‘Window closing’ on ultra-low mortgage rates
Tim Shufelt, Financial Post · Monday, Feb. 7, 2011
Amid the noise of volatile-but-improving economic indicators, mortgage rate hikes are likely to repeat like a chorus in the coming months.
Canadian banks are raising interest rates on mortgages, marking the beginning of a trend as they correlate with rising bond yields and expected monetary tightening.
That’s making a strong case for borrowers to lock into fixed rates before it’s too late, said Benjamin Tal, deputy chief economist with CIBC World Markets. “The window is closing.”
TD Canada Trust and CIBC both announced Monday hikes to their residential mortgage rates, the first increases since changes to the rules of borrowing were announced by the federal government last month. The other big banks where expected to follow the moves shortly.
Effective Feb. 8, the interest rate on the banks’ benchmark five-year closed fixed rate mortgage will increase 25 basis points to 5.44%. The country’s other major lenders are expected to soon follow suit.
Toronto mortgage broker Paula Roberts said rising borrowing costs will compel more of her clients to abandon ultra-low variable rates in favour of higher, fixed-rate mortgages.
That can be a tough decision for borrowers to accept higher payments, but not one that should strain a mortgagee’s finances, she said.
“If you can’t afford [your payments] … that’s a problem,” Ms. Roberts said. “That’s why the government has changed the rules.”
In two stages over the past year the federal government announced changes to the conditions of mortgage lending — shortening the maximum amortization from 35 years to 30 years and requiring borrowers to qualify for a fixed-rate plan, even if they are opting for a variable rate.
Many who only qualify under the old rules, however, will try to secure mortgages before the shorter maximum amortization periods come into effect next month, Ms. Roberts said.
“There are going to be a lot of people that will enter into their agreements by March 18.”
Much of the momentum in mortgage rates can be attributed to a bond selloff and rising yields across the board. That effect is partly a reflection of building global inflationary pressures as well as a global economy that is proving more robust than expected.
“In my opinion, the bond market will not be the place to be over the next six months, and if that’s the case, you will see mortgage rates continue to rise,” Mr. Tal said.
In addition, anticipation of increases to the Bank of Canada’s benchmark lending rates is building, also contributing to rising yields, which puts pressure on fixed-income mortgages.
If there was any lingering doubt that the Bank will soon raise rates, last week’s jobs report erased them. The report showed Canada added four times more jobs than expected in January.
“[It] creates a fairly powerful story for the Bank of Canada, which is clearly concerned on the domestic front,” said Camilla Sutton, chief currency strategist at the Bank of Nova Scotia. “I think there’s a material change.”
So do investors. The probability that the central bank will boost its key policy rate by May, as measured by overnight index swaps, jumped to almost 75% after the jobs data. http://www.financialpost.com/news/Window+closing+ultra+mortgage+rates/4239243/story.html#ixzz1DMwQzyWP
Housing crash is not likely to happen in Canada.
Ben is one of the best economists around and is usually correct….
However, Tal said that if rates rise, mortgage defaults will actually drop. He explained that is because rising rates imply rising employment, which influences defaults more than anything.
Canada’s homeownership affordability improves for the first time in over a year says RBC
TORONTO, Nov. 29 /CNW/ – After four consecutive quarters of rising homeownership costs, housing affordability improved in the third quarter of 2010 thanks primarily to a drop in mortgage rates and some softening in home prices, according to the latest Housing Trends and Affordability report released today by RBC Economics Research.
“The improvement in affordability during the third quarter has relieved some of the stress that had been mounting in Canada’s housing market over the past year,” said Robert Hogue, senior economist, RBC. “After appreciating rapidly during the strong rebound in resale activity last year and early this year, national home prices recently came off the burner and retreated modestly as market conditions cooled considerably through the spring and summer.”
The RBC Housing Trends and Affordability report notes that, at the national level, the third quarter improvement in affordability reversed almost two-thirds of the cumulative deterioration that took place over the previous four quarters. For the most part, the RBC Housing Affordability Measures returned to their levels at the end of 2009.
The RBC Housing Affordability Measure captures the proportion of pre-tax household income needed to service the costs of owning a specified category of home. During the third quarter of 2010, measures at the national level fell between 1.4 and 2.5 percentage points across the housing types tracked by RBC (a decrease represents an improvement in affordability).
The detached bungalow benchmark measure eased by 2.4 of a percentage point to 40.4 per cent, the standard condominium measure declined by 1.4 of a percentage point to 27.8 per cent and the standard two-storey home experienced the largest decrease, falling 2.5 percentage points to 46.3 per cent.
Despite some decline in home prices over last quarter, prices were still 5.8 to 6.8 per cent higher year-over-year at the national level. Conventional fixed mortgage rates came down in the third quarter, with the five-year posted rate (the basis on which the RBC Measures are calculated) falling more than 0.5 percentage points to an average of 5.52 per cent, entirely reversing the rise in the second quarter.
RBC notes that affordability could well improve further in the near term, with additional cuts in the posted five-year fixed rate already in place in the early part of the fourth quarter and previous home price increases still being rolled back in certain markets. However, RBC expects the Bank of Canada will resume its rate hiking campaign by the second quarter of next year, which will eventually have a more sustained upward effect on mortgage rates.
“Higher mortgage rates will be the dominant factor raising homeownership costs beyond the short term, although increasing household income – as the job situation continues to strengthen in Canada – will provide some positive offset,” added Hogue. “We expect housing demand and supply to remain mostly in balance overall, setting the course for very modest home price increases.”
