Alberta’s economy to rebound this year, lead nation in GDP growth
More good news on the economy that does not make the papers.
Alberta’s economy to rebound this year, lead nation in GDP growth
Oil sands investment boosts forecast of 4.1% spurt
CALGARY – Alberta will experience a significant economic rebound this year and lead the nation in GDP growth, says a report released today by Scotiabank.
The report forecast GDP growth of 4.1 per cent for the province while overall Canadian growth would be 3.6 per cent, the strongest advance in a decade for the country. In 2011, Scotiabank is forecasting Alberta economic growth at 3.4 per cent – tied with Saskatchewan for the best in Canada. Nationally, it is predicting Canadian GDP at 2.7 per cent next year.
Scotiabank said a strong pickup in investment will fuel growth in the energy and manufacturing sectors this year in Alberta.
“Investment has perked up in the oil sands, as easing costs and higher oil prices revived investment intentions in late 2009, with $2.2 billion in outlays scheduled for 2010 alone,” said the report. “Renewed activity in the industry will lead to significant benefits flowing through the economy, with manufacturing and services all heavily tied to conditions in the energy sector. While the bulk of investment will stem from oil sand development and tight oil plays, recent revisions to the province’s royalty framework are a major positive for the natural gas industry.”
mtoneguzzi@theherald.canwest.com
© Copyright (c) The Calgary Herald
Buying a house is about life timing – not market timing
Forget market timing, buying a house is about life timing
Homes are a long-term investment
ups and downs of the housing market is near-impossible, so the best time to buy is when you can afford it.
‘You know, you’re making the biggest mistake of your life. The housing market is going to fall.”
I got this great piece of advice from another journalist at the Financial Post, who has since left the newspaper, after buying my first home. Not exactly the type of thing you want to hear after taking on huge debt and making the biggest financial decision of your life.
Lucky for me, I didn’t heed that advice about Toronto’s red-hot real estate market — in 1998. I’m not going to say I made a shrewd business decision 12 years ago, or even six years later when I bought a larger house.
For me, it wasn’t a case of not following what turned out to be bad advice from a fellow business journalist. Nor was it about trying to time the market.
I was simply following the same pattern as most Canadians: I got married and decided to stop renting and buy something. Later came the need for a bigger home when the second kid was on the way.
Which brings us to today. The supply of housing is rising fast as people try to list their homes for sale before the market “crashes.” This is happening at the same time that demand is starting to wane. Economists and even the real estate industry, are all predicting a correction — the only argument being how severe it will be.
So, the question for anyone buying is: should you wait?
Don Lawby, chief executive of Century 21 Canada, thinks the strategy of waiting for a crash is not going to work during this economic cycle. “For a market to crash, you have to have people who are desperate to sell,” says Mr. Lawby. “People will [only sell] if they can’t afford their mortgage or they don’t have a job.” He doesn’t see a decline in prices, “unless you are predicting that mortgages will renew at a hefty premium — which is not the case — or a whole bunch of people are going to lose their jobs.” Mr. Lawby believes neither will happen.
And, he adds, you are really into a risky game if you are timing the market. “A house is a home. If all you are doing is looking at it as an investment — that’s what happened the last 15 years — it’s not just that. It’s a place to live and a place to raise a family,” says Mr. Lawby. Even Benjamin Tal, a senior economist with CIBC World Markets, who, last month, said in a report that Canadian housing is 14% overvalued, has doubts about playing the market. But he suspects that’s exactly what some Canadians will do.
“Is there a sense that prices will go down and people will wait? I think it might be an issue,” says Mr. Tal. “It won’t be the main reason [people don’t buy], but it will happen at the margins. The fact that people sell at the peak and wait to buy is a normally functioning market.”
But even if you do make the right call on housing prices, it could end up backfiring on you in other ways. For example, if interest rates rise fast enough, any gains you make on price could be erased by interest charges, says Mr. Tal. Edmonton certified financial planner Al Nagy says you need to think of your house the way you think about any long-term investment. “Whether it’s an investment for use in your retirement or a house to live in, it’s a long-term thing. The timing becomes less critical than it would be if it is a speculative [investment].”
And he says making a call on the housing market is as tricky as any other investment call. “It’s very rare you catch the bottom. You can’t let the market dictate when it’s time to buy. The time to buy is when you can afford it,” says Mr. Nagy.
