Friday, September 29, 2006

Great Tips for First Time Buyers!

For most of us buying a residential property is the largest financial investment of our lives. The last step in the buying process is signing the purchase documents at the notary’s office. As a result of constant changes in real estate law, the number of documents required to finalize your purchase as smoothly as possible are numerous. As your real estate notary, it is my duty to fully advise you what documents are required to complete your purchase, to review with you the purpose of each document, and advise you what your obligations are by signing.



1. GENERAL PURCHASING INFORMATION



The following is a summary of general purchase information and documentation:



A. The Contract of Purchase and Sale

Presumably, you have signed a Contract of Purchase and Sale, offering to buy a property from the seller for a certain price and with set completion, possession and adjustment dates subject to various conditions. Your offer, together with the seller’s acceptance, governs your purchase. The Offer to Purchase and the Acceptance (collectively, the Contract of Purchase and Sale) governs the rights and obligations of both yourself as the buyer and the registered owner as the seller. Changes to this document can only be made if you and the seller are in full agreement. Usually the Offer to Purchase is completed by the buyer with a qualified realtor and without the assistance of a notary. Patricia Wright will, however, be happy to review this contract with you and clarify any concerns that you may have.



B. Land Title Search

The office of Patricia D. Wright, Notary Public, will conduct a title search at the Land Title Office with regard to the property you are buying. Patricia D. Wright, Notary Public, will ensure that you are aware of all of the encumbrances/charges on the title to your property. The search will set forth:


the legal description of the property;


the name of the registered owner;


what encumbrances are registered against the title - both financial and non-financial

Some of these encumbrances (such as easements and rights of way) may remain on the title; some encumbrances (such as the seller’s mortgage) may not. The office of Patricia D. Wright will discuss these items with you. Should you be purchasing a strata unit, the office of Patricia D. Wright will also do a title search on the common property as you will become a common owner of this property as well and should be aware of any charges registered thereon.



C) Property Tax Search

The offices of Patricia D. Wright, Notary Public, will conduct a tax search at the local municipal or city tax office with regard to the property you are buying. The purpose of this search is to ensure that if there are any outstanding property taxes, they are paid up to date and you will not assume any of the seller’s taxes. This search will set forth:




what the current year’s taxes are;


whether the current year’s taxes are paid or not;


if the current year’s taxes are not paid, what the amount owing is.



The office of Patricia D. Wright, Notary Public, will review with you who is responsible for the current year’s taxes and why. In the City of Vancouver there are two tax billings each year, one in January - payable on or about February 2nd, and one in June - payable on or about July 1st. In most other cities and municipalities there is only one annual tax billing payable in the middle of the year and covering the taxes for the year from January 1st to December 31st. In some municipalities, owners may pay monthly payments towards the upcoming taxes and the offices of Patricia D. Wright, Notary Public, will need to be aware of this arrangement so as they can prepare any required adjustments between you and the purchaser or seller.



The tax search should also reflect if the City or Municipality has a separate utility billing for such items as water, sewer and garbage that the offices of Patricia D. Wright, Notary Public, will ensure are paid up to date and adjusted for accordingly.



D) SURVEY CERTIFICATE AND ZONING



Survey Certificate
Most mortgage companies require a Survey Certificate of the property to be secured before advancing the mortgage funds. The survey indicates that the house and any other permanent buildings (such as a garage), are located on the land you are purchasing and not encroaching on adjoining land. The survey report is certified by the surveyor who prepared the certificate. The survey that the seller may have, may not show all the improvements located on the property you are purchasing and may not be acceptable to your lender or to you. Patricia D. Wright strongly recommends that you consider obtaining a current Survey Certificate for your new property showing the current exact dimensions of the property and the location of all improvements.




Statutory Declaration
Most lenders will not accept any old survey or a survey that does not show the location of all the present buildings. Some lenders will accept a statutory declaration from the seller stating that they have compared the old survey to the present location of the buildings and that in their opinion the old survey is a correct representation. The office of Patricia D. Wright, Notary Public, will prepare this document, if required. If there is a garage on the property or additions to the house not shown on the survey or if the statutory declaration of the vendor regarding the existing survey is not acceptable to your lender, a new Survey Certificate must be obtained at your cost, before any mortgage funds will be advanced.





E) STRATA INFORMATION

Please note that we are currently awaiting new legislation in respect of the Condominium Act and the new Strata Property Act will take effect shortly - we will be updating our website accordingly.