All provinces saw improvements in affordability in the third quarter, particularly in British Columbia where elevated property values amplified the effect of the decline in mortgage rates on monthly mortgage charges. Ontario also experienced some notable drops in homeownership costs, pushing down the RBC Measures below their long-term average in the province for bungalows and condominiums. Alberta and Manitoba are the only two provinces where the RBC Measures stand below their long-term average in all housing categories, indicating little stress in these markets.
RBC’s Housing Affordability Measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 68.8 per cent (down 5.4 percentage points from the last quarter), Toronto 47.2 per cent (down 3.0 percentage points), Montreal 41.7 per cent (down 1.3 percentage points), Ottawa 38.2 per cent (down 2.9 percentage points), Calgary37.1 per cent (down 2.0 percentage points) and Edmonton 32.7 per cent (down 2.0 percentage points).
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 in Canada. Alternative housing types are also presented including a standard two-storey home 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: Lower home prices and declining mortgage rates brought the B.C. housing market some welcomed reprieve in the third quarter from the significant deterioration in affordability recorded since the middle of 2009. Amid much cooler resale activity through the spring and summer and greater availability of properties for sale, home prices either fell, particularly for bungalows, or remained stable in the case of condominium apartments. The RBC Housing Affordability Measures for B.C. dropped between 1.8 and 5.0 percentage points, representing the largest declines since the first quarter of 2009; however, all remained significantly above long-term averages. Poor affordability is likely to continue to weigh on housing demand in the province in the period ahead.
- Alberta: Despite recording substantial affordability improvements since early 2008, housing demand in Alberta is still a shadow of its former self from just a few years ago and there are few signs that it is picking up meaningfully. The RBC Measures eased between 0.8 and 1.8 percentage points, more than reversing modest rises in the second quarter. Homeownership is among the most affordable in Canada both in absolute terms and relative to historical averages. RBC notes such a high degree of affordability bodes well for a strengthening housing demand once the provincial job market sustains more substantial gains.
Calgary is 1 of North America’s Fastest Growing Cities
North America’s fastest-growing Cities
Forbes has indicated a bright future for Alberta’s premier city, naming Calgary one of North America’s fastest-growing metropolises. According to Forbes, with Canada’s and the US’ major land mass, the area is expected to develop more than 100 million by the year 2050.
The following article discusses North America’s growing cities, and highlights that easy-to-manage cities that are less crowded and more affordable can expect to be driven in large part by continued migration.
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Article Source (Financial Post – Calgary, Alberta) – The U.S. and Canada’s emerging cities are not experiencing the kind of super-charged growth one sees in urban areas of the developing world, notably China and India. But unlike Europe, this huge land mass’ population is slated to expand by well over 100 million people by 2050, driven in large part by continued immigration.In the course of the next 40 years, the biggest gainers won’t be behemoths like New York, Chicago, Toronto and Los Angeles, but less populous, easier-to-manage cities that are both affordable and economically vibrant.
Americans may not be headed to small towns or back to the farms, but they are migrating to smaller cities. Over the past decade, the biggest migration of Americans has been to cities with between 100,000 and 1 million residents. In contrast, notes demographer Wendell Cox, regions with more than 10 million residents suffered a 10% rate of net outmigration, and those between 5 million and 10 million lost a net 2.4%.
In North America it’s all about expanding options. A half-century ago, the bright and ambitious had relatively few choices: Toronto and Montreal for Canadians or New York, Chicago or Los Angeles for Americans. In the 1990s a series of other, fast-growing cities — San Jose, Calif.; Miami; San Diego; Houston; Dallas-Fort Worth, Texas; and Phoenix — emerged with the capacity to accommodate national and even global businesses.
Now several relatively small-scale urban regions are reaching the big leagues. These include at least two cities in Texas: Austin and San Antonio. Economic vibrancy and growing populations drive these cities, which ranked first and second, respectively, among large cities on Forbes’ “Best Places For Jobs” list.
Austin and San Antonio are increasingly attractive to both companies and skilled workers seeking opportunity in a lower-cost, high-growth environment. Much the same can be said about the Raleigh-Durham area of North Carolina, and Salt Lake City, two other U.S. cities that have been growing rapidly and enjoy excellent prospects.
One key advantage for these areas is housing prices. Even after the real estate bust, according to the National Association of Homebuilders, barely one-third of median-income households in Los Angeles can afford to own a median-priced home; in New York only one-fourth can. In the four American cities on our list, between two-thirds and four-fifths of the median-income households can afford the American Dream.
Advocates of dense megacities often point out that many poorer places, including old Rust Belt cities, enjoy high levels of affordability, while more prosperous regions, such as New York, do not. But lack of affordability itself is a problem; areas with the lowest affordability, including New York, also have suffered from high rates of domestic outmigration. The true success formula for a dynamic region mixes affordability with a growing economy.
Our future cities also are often easier for workers and entrepreneurs alike. Despite the presence of the nation’s best-developed mass transit systems, the longest commutes can be found in the New York area; the worst are for people living in the boroughs of Queens and Staten Island. As a general rule, commuting times tend to be longer than average in some other biggest cities, including Chicago and Washington.
In contrast, the average commutes in places like Raleigh or San Antonio are as little as 22 minutes on average — roughly one-third of the biggest-city commutes. Figure over a year, and moving to these smaller cities can add 120 hours or more a year for the average commuter to do productive work or spend time with the family.
Similar dynamics — convenience, less congestion, rapid job growth and affordability — also are at work in Canada, where two cities, Ottawa (which stretches from Ontario into Quebec) and Calgary, stand out with the best prospects. Many Canadians, particularly from Vancouver, would dispute this assertion. But Vancouver, the beloved poster child of urban planners, also suffers extraordinarily high housing prices–by some measurements the highest in the English-speaking world. This can be traced in part to the presence of buyers from other parts of Canada and abroad, particularly from East Asia, but also to land-use controls that keep suburban properties off the market.