Complaints about Mortgage Prepayment Penalties
TORONTO, June 9 /CNW/ – Complaints about the financial industry have reached record levels, according to new figures released today by the Ombudsman for Banking Services and Investments (OBSI).
OBSI looked into 990 banking and investment consumer complaints in 2009, representing a 48 % increase over 2008 and a more than tripling of the number of case files in just three years. OBSI also processed over 12,400 individual inquiries from consumers and small businesses in 2009.
As in recent years, OBSI saw more investment cases (599) than banking cases (391). Investment complaints continue to drive much of the overall increase in complaint volumes OBSI deals with. While banking sector complaints were up 21%, investment complaints were up a staggering 73%.
“The global economic crisis, coupled with sharp declines in financial markets, gave rise to much of the increase in complaints we saw,” said Douglas Melville, Ombudsman for Banking Services and Investments. “However, despite the improvement in the markets over the last year, complaint volumes remain high. We expect this to continue.”
OBSI looks into complaints about most banking and investment products and services including: debit and credit cards; mortgages; stocks, mutual funds, income trusts, bonds and GICs; loans and credit; fraud; investment advice; unauthorized trading; fees and rates; transaction errors; misrepresentation; and accounts sent to collections. Where a complaint has merit, OBSI may recommend compensation up to a maximum of $350,000.
“On the banking side, many of the complaints we saw dealt with mortgage prepayment penalties, rates on lines of credit, or fraud,” said Melville. “On the investment side, the vast majority of cases were related to the suitability of investment advice. Investment advisors need to fulfill their “know your client” obligations as well as explain the risks and characteristics of the products they are recommending.”
In 2009, consumers received compensation in 28% of cases reviewed by OBSI. The rate of compensation was 20% for banking complaints and 35% for investment complaints.
The Ombudsman for Banking Services and Investments (OBSI) is the national independent dispute resolution service for consumers and small businesses with a complaint they can’t resolve with their banking services or investment firm. As a free alternative to the legal system, we work informally and confidentially to find fair outcomes to disputes about banking and investment products and services.
Investment report ranks Calgary #1 in Canadian real estate markets
Investment report ranks Calgary #1 in Canadian real estate markets
CALGARY – Calgary is the best place in Canada to invest in the residential real estate market, according to a new report released today.
The Real Estate Investment Network’s report said that Calgary experienced one of its best economic and real estate periods in Canadian history a couple of years ago but then entered a strong, and needed correction.
“During the economic downturn, Calgary’s market is making a predictable correction resulting in slightly more affordable housing compared to recent years passed,” said the report. “It was economically impossible for the market to continue at the pace at which it was heading and now finds itself adjusting to market realities.
“This adjustment period, as the market searches for its new foundation from which to build, should continue in 2010 as the provincial economy is poised for another growth spurt.”
The REIN report said the in-migration pace in the city continuing to lead the country combined with the “renewed affordability” will help propel the local market over the coming years.
“We, fortunately, should not see the massive over-boom situation we previously witnessed as the market remains more in line with the fundamentals,” said the report.
Following Calgary as the top Canadian real estate investment cities are Kitchener-Waterloo-Cambridge, Edmonton, Surrey, Maple Ridge, Hamilton, St. Albert, Simcoe Shores (Barrie-Orillia), Red Deer, Winnipeg and Saskatoon.
“Successful real estate investing is all about identifying a town or neighbourhood that has a future, not a past,” said the report. “Sadly, many investors like to invest based on past performance; thus, they are constantly chasing the market. This is called speculating – not investing.”
Canada’s banking system healthiest in the world
Canada’s banking system healthiest in the world
| Tuesday, 1 June 2010
Canada’s banking system is a model for the United States and European countries struggling to cope with mountains of debt accumulated through a series of market crises, massive bailouts and recession according to a report in the Washington Post this morning.
The International Monetary Fund and World Economic Forum (IMF) is showcasing Canada for having the healthiest banking system in the world. . The IMF, in probing what made Canada’s mortgage lending system so resilient during the crisis, concluded that it was “boring” compared with the complicated, sophisticated and expensive financing system in the U.S., but nevertheless effective and safe.
Canada and its banks were barely touched by the 2008 financial crisis that nearly brought down the U.S. banking system and led to the biggest recession since the Great Depression.