Condominium Act By-Laws
Should your property be a condominium or strata complex, you should ensure that you have received and read the bylaws and financial statements of the strata corporation. You may wish to obtain a copy of the Condominium Act, which is the statute governing condominiums, and refer to it should you have any questions. Patricia D. Wright wishes to point out that there have been numerous amendments to this Act in the past and accordingly it may be necessary for you to check that no amendments have been made to a particular section. The Strata Corporation may, by by-law, limit the number of residential Strata Lots in a Strata Plan which may be rented out by the owners. Should it be your intention to rent out your property, I encourage you to check with the Strata Corporation to ensure you are able to do so. It is also imperative that you are aware of the parking stalls, storage lockers, etc. that come with the Condominium and whether these items are common property or limited common property.




Maintenance & Insurance
The office of Patricia D. Wright will contact the Property Management Company with regard to the common area maintenance of the property to determine the monthly levy and to ensure the account is current. It is also important to determine if any special levies have been passed or are being contemplated prior to purchasing your home. One of the duties of the Strata Corporation is to obtain and maintain insurance on the buildings, common property and any insurable improvements owned by the Strata Corporation to the full replacement value thereof. It is important, though, that you are aware that the occupants of the Strata Lot should have a tenants package fire insurance and public liability insurance coverage. The Strata Corporation no doubt, has a common liability insurance policy, the cost of which is included in your maintenance payments but it is up to each owner to insure his condominium and contents and to obtain any liability insurance for their unit.



Parking Stalls and Lockers
You should be aware of where your lockers and parking spaces are and ensure that they have been properly assigned to you. You should also determine whether they are common property or limited common property.



F) Conflict Form

Patricia D. Wright, Notary Public, may be acting for both you (on your purchase) and your lender (on the preparation of your mortgage documents). You must be made aware that if there is a dispute between you and your lender, that cannot be reconciled before the mortgage funds are advanced, Patricia D. Wright, Notary Public, will not be able to act for either party. In our experience such conflicts are rare. However, pursuant to the Rules of the Notary Society and in the interest of proper legal practice, you are required to be informed. In addition, as the office of Patricia D. Wright, Notary Public, is acting for both you and the lender, any relevant information we receive from you must be passed onto the lender and likewise any relevant information we receive from the lender must be passed onto you.

G) Non-Residency

Should the seller be a Non-Resident of Canada within the meaning of Section 116 of the Income Tax Act, Patricia D. Wright, Notary Public, will take the necessary steps to ensure that the required holdback of funds from the seller is obtained and not released until the necessary Non-Resident Clearance Certificate is obtained and delivered to our offices by the vendor’s notary or solicitor. The office of Patricia D. Wright, Notary Public, will ensure you are provided with the Purchaser's copy of the Non-Resident Income Tax Clearance Certificate issued by Revenue Canada for your records. In the event you are a Non-Resident of Canada, please ensure you have discussed the tax implications of your property disposition with your prior to the actual disposition. There is a significant holdback of monies from any Non-Resident Seller until such time as a Non-Resident Clearance Certificate is obtained from Revenue Canada, which, at present, takes several weeks.



H) Statement of Adjustments setting out Funds Required - Your Closing Costs

The Statement of Adjustments sets forth the total costs of your purchase. Patricia D. Wright, Notary Public, will itemize all costs for you so you will know exactly what you are paying for and why. The Statement of Adjustments required for your transaction will be prepared from information provided by provincial and municipal government offices, realtors, mortgage companies and others. Although believed to be correct, its accuracy cannot be guaranteed; if the figures received by our office are in error, further adjustments will be required between the seller and the buyer. Accordingly, the Statement of Adjustments should be read carefully to verify its accuracy. Errors and Omissions are excepted.



2. THE IMPORTANCE OF THE DATES OF YOUR CONTRACT



Avoid Fridays and month’s end



When you purchase a home, the completion, possession and adjustment dates are very important. Each date must be clearly spelled out in the offer and adhered to or the transaction may collapse. Time is of the essence with respect to your Contract of Purchase and Sale.



The most important date to both buyers and sellers is the closing date. This is the date when the monies change hands and title is transferred.



The possession and adjustment dates are usually the same and represent the dates you may take possession of the property and the dates for which all adjustments for the property are made to. The time of possession is normally 12:00 noon on the possession date.



