and that monetary policy may need to be responsive to asset prices."
Mr. Alexander was a co-author of a TD report released Tuesday, suggesting the Bank of Canada might be forced to raise rates before it expected should Canada's housing market continue its stellar performance.
Mr. Hall said the Bank of Canada has put itself in a "tiny bit" of a box by indicating it was prepared to keep its key interest rate at 0.25% until June 2010, on the condition that inflation would hit the 2% target in early 2011.
But Mr. Hall said the central bank "would do what it wants to do" should circumstances arise. "It won't get trapped by anything."
The Bank of Canada is set to deliver its next interest-rate on Oct. 20, followed by an updated economic outlook two days later. Analysts will be eyeing the documents closely for any change in tone regarding rates. In the meantime, the Bank of Canada's senior deputy governor, Paul Jenkins, is scheduled to speak in Vancouver Thursday regarding the future "challenges" facing central banking.
The rate hike heard round the world
Paul Vieira, Financial Post
OTTAWA -- The Reserve Bank of Australia has become the first major central bank to raise interest rates since the financial crisis, citing rising home and stock prices along with the traditional focus on growth and inflation - factors other central bankers are expected to make more prominent as they seek to prevent a repeat of debilitating asset bubbles.
The surprise move by Australian central banker Glenn Stevens was greeted with enthusiasm by markets, as it was interpreted as a sign a global economic recovery was on track. Equities, commodity prices and the Canadian dollar surged on the move, although giving up some gains in later trading.
The Australian rate increase now puts the spotlight on other central banks, such as Canada's, which has been steadfast in setting rates to ensure a 2% inflation target. But inflation in Canada is expected to remain benign until 2011, forecasters say, due to excess manufacturing capacity in the economy and a strong Canadian dollar that will keep a lid on import prices.
The loonie reached a one-year high Tuesday of US94.82¢, before closing at US94.38¢, up 0.93¢ from Monday's close.
"Inflation is not going to be a problem. Consumer spending, and the consumer response to cheap money, however, may be a problem," said Stewart Hall, economist with HSBC Securities Canada.
The consumer response is what might push the Bank of Canada, just like its Australian counterpart. In its decision, Australia's central bank cited solid gains in housing prices and a "significant" recovery in equity markets for raising its benchmark rate 25 basis points, to 3.25%.
"I do get the sense asset prices are going to be play a greater role in the formation of monetary policy," said Michael Gregory, senior economist at BMO Capital Markets. "Because the amount of stimulus is unprecedented, and at emergency levels, removing it won't follow the same rules of thumb."
As a result, he said, central bankers might be looking at new measures to determine when to raise rates. As opposed to looking strictly at inflation and growth, Mr. Gregory said central banks might be forced to pay as much attention to asset prices and credit spreads.
In Australia, the central bank has always paid close attention to housing prices - which are a national obsession and have been on a tear over the past decade - and view them as a guage of the overall strength of the economy.
One of the main debates in the aftermath of the financial crisis is the role central banks should play in averting future meltdowns, and what powers they should be granted to execute this task. By taking on a beefed-up role as overseeing the financial system, central banks would be expected to identify asset bubbles and pop them before they burst. The collapse of the U.S. real estate market, fuelled by low lending rates that attracted less-creditworthy buyers, sparked a credit crisis and global recession.
"The general view before the calamity was that monetary policy was not an effective tool in dealing with asset bubbles," said Craig Alexander, deputy chief economist at Toronto-Dominion Bank.
"But given how much damage was caused by the U.S. housing bubble, the view now is that cleaning up the mess afterward can be far too costly and that monetary policy may need to be responsive to asset prices."
Mr. Alexander was a co-author of a TD report released Tuesday, suggesting the Bank of Canada might be forced to raise rates before it expected should Canada's housing market continue its stellar performance.
Mr. Hall said the Bank of Canada has put itself in a "tiny bit" of a box by indicating it was prepared to keep its key interest rate at 0.25% until June 2010, on the condition that inflation would hit the 2% target in early 2011.
But Mr. Hall said the central bank "would do what it wants to do" should circumstances arise. "It won't get trapped by anything."
The Bank of Canada is set to deliver its next interest-rate on Oct. 20, followed by an updated economic outlook two days later. Analysts will be eyeing the documents closely for any change in tone regarding rates. In the meantime, the Bank of Canada's senior deputy governor, Paul Jenkins, is scheduled to speak in Vancouver Thursday regarding the future "challenges" facing central banking.
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