Calgary, located on the Canadian plains, not much more than an hour from the Rockies, retains plenty of room to grow, and its housing price-to-income ratio is roughly half that of Vancouver’s. Calgary is also the center of the country’s powerful energy industry, which seems likely to expand during the next few decades, and its future is largely assured by soaring demand from China and other developing countries.
The other Canadian candidate, the capital city of Ottawa and its surrounding region, has developed a strong high-tech sector to go along with steady government employment. Remy Tremblay, a professor at the University of Quebec at Montreal, notes that Ottawa “is changing very rapidly” from a mere administrative center to a high-tech hotshot. Yet for all its growth, it remains remarkably affordable in comparison with rival Toronto, not to mention Vancouver.
In developing this list we have focused on many criteria — affordability, ease of transport and doing business–that are often ignored on present and future “best places” lists. Yet ultimately it is these often mundane things, not grandiose projects or hyped revivals of small downtown districts, that drive talented people and companies to emerging places.
TD changing to collateral loans for mortgages – the bad news
TD is changing their mortgages to collateral loans as standard.
We think this is to keep people from refinancing with another bank because TD is not offering competitive rates. There are also some other negative points to the new TD mortgage listed below:
Cons:
- Most chartered banks will not accept “transfers” of collateral mortgages from other chartered banks. If the consumer wishes to switch their collateral mortgage to another lender upon maturity, there will be legal & appraisal costs. Approx $750-$1000
- Upon maturity, would the lender offer only a posted fixed rate or just a slightly lower rate knowing the costs associated with transferring to another lender has legal & appraisal costs.
- Collateral charges allow lenders to change the interest rate and/or loan more money to qualified borrowers after closing. On secured lines of credit, the interest rate registered at Prime + upwards of 10%.
- Collateral loan involves the other debts you may have. Under Canadian law, a lender may seize equity to cover other debt you have with the same lender. So, in essence, you’re possibly securing all your loans that you have with that financial institution; be it credit cards, unsecured lines of credit, car loans, or overdraft etc.
Now the Pros:
I can’t think of any!
Ensure you do your home work on TD mortgages. There are lots of other lenders and lots of alternatives.
Canadian Prime staying at 3% – maybe for half a year
Comment – this article exactly summarizes our thoughts for how things will play out:
Prime will stay at 3% for 6 months, mortgage rates will stay low as long as the stock market bounces all over the place and now is a great time to take advantage of the situation by redoing our mortgage or buying.
Bank of Canada holds key rate at 1%
OTTAWA — Interest rate hikes are on hold until at least the spring and maybe as long as late 2011, analysts say, as the Bank of Canada decided Tuesday to keep its policy rate unchanged amid weaker-than-anticipated growth, especially in the United States.
The Canadian dollar fell by more than two cents at one point following the decision, as the central bank signalled the country would need to rely more on net exports for growth — a sign, economists added, the loonie’s value would be a key consideration in future rate decisions.
The central bank said it scaled back its growth projections for this country as the global recovery enters a “new phase.” It now expects GDP to expand just three per cent this year and 2.3 per cent in 2011, compared to expectations in July for advances of 3.5 per cent and 2.9 per cent, respectively. Second-quarter GDP growth, at two per cent annualized, was well below the central bank’s forecast of three per cent expansion.
Further, the Bank of Canada said it does not envisage the Canadian economy reaching full potential until the end of 2012, or one year later than previously expected. The same timeline applies to inflation — which guides all interest-rate decisions — as the “significant” excess slack would keep consumer prices increases from reaching the desired 2% level for another two years.
“This is not just a data watching central bank that is keeping its powder dry in order to evaluate developments over coming months — this is a central bank that has totally revised its outlook and market guidance,” said analysts at Scotia Capital. “To us, the Bank of Canada is saying they are on hold until late next year.”
The central bank also signalled the composition of growth is set to change, with less emphasis on consumer spending and increased reliance on business investment and net exports.
The Canadian dollar recovered slightly after its initial drop. It was trading around 96.92 cents U.S. at 11 a.m., down from Monday’s close of 98.61 cents U.S..
Jonathan Basile, economist at Credit Suisse Securities in New York, said this indicates the Bank of Canada “will be watching the Canadian dollar more closely” as strength in net exports is predicated on a loonie that doesn’t strengthen too much against its U.S. counterpart.
The statement “appears to be a pretty clear signal of the Bank of Canada’s intention to pause,” said Michael Woolfolk, managing director at BNY Mellon Global Markets in New York. “Moreover, it suggests that the central bank may pause longer than expected. With the Bank concerned now about the economy’s increasing reliance on net exports, it will take particular care not to unnecessarily bolster the loonie through future rate hikes.”
Economists at Royal Bank of Canada and Toronto-Dominion Bank told clients that March of next year might be the earliest at which the central bank resumes rate hikes.
“The economic outlook for Canada has changed,” said the central bank, led by governor Mark Carney. “(A) more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending” as real-estate activity slows and consumers deal with their personal debt.
The decision to keep key rate unchanged leaves “considerable monetary stimulus” in place to achieve the central bank’s preferred two per cent target, the central bank indicated.
Plus, Basile said the central bank signalled three factors that stand in the way of future rate hikes: a weaker U.S. outlook; constraints curbing growth in emerging-market economies; and domestic considerations, most notably household debt.