It is always a good idea not to have your completion and possession dates the same as the seller will normally not allow the release of the keys until the seller has received the funds. The duties of Patricia Wright as your notary on the completion date, are many, including receiving and reviewing the seller’s documents from their solicitors, pre registration checks at the land title office, the filing of the documents at the appropriate land title office, reporting to the lenders to provide them with registration particulars, receiving mortgage funds at the offices of Patricia Wright as your notary, depositing the same into the trust account of Patricia Wright, preparing all the pay out reporting letters to the vendor’s notary or solicitor, realtors, lenders, etc. and prior to release of funds, a final post registration check at the land title office. As you can see, there a numerous steps to be done on the completion date. It may not always be possible to complete these prior to 12:00 noon and normally, completion would take place one day before possession.



Whenever possible, avoid closing the transaction on a Friday, the end of a month and before long weekends. Buyers who close then often face delays getting keys, and often a higher moving bill. Sellers discharging a mortgage can face additional interest payments to their lenders. If the funds reach the lender late after a Friday closing, three extra days interest is payable - four on a long weekend.



Whenever possible, steer clear of last days of the month when choosing a closing date. During peak times at the land title office there can be long delays in the actual filing of the documents and in receiving your mortgage funding from Lenders who may be funding many mortgages on the same date.



Finally, never have the completion date of the sale of your existing home and the completion date of the purchase of your new home on the same date. You would normally be dependant on your the funds from your sale to complete your purchase. Normally a contract provides that the purchaser of your home has until 12:00 midnight to deliver their monies to you as the seller. On the other hand, you as Purchaser of your new home, must have the required purchase funds in the office of Patricia D. Wright as your notary prior to 2:30 pm so that registration can be completed prior to the Land Title Office closing at 3:00 pm.




Waiver and Disclaimer

Please note that the information provided on this website is meant for general information purposes only and not as legal advice or notarial advice. This information on the site is provided to assist both our present and future clients. Each transaction and its surrounding circumstances are unique and each file handled by our firm is treated as such. Hopefully, you will find our website contains useful information that will assist you when you are planning to purchase a property or when you require a Mortgage, Will or other Notarial Service. By entering into our site, you fully release Patricia D. Wright, Notary Public, and her office of any and all liability that may arise from your use of the information contained therein. Again, this is not legal advice or notarial advice. You are further notified that any dissemination, distribution or copy of this site is strictly prohibited.

Recession stalking Central Canada (The article predicts interest rate cuts are on the way)

HEATHER SCOFFIELD

Globe and Mail Update

The Ontario economy has nearly stalled and, with the U.S. slowdown breathing down its neck, Canada's biggest province could possibly fall into recession, a new forecast from economists at Toronto-Dominion Bank warns.

“There is a chance of recession in Ontario. We have some numbers that are getting close to the line,” said Derek Burleton, co-author of the bank's latest provincial forecast.

A recession is typically defined as two successive quarters of economic contraction, and is frequently associated with rising levels of bankruptcy, company restructuring and job loss across many sectors.

The most likely scenario is that Ontario will grow by 1.8 per cent this year and 2.0 per cent next year, the TD forecast states. While those numbers are very low for a province that has traditionally carried the Canadian economy, they mask a steeper slowdown expected during the last half of this year and the first half of next year, Mr. Burleton said.

“It's going to be a difficult ride in the next few quarters.”

Ontario has already been struggling for a couple of years as a high Canadian dollar and rising energy costs have undermined its key manufacturing sector. However, the slowdown on the manufacturing side of the economy has largely been offset by a pickup on the services side, driven by strong consumers and a healthy job market.

But that delicate balance is being upset by the U.S. slowdown, which is only just beginning to be felt in Central Canada, he said. “Jobs will be the next shoe to drop.”

Auto production in southern Ontario will likely decline outright this year and next, the report says. The Canadian arms of Ford, General Motors and DaimlerChrysler are scaling back and a turnaround is not expected until 2008 when new production lines at Toyota, Honda and GM come on stream.

Quebec is in a similar bind. Tourism is suffering, the forest industry has been shedding jobs and the future looks dim for both those industries, the TD forecast argues, projecting 1.9 per cent growth this year and 1.8 per cent next year.

Neither province has much hope of a recovery to normal economic growth rates until 2008, TD says.