Canadian bank losses were so low, and their cushion of reserves so high, that the banks managed to post profits for months in the aftermath of the 2008 crisis while major U.S. banks were teetering on the brink of insolvency and getting $250 billion in Treasury bailouts to cover burgeoning losses on bad mortgage loans.
“The Canadian experience showed that more prudent lending and borrowing played a big part in preventing the housing bubble that proved the near-undoing of the American banking sector,” said Robert Elliott, a Canadian banking lawyer at Fasken Martineau.
Though major U.S. banks have been recapitalized by the government and are posting profits again, “all the fresh capital in the world may not prevent another cycle of misery down the road” unless the U.S. also adopts more prudent lending practices, he said
Bank of Canada raises interest rate by .25% to .5%
As expected, the BoC raised the rate today by 1/4% from .25% to 1/2%. That is bank prime and consumer prime will probably also go up the same amount from 2.25% to 2.5%. No big deal really.
Bank of Canada raises interest rate
| Tuesday, 1 June 2010
After more than a year at a record low level, Bank of Canada Governor Mark Carney raised the benchmark interest rate for the first time since 2007 by one-quarter percentage point to 0.5 per cent. This is the first time since 2007 that that rate has increased and the Bank of Canada is the first in the Group of Seven to do so since the financial crisis and recession began in 2008.
In a statement Carney emphasized that the increase should not be interpreted as just the first of more to come.
“This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending and the uneven global recovery,” the central bank said. “Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.”
A good overview of perceived impacts of the EU situation to the US economy.
From the Investment Advisory Service I subscribe to. A good overview of the perceived impacts of the EU situation to the US economy.
| Investment Comments
The generally benign market environment of the 1990s and low volatility experienced throughout much of the first decade of this century (until 2008) sometimes leaves investors unprepared for normal volatility that has characterized the market throughout history. As a result, investors panicked earlier this year when the Dow slipped over 900 points in three weeks. Over the next 2-1/2 months, the Dow moved up a strong 1500 points. The Dow has now given up about 1000 of those hard earned points in another three weeks. Volatility is the norm for investors, but it is still uncomfortable. In the middle of what appears to be a market “correction” that happens in most years, even in a rising market, the Dow dropped over 500 points in ten minutes on May 6. Clearly this was not normal. It appears that “high-frequency traders” set off an avalanche. The term “high-frequency traders” refers to computerized techniques used by Wall Street firms and hedge funds to analyze short-term data and make trades faster than a human being could. It is said that over 70% of U.S. equity trades come from these traders. While such trading makes money for their sponsors, it also increases trading volume and is helpful to the market. During a period of high market volatility the afternoon of May 6, it appears that many traders simply turned off their screens and stopped participating. The market for many ETFs (exchange-traded funds, which are unmanaged baskets of stocks) became quite thin, and there were far more sellers than buyers. Some of these supposedly safe index funds actually traded for a few pennies per share. This caused speculators to sell the underlying stocks that make up the ETF indexes because the index itself was much cheaper than the sum of its parts. The overall market dropped 5% in just ten minutes. This is the kind of traumatic drop that one might associate with a terrorist attack or assassination of a world leader. However, these were the actions of speculative traders and their computerized techniques, not of rational investors. The broader trigger for the recent volatility is the growing concern over the status of the European Union (EU) and its currency, the euro. Market wags use the term PIGS to lump the troubled economies of Portugal, Italy, Greece and Spain into a convenient package. Greece accepted a massive bailout ($145 billion) from the EU as world markets were in turmoil. The EU and the International Monetary Fund (IMF) unveiled an even bigger rescue plan of $955 billion for any EU member country. Greece does have its problems, but Portugal is taking the responsible approach of cutting spending and raising taxes, rather than looking for a global bailout. However, Greece and Portugal are a relatively small part of the global economy. To become a problem for the U.S., the problems would have to spread to Italy and Spain. Hopefully the size of the EU/IMF bailout will prevent this in the short-term, but longer term the presence of bailout money makes it easy for weak economies to avoid real reform. The fundamental problem is that the euro is a flawed currency where 16 individual European countries devise economic policies under EU guidelines, but with little enforcement. European economies are simply too diverse for a single set of rules. Some countries, particularly the southern European ones, have historically taken on debt instead of paying their bills. The debt would keep piling up and the countries would experience currency weakness and devaluations as a way of inflating their way out of debt problems. This doesn’t jive with the stricter economies and stronger currencies that have historically come from