Tuesday’s rate statement reflects a more dovish tone from the central bank compared to its last decision roughly six weeks ago, when it opted to raise its benchmark interest rate by 25 basis points for a third consecutive time. More detail regarding the central bank’s outlook will emerge Wednesday when the Bank of Canada releases its latest quarterly economic outlook.
The big game-changer, analysts say, is the tepid U.S. economy and the signals from the U.S. Federal Reserve that it’s preparing to inject additional liquidity in the economy through asset purchases, with a dual goal of lowering borrowing costs and boosting inflation expectations.
As a result, a pause from the Bank of Canada “is entirely justifiable,” said Eric Lascelles, chief Canadian strategist at TD Securities, in a note to clients prior to the release of the central bank’s decision. “The thought that if the U.S. needs (further easing), the economic prospects for the U.S., and by extension Canada, are also threatened.”
The Bank of Canada said the global economic recovery is entering a “new phase,” as the factors supporting growth in advanced economies, such as the rebuilding of inventories and pent-up demand, subside just as fiscal stimulus is wound down.
“The combination of difficult labour market dynamics and ongoing de-leveraging . . . is expected to moderate the pace of growth relative to prior expectations,” the central bank said. “These factors will contribute to a weaker-than-projected recovery in the United States in particular.”
Growth in emerging economies is expected to ease as governments in those markets put the brakes on stimulus spending and raise borrowing costs. As it happened, China raised interest rates earlier Tuesday.
And recent moves by emerging markets and advanced economies to intervene in foreign-exchange markets was highlighted by the Bank of Canada as a further risk to the global economic recovery. “Heightened tensions in currency markets and related risks associated with global imbalances could result in a more protracted and difficult global recovery,” the central bank said.
The warning emerges just days before a key Group of 20 meeting of finance ministers and central bankers in South Korea in which foreign-exchange policies is now expected to dominate the agenda. Both Carney and Finance Minister Jim Flaherty are set to attend the meeting.
© Copyright (c) Postmedia News
Prime to stay the same until March 2011
Report says BoC likely to hold rates until March 2011
This month’s RBC Financial Markets Monthly publication reports that the Bank of Canada is likely to hold rates until March 2010.
Report Excerpts:
Canada takes a breather after sprinting out of recession
With real GDP standing a hair’s breadth away from its pre-recession peak and final domestic demand already treading into new territory, reports of more moderate activity in July did not prove too surprising. The sharp recovery in the housing market started to stall in mid-2010 because pent-up demand generated during the recession was satiated and buying—ahead of the mild tightening in mortgage rules and the implementation or increase in the HST in three provinces—was exhausted. The robust sales pace left a high level of household debt in its wake resulting in the debt-to-income ratio rising to an all-time high in the first quarter.
Recent growth has not been strong enough to exert significant downward pressure on the unemployment rate and inflation pressures have been moderate with the core rate at 1.6%. The headline inflation rate was 1.7% in August, thereby holding below the Bank’s 2% target, even after the harmonization of provincial and federal sales taxes in Ontario and BC were incorporated into the price measure. Unlike in the US, where we expect that core inflation will remain very low, we forecast Canada’s core rate to hold just below the 2% target during the forecast horizon and gravitate above 2% in mid-2012.
Rate increases likely to resume in early 2011
Our overall assessment of the Canadian outlook has changed little in the past month, so we are maintaining our call that the Bank will gradually raise the overnight rate to 2.25% in the second half of 2011. This gradual reduction in policy accommodation will keep a lid on the degree that term interest rates will rise especially against a backdrop of very low U.S. rates. We trimmed our 2011 forecast for yields looking for the two-year rate to end 2011 at 2.85% and the 10-year bond yield at 3.75%.
Other highlights from this month’s Financial Markets Monthly:
- U.S. data have been a mixed bag and confirm that the U.S. recovery is continuing, albeit slowly. The risk of deflation, not inflation, appears to be at the top of the mind for policymakers now with the Fed likely to implement another round of quantitative easing to ensure that growth and inflation do not slow further.
- The uncertain global outlook is likely to be the dominant factor in the Bank of Canada shifting to the sidelines for the remainder of 2010.
- Policymakers in the UK are unlikely to deliver a further easing in policy unless conditions become much worse.
- The RBA stayed on the sidelines this month although the statement showed a clear tightening bias which sets up for a hike before year end.
- Canada’s economy sputtered in July after very robust domestic demand earlier in the year.
- Inflation remains mild with both the headline and core rates below the Bank’s 2% target.
- The uncertain global outlook is likely to be the dominant factor in the Bank shifting to the sidelines for the remainder of 2010.
Canada’s homeownership costs continue to climb despite slowing resale activity
TORONTO, Sept. 27 /CNW/ – Homeownership costs in the second quarter rose across Canada for the fourth consecutive time despite the recent slowing in resale market activity, according to the latest housing report released today by RBC Economics Research.
“Higher mortgage rates in tandem with a further appreciation in home prices boosted the monthly costs associated with carrying a mortgage on a typical home,” said Robert Hogue, senior economist, RBC. “This extended the deteriorating trend in affordability since the middle of last year; however, affordability levels in Canada generally remain within a safe range.”
The RBC Housing Affordability Measure captures the proportion of pre-tax household income needed to service the costs of owning a home of a certain category. During the second quarter of 2010, measures at the national level rose between 1.1 and 2.1 percentage points across the housing types tracked by RBC (the higher the measure, the more difficult it is to afford a home).
The detached bungalow benchmark measure rose by 1.9 of a percentage point to 42.9 per cent, the standard townhouse inched up by 1.1 of a percentage point to 34.1 per cent, the standard condominium climbed by 1.1 of a percentage point up to 29.3 per cent and the standard two-storey home experienced the largest increase, climbing 2.1 percentage points to 48.9 per cent.