“For the manufacturing-based economies of Central Canada and some parts of the Atlantic [region] that have recently struggled under the weight of a high Canadian dollar and elevated energy prices, the dampening influence of weaker demand growth stateside has effectively quashed any hopes of a meaningful recovery until 2008.”

CIBC World Markets Inc. has a similar forecast for the Ontario economy, although it also expects the central bank to move decisively to revitalize Central Canada, economist Warren Lovely says. He projects that the Bank of Canada will cut interest rates four times in the next year, “not only to restrain the loonie, but also revive a badly sagging Central Canadian economy.”

He also sees manufacturing weakness spilling over into the broader economy — a repeat of the economic pain of the early 1990s.

Even the western provinces will feel a pinch from the global economic slowdown, economists say — although the divide between Alberta and the rest of the country will continue for a couple of years. “As the headwinds begin to blow from the south, the respectable overall growth trends in Canada are masking an increasingly skewed regional picture,” TD says.

“We not only concur that growth in the Alberta economy has passed its peak in the current cycle, but that the risks of a hard landing have been rising.”

The most probable scenario, however, is that the Alberta economy will be able to avoid the boom-bust cycle of the past, and coast gradually to growth rates of about 3 per cent a year, down from the 6.8 per cent expected this year. Prices for oil, gas and other commodities are sliding, the TD forecast says, and some capital spending plans will likely be delayed or cancelled.

“A softening in conditions in resource markets, including crude oil and forestry, will knock both Alberta and B.C. off their high growth horses over the next few years.”

CIBC, however, was far more upbeat about the prospects for the West, predicting that massive capital spending will continue, with commodities prices remaining high. Alberta's growth should continue to reach almost 7 per cent next year, Mr. Lovely forecasts.

Monday, September 25, 2006

Further evidence of Canada's sound fiscal footing and the implication for Vancouver's property market

Hi All,

See the post below for some more evidence of Canada's good and improving fiscal situation in relation to the US.

If one is to look back to the high inflation and interest rate era from the 70's to the early 90's, our Federal Gov't was breaking a long tradition of peacetime fiscal austerity and ran huge deficits and incurred a huge debt. This caused an excess of demand for money thus driving up interest rates and inflation.

Debt reduction on the part of the Federal Gov't reduces demand pressure on Canada's debt market thus reducing the need for the Bank of Canada to raise interest rates. Reducing Gov't consumption and paying back deb is slightly deflationary and reduces pressure on the BOC to raise rates. By reducing debt we also reduce the cost of debt service which leaves more revenue or an opportunity for tax cuts which also reduces inflation.

Implications for Vancouver Real Estate

I see this as further evidence of a coming rate cut from the Bank of Canada. An upward valuation of the Chinese Yuan would be the only thing I see that could preclude this. An appreciation of the yuan would make the vast proliferation of cheap Chinese products we have to come to rely on very expensive very quickly, thus raising inflation across the rich world in a heartbeat.

We all know what a rate cut from the BOC will do for real estate here in Vancouver!

Looking forward to hearing what you think!

Tories to use $13.2-billion surplus to pay down debt

STEVEN CHASE

Globe and Mail Update

Ottawa — The federal government racked up a $13.2-billion surplus for last fiscal year and the Stephen Harper administration will apply all of it towards the national debt, The Globe and Mail has learned.

This is one of the largest,single debt repayments in Canadian history. It will help bring Canada's debt down to $481.5-billion.

Canada's federal debt has shrunk by $81.4-billion over the past decade, down from a peak of $562.9-billion in 1996-1997. The national debt as a percentage of the country's economic output is now at its lowest level in 24 years.

Finance Minister Jim Flaherty and Treasury Board President John Baird will reveal more this afternoon when they also announce $1-billion in cuts to government spending this year and next.

The savings will not yield new dollars for the Tories to spend because they've already been booked the savings in the 2006 budget to offset the cost of other Conservative measures.

The cutback exercise was announced in the May 2006 federal budget and Mr. Flaherty and Mr. Baird will update Canadians on their progress today.

Last week, Mr. Flaherty acknowledged some of the cuts will draw flak but said they're necessary to redirect dollars to more urgent priorities.

"Any time you reducing spending in an area or stop spending on particular programs, someone will be concerned," he said.

Thursday, September 21, 2006

Vancouver real estate- Do you know what the market is doing?