countries like Germany. So far the U.S. has been affected in three significant ways. The value of the dollar has skyrocketed, especially versus the euro. This can hurt U.S. exports as they become more expensive when denominated in euros, but it also helps keep inflation in check because import prices tend to fall. Second, global investors have flocked to U.S. Treasuries, helping our government fund its debt at much lower interest rates. Lastly, global oil prices have come down sharply, more than 20% in just a few weeks. As scary as this volatility might be, it is fairly normal in a historical context. The global market reaction reminds us of the “Asian Contagion” in 1997-1998. Concern over Asian economies caused the value of their currencies to decline sharply, triggering a worldwide panic. Russia defaulted on its debts. There was also the bankruptcy of a large hedge fund that controlled 5% of the world’s bonds. Yet, economic growth continued, and the U.S. stock market was up by more than 20% in each year. While these types of events seem very significant at the time, the passage of time typically allows cooler heads to prevail. U.S. economic statistics are starting to move from “encouraging” to “impressive.” An amazing 290,000 jobs were created in April, although the unemployment rate edged up as previously discouraged workers reentered the workforce and were now counted as unemployed. First quarter Gross Domestic Product grew at an annualized rate of 3.2% and consumer spending was even stronger. The factory sector is strong, although off of a weak base from early 2009. Factory orders were up in March for the eleventh time in the past twelve months. Consumer behavior is solid, with personal income rising in March for the ninth straight month. Personal spending grew even faster for the sixth straight month. Inflation remains well contained. The recent events in Europe will likely have some impact on the U.S. economy, but we don’t expect it to be severe. Euro-zone economies make up only 14% of U.S. exports, and most companies indicated in their first quarter results and conference calls that Asia is booming. Hopefully, recovery in the U.S. and strong growth in Asia will be enough to offset continued weakness in Europe. We don’t see any reason at this point to believe this will turn into anything long lasting. |
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Housing in Canada not to collapse like the USA did
U.S.-style housing market collapse not likely in Canada, CREA says
Canadian homeowners are unlikely to experience a U.S.-style decline in the value of their homes, says a report released today by the Canadian Real Estate Assocation.
Photograph by: Reuters, Reuters
CALGARY – Canadian homeowners are unlikely to experience a U.S.-style decline in the value of their homes, says a report released today by the Canadian Real Estate Assocation.
Instead, home prices will stabilize and will remain stable for some time, said the report.
“The relationship between average price and income has recently been cited as portending a U.S.-style correction in Canadian home prices,” said Gregory Klump, chief economist with CREA. “However, such warnings ignore the longer-term relationship between prices and income, and disregard typical Canadian housing market cycle dynamics.”
Just yesterday a report by CIBC World Markets Inc. said that on average Canadian home prices are now around 14 per cent over their “fair” value. The report also said that higher interest rates will likely lead to a “modest” decline in prices of between five to 10 per cent in the coming year or two.
CIBC said at least 1.5 million houses in Canada are now overvalued and this represents just over 17 per cent of all dwellings. Of those homes, about 760,000 are overvalued by more than five per cent. The report said 17.4 per cent of Alberta homes are overpriced.
But CREA’s report said home prices tend to rise in cycles, characterized by periods of sharp growth and periods of stability. By contrast, income generally follows an orderly upward trend over time.
“For home prices to keep pace with incomes, they must rise faster during housing booms to make up for periods of little or no price growth. Canadian home prices were stagnant throughout most of the 1990s, while incomes continued rising, making housing more affordable. Over the past decade, home prices have climbed sharply as mortgage interest rates declined,” said the CREA report.
Klump said that the Canadian housing market is now widely thought to be at, or very near, the top oaf a cycle and the ratio of home prices to incomes is high, but he said the ratio will revert to its long-term average as it always does as part of a normal housing market cycle.
“History suggests, however, that it will not do so by means of a significant correction in home prices. The more likely scenario is that home prices will stabilize, giving incomes a chance to catch up again,” he said.
Klump said conservative lending practices in the mortgage industry combined with “prudent borrowing and accelerated payments among Canadian mortgage holders” will help Canada avoid a U.S.-style housing crisis.
“The correction in U.S. home prices is set against a massive oversupply of homes due to distress sales, combined with a drop in housing demand due to unemployment. The unwinding of the housing boom in Canada will be more orderly, characterized by softening sales activity and stable prices,” said the CREA report.
mtoneguzzi@theherald.canwest.com
RBC housing report
This is very interesting. Investors are still buying in Alberta as we see all the details. They seem to know that Alberta is still the place to invest in real estate.