The report notes that the slide in affordability over the past year has reversed approximately half of the considerable improvements in affordability witnessed in 2008 and early 2009.
RBC projects a temporary easing in housing affordability as a result of the recent decline in mortgage rates and the increasing evidence that home prices have started to stabilize in many markets. However, the Bank of Canada is expected to continue raising interest rates over the next 12 to 18 months which will become the dominant factor making homeownership less affordable once the near-term reprieve has passed.
“Current levels of affordability suggest some greater-than-usual stress weighing on Canadian homebuyers, but this does not represent an imminent threat to the market,” noted Hogue. “While we expect rising interest rates to increase mortgage servicing costs, a leveling off in home prices and increasing household income will partly offset the negative effect.”
Ontario and B.C. saw the most significant deterioration in affordability in the second quarter; however, some improvements in specific housing types occurred in Alberta (condominiums) and Saskatchewan (townhouses). All other provinces showed modest erosion, with the exception of two-storey homes in Manitoba where the rise in the RBC measure was quite substantial.
RBC’s Housing Affordability Measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 74.0 per cent (up 1.7 percentage points from the last quarter), Toronto50.2 per cent (up 2.4 percentage points), Montreal 43.2 per cent (up 1.8 percentage points), Ottawa 41.2 per cent (up 3.6 percentage points), Calgary 39.2 per cent (up 0.9 percentage point) and Edmonton 34.7 (up 2.5 percentage points).
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 in B.C. is testing household budgets with affordability deteriorating again in the second quarter despite downward pressure on home prices and market activity sinking since the start of this year. RBC’s measures rose between 1.1 and 2.5 percentage points, representing some of the strongest increases among the provinces, and are near all-time highs for all housing categories. Very poor affordability is likely to restrain demand in the period ahead.
- Alberta: Affordability measures have improved in Alberta since early 2008 as a result of lacklustre housing market conditions. The second quarter saw a mixed picture with prices easing slightly for condominiums but rising in all other categories. RBC notes that affordability measures are at or below their long-term averages, implying little downside risk to the market and boding well for a strengthening in housing demand once the provincial job market shows more substantial gains.
- Saskatchewan: Rising mortgage rates during the quarter caused further deterioration in affordability for most housing types in the province. With the sole exception of townhouses edging lower, increases in affordability measures pushed levels further above long-term averages, indicating that some tensions may be building. RBC expects a strong rebound in the provincial economy this year and next which is likely to help ease such tensions.
- Manitoba: Sellers kept a firm hand on pricing by reducing the supply of homes available for sale in the province, resulting in home prices continuing to appreciate, particularly for two-storey homes, which is translating into further deterioration of housing affordability. Homebuyers are feeling more pressure with affordability measures standing close to long-term averages.
- Ontario: After setting new record highs this past winter, home resales in the province have since fallen precipitously due to a number of factors including the HST, changes in mortgage lending rules and the rush of first-time homebuyers to lock in low mortgage rates. Housing affordability in Ontario continues to reverse the considerable improvements achieved in late-2008 and early-2009 with measures increasing for a fourth consecutive time in the second quarter, representing some of the largest increases among the provinces.
- Quebec: Quebec’s record-breaking housing market rally proved to be unsustainable in the second quarter with resale activity settling to a pace comparable to levels witnessed in 2006-2007, which were considered to be fairly vigorous at the time. Affordability was hampered by home prices trending upward with RBC affordability measures now at or very close to the pre-downturn peaks and exceeding their long-term averages. Further increases in homeownership costs could have a more visibly adverse effect on housing demand.
- Atlantic Canada: The East Coast housing market was not immune to the significant downturn in activity that swept across the country since spring with housing resales falling back across the region to the lows reached during late-2008 and early-2009. Cooling demand loosened up market conditions, restraining home price increases and limiting the rise in affordability measures which remain very close to long-term averages. Overall, housing affordability in Atlantic Canada remains attractive and signals little undue stress at this point.
Canada’s economic growth expected to continue in 2010
TORONTO, Sept. 10 /CNW/ – After rapid gains in the early part of the year, Canada’s economy slowed in the second quarter and is expected to rebound only modestly over the second half of the year, according to the latest Economic Outlook report from RBC Economics.
RBC slightly pared back its 2010 forecast, expecting GDP growth of 3.3 per cent which is down from 3.6 per cent projected last quarter.
“While Canada’s second quarter growth put real GDP close to its pre-recession high, concerns in the U.S. and nervousness about the health of the global economy are weighing on the outlook for the second half of the year,” said Craig Wright, senior vice-president and chief economist, RBC.
RBC forecasts that the economy will continue to grow and that the output gap will be completely eliminated by mid-2012. The labour market has recovered 94 per cent of the jobs lost during the recession and the unemployment rate is expected to decline to 7.3 per cent by the end of 2011, from the 8 per cent that prevailed the second quarter of this year.
With government infrastructure spending to be exhausted in the first quarter of 2011, there will be pressure on the private sector to fill the void and sustain economic growth.
GDP is expected to rise 3.2 per cent in 2011, down 0.3 percentage points from projections in last quarter’s Outlook. RBC notes that core inflation has been stable through the economic downturn and expects it to remain anchored around the Bank of Canada’s 2 per cent mid-range target.
“Global financial conditions have not been severely damaged by the European sovereign debt crisis as previously feared,” said Wright. “With central banks pledging to do whatever is necessary to keep the recovery on track, interest rates will remain low, supporting business and consumer spending once confidence is restored.”