When it comes to marketing and branding I always say the most important thing for any professional to do is to be seen as an expert in your field. We are in the information age, and consumers more now than ever are sponges for information. The real estate market is a great example of this. Over the past few years we have seen the market explode with houses selling the same day they are listed and we have also seen an explosion of real estate agents enter the market.

With the age of information also comes the age of confusion. The problem many consumers face now is what is credible information and who can we trust? I always tell the real estate professionals I work with the more useful information you can have associated with your name the easier it will be to separate yourself from the crowd.

It really is hard these days to go somewhere and not see the face of a real estate agent. We see advertising on buses, billboards, park benches, magazine and the list goes on. The challenge with these methods is they do not provide the consumer with what they are really after, information.

I was recently introduced to a piece of technology which does just that. A friend of mine Mike Stewart, who is a realtor in downtown Vancouver, has a great little tool on his website everyone who is looking for real estate should be using. It is a real estate tracker in real time letting you know what is available through all sources. One of the most impressive features of this is it has the information BEFORE MLS does; allowing the consumer to be up to date at all times.

Another useful benefit of this tool is you can monitor what houses are selling for. So why is this important to you? Let’s say you are looking to sell your house sometime in the next year but you are just waiting for the right time. This will allow you to monitor the houses in your neighbourhood and see what they are selling for thus giving you a great feel for what the market is doing.

In our world cluttered with advertising and marketing messages the only way to stand out is to make life easier for people. I think Mike is doing a fine job of standing out and allowing people to get the information they want and need at their own pace and on their own terms. Whether you are buying or selling you will definitely want to check this one out.

Cheers,

Chuck Brady
chuck@chuckbrady.ca
604-720-7563

Wednesday, September 20, 2006

Fed stands pat on rates

Associated Press

WASHINGTON — The Federal Reserve left a key interest rate unchanged on Wednesday as falling energy prices helped to restrain inflation pressures.

Federal Reserve Chairman Ben Bernanke and his colleagues issued a brief announcement saying they would leave the federal funds rate, the interest that banks charge each other, at 5.25 per cent.

The decision represents a break for borrowers. It means that banks' prime lending rate, the benchmark for millions of consumer and business loans, will remain at 8.25 per cent.

The Fed also had left rates unchanged at their last meeting in August, breaking a record string of 17 rates hikes that had driven the funds rate to its highest level in more than five years.

The decision to leave rates alone for a second time had been widely expected in financial markets, given recent favorable developments on inflation. Oil prices have fallen by more than 20 per cent over the past two months and a cooling housing market has contributed to a slowdown in overall growth.

Tuesday, September 19, 2006

Inflation rate eases

TAVIA GRANT

Globe and Mail Update

Canada's inflation rate eased to a 2.1-per-cent annual rate in August as gasoline-price increases slowed, confirming expectations that interest rates are unlikely to budge for the rest of the year.

It's the third month in a row that the rate dropped, marking the longest such stretch in two years, Statistics Canada said Tuesday. The consumer price index eased after rising at a 2.4-per-cent pace in July.

The report, which came in largely as expected, confirmed expectations that the Bank of Canada won't move on the interest-rate front this year, economists said. The central bank has held its key lending at 4.25 per cent in both of its last two decisions on expectations a weaker U.S. economy will moderate domestic growth.

“With the economy operating right at potential, core inflation right on target, and interest rates at neutral, it's going to take a major surprise to push the (central) bank off the sidelines at this point,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns in a note.
Related to this article

Tuesday's inflation numbers confirmed that the Canadian economy is divided along regional lines. Alberta's inflation rate hit a three-year high of 4.7 per cent in August, more than double the national average, from a 4.3-per-cent pace in July.

“Understanding Canadian inflation, it increasingly seems, requires merely looking at where you live,” said Warren Lovely, an economist at CIBC World Markets Inc., in a report. “Are you making a living in Alberta, where it's difficult to exaggerate the speed with which home prices are rising, or are you settled in Central Canada, where price gains are more controlled?”

Homeowners' replacement costs, for example, soared 43.4 per cent in Alberta in August. By contrast, the sub-index, which measures the worn-out structural portion of housing and is estimated using new housing prices, was up around 4 per cent in other large provinces such as Ontario, Quebec and British Columbia.

Homeowners' replacement cost index, rose 8.1 per cent in August from a year ago and has risen every month since December. This sub-index accounts for a large share of the total consumer price index basket and is one factor pushing Canada's inflation rate higher.