TORONTO, May 25 /CNW/ – Alberta was the only province to experience an improvement in housing affordability in the first quarter of 2010, according to the latest housing report released today by RBC Economics Research.
The RBC Housing Affordability measures for Alberta eased between 0.1 and 0.6 of a percentage point, further extending the significant drop in the measures since the end of 2007, a trend that was only briefly halted last summer (a drop in the measure means homes are more affordable).
“In contrast to most other provinces, house prices remained relatively tame in Alberta during the past year or so and this has kept the cost of homeownership in check,” said Robert Hogue, senior economist, RBC. “In the first quarter, all RBC measures were at or below their long-term average, suggesting that affordability remains at favourable levels.”
The RBC Housing Affordability measures for Alberta, which capture the province’s proportion of pre-tax household income needed to service the costs of owning a home, declined across all housing types in the first quarter of the year. The measure for the benchmark detached bungalow moved down to 33.0 per cent (a drop of 0.4 of a percentage point over the previous quarter), the standard townhouse to 25.4 per cent (down 0.1 of a percentage point), the standard condominium to 21.9 per cent (down 0.4 of a percentage point) and the standard two-story home to 36.9 per cent (down 0.6 of a percentage point).
The report found that home prices in Calgary have maintained an upward trend, although the overall pace has fallen short of the national average. In the first quarter, the increase in the costs of homeownership in Calgary was roughly equal to or slightly smaller than household income growth, leaving the RBC affordability measures hovering around the zero mark. Two-story homes were down 0.5 percentage points, while a standard townhouse was up 0.2 percentage points. Affordability continues to be attractive in the city with RBC measures close to long-term averages.
“The housing market rebound turned out to be a much more restrained in Calgary, compared to most of the other major markets in Canada,” added Hogue. “After posting strong gains in the early stages of the rebound, resale activity has slowed considerably since the fall, which likely reflects challenges in the city’s job market.”
The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Calgary and Edmonton. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.
RBC’s Housing Affordability measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 73.4 per cent (up 4.8 percentage points over the last quarter), Toronto 49.1 per cent (up 0.4 of a percentage point), Ottawa 40.3 per cent (up 0.3 of a percentage point), Montreal 39.7 per cent (up 0.9 of a percentage point), Calgary 36.5 per cent (down 0.3 of a percentage point) and Edmonton 32.0 (down 0.5 of a percentage point).
The RBC Housing Affordability measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. 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: Homeownership become significantly more expensive,
as housing costs rose in B.C. to the highest level among all
provinces. Continued momentum in the province’s housing market has
brought affordability measures close to the all-time highs reached in
early-2008. This trend represents a risk that could weigh on the
province’s economy in the near term.
– Saskatchewan: Real estate activity picked up in the province as home
affordability measures rose significantly in the first quarter of the
year, which reflect rising house prices. This is a change from
previous quarters, which showed an improvement in affordability.
Despite this increase, affordability measures still remain below the
peak levels reached in early-2008.
– Manitoba: Manitoba’s housing market surged ahead in the first quarter
of 2010, with affordability measures moving above the long-term
average for the province. Home prices became more expensive for
condominiums, townhouses and bungalows. Additional increases in
provincial housing costs may become more difficult for Manitobans to
manage in the near-term.
– Ontario: Home prices in the province continued to rise, with property
values reaching record highs in many parts of the province. This has
led to a decline in housing affordability, after showing consistent
improvement since the middle of last year. With escalating prices,
affordability measures are now above the long-term average but below
peak levels, for most housing types. This suggests that housing costs
are becoming more difficult for Ontario residents to handle.
– Quebec: Quebec’s housing market rally continued in the first quarter
of the year, with record-levels of buying activity and rising
property values. This escalation in home prices, while more moderate
than in the previous two quarters, exceeds the long-term average in
the province.
– Atlantic Canada: Resale activity on the East Coast remained solid,
with an increase in sales balanced by an increased supply of
available homes. These stable conditions have limited the pace of
price increases in the region. Overall housing affordability in
Atlantic Canada continues to be among the most attractive in the
country, with affordability measures still below long-term averages.
The full RBC Housing Affordability report is available online, as of 8 a.m. E.D.T. today at www.rbc.com/economics/market/pdf/house.pdf.