RBC adjusted its U.S. GDP forecast to 2.7 per cent in 2010 and 3.0 per cent in 2011, compared to 3.1 per cent and 3.4 per cent the previous quarter, in light of the sharp weakening in real GDP in the second quarter and disappointing reports on the housing and labour markets over recent months.
According to the report, the Canadian dollar has been hurt by concern about the U.S. and global recovery continuing, with an attendant downward impact on commodity prices, and will likely remain under pressure until the risk of another downturn in the global economy dissipates. RBC forecasts that the Canadian dollar will close out 2010 at 93.45 U.S. cents and will again trend upward toward parity by mid-2011.
At the provincial level, RBC expects all provincial economies to grow in 2010; however, the downshift in economic momentum prompted growth forecasts for most provinces to be revised lower in 2010 with the exception of Saskatchewan (increased to 6.3 per cent from 3.8 per cent) and Alberta (up 3.5 per cent from 3.1 per cent). The largest downward revisions were made to Manitoba (down 0.9 per cent to 2.0 per cent) and Newfoundland & Labrador (from 4.1 per cent to 3.3 per cent). All other adjustments were fairly modest from June and are as follows:
– BC: growth of 3.3 per cent, revised lower from 3.5 per cent
– ON: growth of 3.5 per cent, revised lower from 3.8 per cent
– PQ: growth of 3.0 per cent, revised lower from 3.5 per cent
– NB: growth of 2.3 per cent, revised lower from 2.4 per cent
– NS: growth of 1.8 per cent, revised lower from 2.2 per cent
– PEI: growth of 2.1 per cent, revised lower from 2.6 per cent
British Columbia’s economy soldiers on
Despite global economic uncertainty, British Columbia’s economy is holding its ground with a projected growth rate of 3.3 per cent in 2010, according to a new report released today by RBC Economics.
RBC revised its forecast slightly lower by 0.2 per cent from the previous Outlook, but notes that that the forecasted growth is a welcome about-face from the recession and the estimated decline of 2.4 per cent suffered last year.
“B.C.’s economy continues to demonstrate signs of vigour confirming that last year’s recession is indeed a thing of the past,” said Craig Wright, senior vice-president and chief economist, RBC. “Although some of the jump coming from sectors experiencing a revival this year is likely to come under pressure later this year, fairly solid forward momentum will be maintained overall.”
B.C.’s economy has significantly benefited from stronger commodities markets with softwood lumber, market pulp, coal, natural gas and copper all well above year-ago levels. The resource sector’s recovery has been a big boost to the trade performance of the province, with the value of merchandise exports increasing at a double-digit rate so far this year. RBC does caution, however, that renewed weakness in U.S. residential construction is likely to create further headwind for the B.C. forest products sector and provincial exports in the near term.
According to the RBC Economics Provincial Outlook, B.C.’s economy continues to benefit from government stimulus with sharp increases in capital spending fueling non-residential construction. The housing market, however, has yet to find middle ground. After considerable swings since the end of 2007, the market is moving downward, likely reflecting the unwinding of earlier juiced-up demand from buyers advancing purchases to lock in exceptionally low interest rates and to beat the introduction of new mortgage rules in April and the HST in July.
“The wildcard for B.C.’s economy is the housing market,” added Wright. “We expect housing activity to stabilize during the second half of this year, although poor affordability levels in markets such as Vancouver pose some downside risk.”
RBC expects B.C.’s positive outlook to continue through 2011, although some modest slowing of growth is likely to occur, and projects real GDP growth of 3.1 per cent next year.
The RBC Economics Provincial Outlook assesses the provinces according to economic growth, employment growth, unemployment rates, retail sales, housing starts and consumer price indexes.
Atlantic Canada set for moderate economic growth in 2010
Notwithstanding some near-term softness in the North American and global economies, Atlantic Canadian provinces are set for growth in 2010, according to the RBC Economics Provincial Outlook released today. Improvements in the commodities and construction sectors will help reverse the modest contraction experienced in the region, overall, last year
“While a new round of economic uncertainty south of the border is casting a shadow on the economic performance, all the Atlantic provinces are poised for growth in 2010,” noted Craig Wright, senior vice-president and chief economist, RBC. “However, the pace is generally expected to be slower than the national average.”
In Nova Scotia, RBC is projecting a 1.8 per cent rate of growth in 2010, which is the slowest rate among the provinces.
“Nova Scotia’s economic growth is being held back by continued declines in natural gas production,” said Wright. “Nonetheless, overall growth will still be achieved thanks to solid gains in retail sales and a rebound in the manufacturing sector amid rising demand for tires and improved pulp and paper markets.”
The RBC report notes that Nova Scotia’s outlook for next year calls for a below-average performance once again, as fiscal restraint, the end of stimulus spending and an expected reduction in major investment projects exert a restraining impact.
“On the bright side, provincial exports should receive a boost from the start of production at Deep Panuke natural gas project next year. We expect Nova Scotia’s economy to grow by 1.5 per cent in 2011,” added Wright
New Brunswick’s economy has received a boost from a broad recovery in the commodity market in 2010, with growth expected to reach 2.3 per cent. Increased energy production and more stable natural gas prices have improved the province’s nominal energy exports by 41 per cent year-to-date. A rebound in the manufacturing sector, along with higher prices for the province’s food, energy and forestry products also contributed to economic growth in New Brunswick.
“Looking ahead, the continued recovery in the world economy should boost global demand for provincial exports with consumer spending rising slightly amid employment gains,” explained Wright. “While non-residential investment is expected to slow along with the removal of considerable stimulus spending, we’re forecasting real GDP growth of 2.2 per cent for New Brunswick in 2011.”