National gasoline prices were 9 per cent higher this August than last year, a more modest increase after a 16.1-per-cent increase between July of this year and last year.

Other prices that rose included mortgage interest costs and electricity prices.

The range of replacement costs varied substantially from province to province. “By all counts, Alberta's housing sector stands out clearly from that of the other provinces,” Statscan said. “The boom in the oil sector, combined with a high employment rate and a high degree of consumers' confidence, translated into a surge in demand for new houses in that province.”

Mortgage interest costs swelled as the value of new properties increased and interest rates rose.

Electricity prices also climbed as Ontario, Alberta, Quebec and British Columbia saw price hikes.

Those price increases were offset by lower prices for computer equipment and supplies, women's clothing, video equipment and natural gas, Statscan said.

The index for computer equipment and supplies has plunged 18 per cent from a year ago, while video equipment is down 11.6 per cent.

“Although consumers only occasionally purchase these products, they exert an important influence in reducing upward price pressures,” the report said.

Stripping out the effect of the cut in the goods and services tax, overall inflation would have been up 2.6 per cent in August, a slower rate than the 2.9 per cent pace in July, according to Ted Carmichael, chief economist at J.P. Morgan Securities Canada Inc.

The core rate, which excludes the eight most volatile items in the index, was unchanged at 1.5 per cent. This index, closely watched by the central bank as a sign of underlying price changes, has remained stable over the past year, Statscan said.

On a monthly basis, prices paid by consumers rose 0.2 per cent in August, “largely as a result of pressures from the housing sector,” the report said.

Analysts polled by Bloomberg News had expected a 2.1-per-cent annual rate and a core rate of 1.5 per cent.

The Bank of Canada makes its next interest-rate decision on Oct. 17.

The Canadian dollar traded at 89.19 cents (U.S.) after the report, down from yesterday's close of 89.45 cents.

Thursday, September 14, 2006

Home prices could rise for decades

Bubble — what bubble?

Canadian home prices, already on a tear for years, are expected to grow on average almost 4 per cent a year over the next decade and a half, a Toronto-Dominion Bank report said Thursday.

The pace of growth will fluctuate from region to region. On the whole, however, prices are seen rising as more people choose to own homes, wages climb and unemployment remains low. Canadian house prices are already 10.8 per cent higher than last year, according to Statistics Canada.

“The combination of weaker demographic demand for housing is likely to be offset by rising home ownership rates, rising personal income, a modestly lower long-term rate of unemployment and more modest construction of new homes,” wrote the report's author, chief economist Craig Alexander.

House prices in Alberta will continue to streak upwards, albeit at a slower pace than in recent years, the bank said.

“All of the stars are aligned for Calgary and Edmonton to experience above-average price growth in the future,” said Mr. Alexander.

“However, it should be stressed that the recent pace of price gains in these markets have been completely unsustainable and will eventually come back to earth when the housing markets become more balanced.”

In Calgary, house prices were a whopping 56 per cent higher this July from last July, while in Edmonton, they've rocketed by almost a third in the past year.

Tuesday, September 12, 2006

The global housing market Checking the thermostat



Sep 7th 2006
From The Economist print edition
Property prices are cooling fast in America, but heating up elsewhere

HOUSES are not just places to live in; they are increasingly important to whole economies, which is why The Economist started publishing global house-price indicators in 2002. This has allowed us to track the biggest global property-price boom in history. The latest gloomy news from America may suggest that the world is on the brink of its biggest ever house-price bust. However, our latest quarterly update suggests that, outside America, prices are perking up. (Note how little Canada has gone up compared to the US, UK, and Australia)

America's housing market has certainly caught a chill. According to the Office of Federal Housing Enterprise Oversight (OFHEO), the average price of a house rose by only 1.2% in the second quarter, the smallest gain since 1999. The past year has seen the sharpest slowdown in the rate of growth since the series started in 1975. Even so, average prices are still up by 10.1% on a year ago. This is much stronger than the series published by the National Association of Realtors (NAR), which showed a rise of only 0.9% in the year to July.

The OFHEO index is thought to be more reliable because it tracks price changes in successive sales of the same houses, and so unlike the NAR series is not distorted by a shift in the mix of sales to cheaper homes. The snag is that the data take time to appear. Prices for this quarter, which will not be published until December, may well be much weaker. A record level of unsold homes is also likely to weigh prices down. The housing futures contract traded on the Chicago Mercantile Exchange is predicting a fall of 5% next year.

Elsewhere, our global house-price indicators signal a cheerier story. House-price inflation is faster than a year ago in roughly half of the 20 countries we track (see table). Apart from America, only Spain, Hong Kong and South Africa have seen big slowdowns. In ten of the countries, prices are rising at double-digit rates, compared with only seven countries last year.

European housing markets—notably Denmark, Belgium, Ireland, France and Sweden—now dominate the top of the league. Anecdotal evidence suggests that even the German market is starting to wake up after more than a decade of flat or falling prices, but this has yet to show up the index that we use, which is published with a long lag (there are no figures for 2006). If any readers know of a more timely index, please let us know.

Some economists have suggested that Britain and Australia are “the canaries in the coal mine”, giving early warning of the fate of America's housing market. The annual rate of increase in house prices in both countries slowed from around 20% in 2003 to close to zero last summer. However, the canaries have started to chirp again. In Australia average prices have picked up by 6.4% over the past year, although this is partly due to a 35% surge in Perth on the back of the commodities boom. Likewise British home prices have perked up this year, to be 6.6% higher, on average, than they were a year ago. Thus it is claimed that housing markets in Britain and Australia have had a soft landing.

Better still, their economies shrugged off the abrupt slowdown in prices last year. Consumer spending slowed sharply, but did not slump. If the British and Aussie canaries have survived, it is argued, then this bodes well for American homes—and for the American economy.

That might be the wrong lesson to draw. The housing boom has been responsible for a bigger chunk of growth in America than it was in Britain. America's saving rate has plunged, and consumer spending surged as homeowners borrowed with gusto against their capital gains. Britain's saving rate fell more modestly, so when prices flattened, the impact on consumer spending was smaller than it is likely to be in America. In Australia the slowdown in housing did make a big dent in construction and consumer spending but this was masked by the commodity boom and exports to China. The risk is that a flattening of house prices in America could prove much more painful it has been so far in Britain or Australia.

Not yet on terra firma

In any case, it is misleading to talk about a soft landing for house prices in Britain and Australia. The market has not really landed yet: prices are still sky-high relative to incomes and rents. The ratio of house prices to rents is a sort of price/earnings ratio for property. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income or as rent saved by an owner-occupier. Calculations by The Economist show that in Britain and Australia the ratios of prices to rents are respectively 55% and 70% above the long-term average (see chart). By the same gauge property is “overvalued” by 50% in America. Lower real interest rates than in the past would justify higher ratios, but nowhere near all of the rise in house prices.

An OECD study published last year adjusted the price/rent ratio for interest rates and other factors, to estimate how overvalued home prices were around the globe. Updating those figures to take account of price rises since then suggests that housing is now 35-50% overvalued in Britain and Australia and perhaps 20% too dear in America. A return to fair value will mean either rising rents or falling prices. If rents continue to rise at today's pace, many years of stagnant prices will be required to bring the price/rent ratio back to its long-term average. Especially after a giddy ascent, it is too soon to talk about a soft landing before a return to firm ground.

Friday, September 08, 2006

I made Top Producer for August at Century 21 In Town Realty!

More Evidence of the Coming Rate Cut! "Employers shed jobs for third month"

TAVIA GRANT

Globe and Mail Update

Canadian employers unexpectedly shed 16,000 jobs in August, the third month in a row of declines, as the number of factory workers fell to an eight-year low.

That pushed the jobless rate up a notch to 6.5 per cent — the highest since January — from 6.4 per cent, Statistics Canada said Friday.

It's the first time since 1992 the country has shed jobs for three straight months, according to Bloomberg analytics. August marked the lowest level of employment for manufacturers since March, 1998.

The weaker-than-expected report raised the chance that the Bank of Canada may eventually cut interest rates, should the trend continue. The central bank this week left its key lending rate unchanged at 4.25 per cent.

“The weak report supports the Bank of Canada's stance to hold rates steady for now, and also increases the odds of a rate cut if the weak trend persists through the balance of the year,” said Sarah Hughes, an economist with Bank of Nova Scotia, in a morning note. “Three consecutive soft reports clearly show that momentum has shifted as the year has progressed.”

Overall employment remains strong this year, despite recent losses. The economy has added 194,000 jobs this year, due entirely to full-time positions, matching the pace of job growth south of the border. Alberta alone accounts for 40 per cent of Canada's new jobs.