After experiencing the country’s steepest real GDP decline in 2009, Newfoundland and Labrador is regaining positive momentum this year as a recovery in mineral extraction and other sectors appear to be gaining a firm foothold. RBC’s expects this will contribute to a fairly solid 3.3 per cent growth rate in 2010 overall.
Non-residential investment in the province is expected to surge by 30 per cent in 2010 and will likely be a steady source of economic strength through the medium term. Metal mining output is bouncing back strongly and improved commodity market conditions will also provide a significant boost to the provincial government’s crude oil royalty revenues.
“We expect that Newfoundland & Labrador’s momentum will carry into 2011 with growth remaining steady at 3.3 per cent, as a result of strong capital investment and further gains in the mineral extraction sector,” said Wright.
Prince Edward Island, the sole province to avoid a contraction of economic activity in 2009 with an estimated 0.2 per cent gain, will see a modest pick up in growth in 2010. RBC forecasts real GDP to grow by 2.1 per cent in 2010.
The construction sector has been a significant source of strength for the province’s economy so far this year and firm labour market conditions have also bred solid wage growth which in turn is driving strength in retail sales. On the downside, sales of manufactured durable goods are lower year-to-date, and the agri-food sector is also is facing headwinds. Tourism has also been hit hard by the poor labour market conditions in the U.S. and a stronger Canadian dollar.
“Increasing government spending and continued improvement in the global and U.S. economies, which is expected to strengthen demand for agricultural products and boost tourism, bode well for P.E.I. We expect growth to accelerate slightly to 2.4 per cent in 2011,” added Wright.
Saskatchewan leading the country in economic growth
Saskatchewan’s economy is set to lead the country with a robust growth rate of 6.3 per cent in 2010, up significantly from 3.8 per cent in the previous Outlook, led by a huge increase in potash production, according to a new report by RBC Economics.
“Large cutbacks in potash production were a main factor contributing to the contraction in Saskatchewan’s economy in 2009,” said Craig Wright, senior vice-president and chief economist, RBC. “The positive outlook this year reflects recent indications of a sharp reversal of the weakness in potash production, in addition to projected gains in the manufacturing, wholesale and retail trade industries.”
According to the RBC Economics Provincial Outlook, potash production skyrocketed by 130 per cent in the first five months of the year which is expected to make up for weakness in the oil and natural gas production sectors. Growth in province would be higher had the agricultural sector not been impacted by wet conditions reducing seeding and grain quality; however, this negative effect has been tempered by a rise in global crop prices.
Elsewhere in the Saskatchewan economy, recent monthly data suggest that positive growth has returned in the manufacturing and wholesale trade sectors, after both declined sharply last year. The retail trade industry also appears to be bouncing back, albeit more modestly, with retail sales up during the first half of this year, benefitting from gradually rising employment.
“We expect growth in the province to moderate in 2011, as GDP is projected to rise a still robust 4.8 per cent with continued growth in the global economy leading to an increase in energy production and agricultural output,” added Wright.
Energy sector fueling Alberta’s economic recovery
Alberta’s economy is gradually recovering from last year’s sharp contraction with real GDP set to grow 3.5 per cent, reversing most of the estimated 4.5 per cent decline in 2009, according to the latest Provincial Outlook report from RBC Economics.
Strong growth in the province is largely credited to energy-related activity. In particular, Alberta’s oil and gas sector is making a comeback amid improved market conditions and recent changes in the province’s royalty regime which have restored Alberta’s royalty competitiveness.
“Strong sales of crown lands for oil and gas development indicate a renewed desire to develop Alberta’s oil and gas resources – land acreage more than doubled during the first seven months of this year and land value climbed nearly eleven-fold,” said Craig Wright, chief economist, RBC. “This rebound signals greater strength in oil and gas drilling going forward.”
Newly completed or expanded oilsands projects are boosting bitumen output to record levels. Total bitumen production is on pace to grow at the fastest pace since 2006, balancing out continued declines seen in conventional crude oil and natural gas production.
According to the RBC Economics Provincial Outlook, Alberta’s economic recovery is still behind in many sectors. Employment gains to date have been slow, deterring the influx of workers from other provinces which has in turn negatively impacted home resales. Retail sales have weakened in recent months after posting a strong start to the year and while
manufacturing sales are bouncing back, the gains have been modest.
“While we would like to see stronger recovery in a wider spectrum of sectors, overall growth in the province is rebounding solidly and the lagging sectors are expected to soon benefit as renewed strength in energy-related activity feeds through the rest of the economy,” added Wright.
By next year, the recovery will be more broadly based translating to an even faster rate of growth in the provincial economy. RBC forecasts growth of 4.3 per cent in 2011.
Ontario’s recovery on track but the pace will slow
After a burst of activity late last year and early this year, Ontario’s economy will settle down and post an average growth rate of 3.5 per cent in 2010, just slightly stronger than the national average of 3.3 per cent, according to the latest Provincial Economic Outlook report released today by RBC Economics.
“The rapid cooling of Ontario’s housing market since the spring will have a restraining impact on economic growth in the last half of 2010, as will the soft patch into which the U.S. economy recently entered,” said Craig Wright, chief economist, RBC. “Still, the provincial economy will remain solidly supported by continued capital expenditures, steady employment gains and rising consumer spending.”
The report notes that very strong growth in the fourth quarter of last year and first quarter of this year resulted in an impressive 70 per cent recovery of real GDP which was lost during the recession. This strong momentum was broadly based but received much of its thrust from a surge in the housing sector, where a spectacular rebound in housing resales ultimately benefitted retailers and homebuilders.
“Investment in machinery and non-residential construction also contributed meaningfully to growth. This is a reflection of both governments stepping up their expenditures on public infrastructure and businesses boosting their capital spending,” added Wright. “This burst of overall economic activity fostered job creation in the province and helped reduce the unemployment rate from its 16-year high reached late last year.”
Ontario’s economic growth in the remaining months of 2010 will benefit from capital expenditures by all levels of government running full-tilt with the deadline for completion of work receiving funding from the federal Action Plan looming in March 2011. Sustained improvement in the labour market also bodes well for continued consumer spending at the shopping malls and car dealerships.
RBC forecasts Ontario’s economy to continue at a healthy pace in 2011 with real GDP growth set to ease to 3.2 per cent.
Quebec’s economy lags but still poised for highest growth in 10 years
Quebec’s economy is projected to grow by 3.0 per cent in 2010 and 3.1 per cent in 2011 – growth rates that have not been reached in 10 years, according to the latest RBC Economics Provincial Outlook report.
“We expect Quebec’s economy to remain resilient in the period ahead with strong contributions in non-residential construction and mining,” said Craig Wright, senior vice-president and chief economist, RBC. “Despite some of its sub-sectors continuing to face challenges, the province’s manufacturing sector, overall, could well add to growth for the first time since 2005.”
After avoiding the worst of the recession, Quebec’s economy, fuelled by highly stimulative monetary and fiscal policy, participated fully in the North American economic activity rally late last year.
“While growth in the latter part of 2009 was largely attributed to government stimulus and strong rebounds in the housing and mining sectors, the first quarter of 2010 saw growth spreading to other sectors, including consumer spending, services, manufacturing and business investment,” added Wright.
In more recent months, the overall pace of growth has slowed even further as key driving forces such as the housing market have calmed considerably since the spring. Declines in automotive sales have weighed down the provincial retail trade industry. Despite being pumped up by massive public infrastructure work programs, the non-residential construction industry is showing signs of slowing mid-year.
Nonetheless, at 3.0 per cent, the projected growth for this year will be quite respectable.
Manitoba’s economy remains on steady growth path though pace revised lower from last quarter
Manitoba’s economy is expected to grow by 2.0 per cent in 2010 thanks in part to rebounding mining and oil and gas sectors, according to a new report released today by RBC Economics.
“While the rate of growth is slightly lower than most other provinces, there isn’t as much of a need for Manitoba to play catch up as its economy outperformed most other provinces through the recession,” said Craig Wright, senior vice-president and chief economist, RBC. “The modest growth this year has been partly impacted by the winding down of key capital spending projects as well as some weakness in the agricultural sector.”
According to the RBC Economics Provincial Outlook, Manitoba’s economy is benefiting from a solid rebound in its mining and oil and gas extraction sector, which is expected to rise by 6.0 per cent following a 2.7 per cent drop in 2009. Increasing global demand is contributing to the resumption of zinc and gold production from facilities that were previously shuttered.
With infrastructure projects such as the Keystone pipeline and the Winnipeg International Airport completed or nearing completion, downward pressure will be felt on Manitoba’s construction sector in 2010. However, RBC notes that continued work on the Canadian Museum for Human Rights and an expected increase in residential construction will likely limit the extent of decline to about 2.0 per cent.
A significant drop in grain production is hampering the province’s growth this year; however, an expected strengthening in livestock production will soften some of the negative impact, limiting the decline in Manitoba’s overall agricultural sector to 8.0 per cent in 2010, following a 4.4 per cent drop in 2009.
After the province recorded only an easing in the decline of manufacturing sales in the early part of the year, RBC expects greater manufacturing strength to emerge during the last half of 2010 as the U.S. recovery regains some heft.
“Looking ahead to 2011, an expected bounce back in agricultural production and continued global economic recovery spurring further gains in the mining, oil and gas and manufacturing sectors bode well for the province and we expect that Manitoba’s economic growth will accelerate to 3.8 per cent,” added Wright.
Alberta tops North America in employment growth!
Alberta tops North America in employment growth, study finds
Saskatchewan now third says new study
Western Canadian provinces recorded the best performing labour markets in Canada between 2005 and 2009, led by Alberta and Saskatchewan, according to a new study released today by the Fraser Institute.
The report said Alberta topped all provinces and American states, in the ranking reported in Measuring Labour Markets in Canada and the United States: 2010 Edition. The province recorded the highest level of employment growth over the five-year span that was measured, along with high levels of employment growth in the private sector and low durations of unemployment.
Saskatchewan recorded the second-best performing labour market in Canada and third overall in North America, an improvement from its eighth place ranking in last year’s report. British Columbia is ranked third in Canada, sixth in North America, with Manitoba ranking fourth in Canada and eighth overall. Both provinces moved up in the 2010 report from ninth and 21st in North America respectively.
“There’s a clear delineation in the labour market performance of the western provinces compared to Eastern Canada. Over the five years studied, western Canadian provinces are among the best performers in key areas of employment growth, private sector job creation, unemployment rate, low durations of unemployment, and high labour productivity,” said Niels Veldhuis, Fraser Institute vice president of Canadian policy research and co-author of the study, in a news release.
New Brunswick had the highest ranking of the remaining provinces, 27th overall, followed by Ontario (31st), Nova Scotia and Prince Edward Island (tied at 39th), Quebec at 43rd, with Newfoundland and Labrador the lowest ranked province at 49th.Alaska was the top ranked American state, second overall behind only Alberta. Other states ranked in the top 13 (which includes five jurisdictions tied for ninth) are: Wyoming and Utah (tied at fourth overall), Texas (sixth), and Washington, South Dakota, North Dakota, Colorado, and Arizona all tied for ninth place overall.
mtoneguzzi@theherald.canwest.com