Gains by adult women this year, at 2.1 per cent, have far exceeded those for adult men, at 0.6 per cent.

In August, a 63,000 drop in part-time jobs outweighed a 47,000 gain in full-time positions.

Among sectors, factories shed 11,300 jobs in August, as a strong Canadian dollar ate profits and competition overseas intensified. The sectors have lost 87,000 jobs since the beginning of 2006.

The construction industry cut 8,900 jobs in August.

Services industries also cut their payrolls. The public administration sector slashed 21,100 jobs and the finance, real-estate and insurance industries, along with education sector, also reduced their headcounts.

Wage gains continue to outpace the rate of inflation. Average hourly wages increased 3.7 per cent from last year, above the most recent annual gain of 2.4 per cent in the consumer price index.

Hourly earnings in Alberta are 8.3 per cent higher than last year.

Economists polled by Bloomberg News had expected the jobless rate to fall to 6.3 per cent, with 15,900 new jobs.

Some economists cautioned not to read too much into today's report, given that it's subject to sampling errors.

“While the monthly employment change from the labour force survey of 60,000 households is closely watched...it is not always a good indicator of near-term economic momentum,” said Ted Carmichael, chief economist at J.P. Morgan.

The standard error on the monthly change is about 30,000, he said.

The six-month jobs trend, which smoothes out monthly volatility, shows average monthly gains of about 25,000 since the beginning of this year based on both the labour force survey and the survey of employment, payrolls and hours, he added.

Robust growth in full-time positions also points to underlying strength in the labour market. Full-time jobs now account for 82.2 per cent of total employment in Canada, the highest proportion in over fifteen years, noted Eric Dubé, an economist at National Bank Financial.

Wednesday, September 06, 2006

More Evidence of the Coming Rate Cut! "Bank of Canada holds rates unchanged"

DAVID PARKINSON

Globe and Mail Update

The Bank of Canada held its overnight rate target steady Wednesday, a non-move widely expected by the markets, and indicated it expects to remain on hold for the foreseeable future.

The central bank maintained its benchmark rate at 4.25 per cent. It was the second straight rate announcement in which the bank held the rate steady, following seven consecutive 25-basis-point increases that began in September 2005. (A basis point is one-hundredth of a percentage point.)

“Looking forward, the bank continues to expect the Canadian economy to operate at about its production potential, with total CPI inflation returning to the 2-per-cent inflation target in the second half of 2007,” the bank said in its statement accompanying the rate announcement. “In line with this outlook, the current level of the target for the overnight rate is judged at this time to be consistent with achieving the inflation target over the medium term.”

Analysts took the rate-setting statement as evidence that the bank will probably keep rates steady for at least the rest of this year.
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“The Bank of Canada remains sidelined, and continues to display a degree of comfort with that position,” said Stewart Hall, market strategist at HSBC Securities Canada Inc. in Toronto.

The Bank of Canada said the underlying trends in the Canadian economy remain in line with “the broad thrust” of its output and inflation projections contained in its July monetary policy report update, which was issued on July 13, two days after the previous rate announcement. It said Canadian economic growth in the second quarter was “somewhat below the bank's expectations,” while consumer price index (CPI) inflation was “slightly higher” than expected.

It added that global economic growth remains “solid,” although U.S. growth has moderated.

The central bank said the key downside risk for the Canadian economy lies south of the border, where the housing market has recently developed some cracks that threaten to slow consumer demand and, by extension, demand for Canadian exports. This echoes a warning made by Bank of Canada Governor David Dodge in July, when the bank issued the monetary policy update. It said the key upside risks involve the momentum of domestic housing prices and household spending.

The bank said both the upside and downside risks “appear to be a little greater than they were in July,” but overall, “risks are roughly balanced.”

The Bank of Canada adjusts its interest-rate policy eight times a year. Wednesday's announcement was the sixth of this year. The next rate announcement is scheduled for Oct. 17. It will issue its next monetary policy report on Oct. 19.

While analysts agreed that the statement was largely in line with the bank's previously stated stand-pat position on rates, some felt it was less dovish than they had anticipated. Some noted, for instance, that the bank is no longer saying that the balance of risks in its outlook is tilted slightly to the downside, and no longer mentions the high Canadian dollar as a downside risk factor.

However, others noted that the bank is now talking about the Canadian economy operating at about its production potential, rather than slightly above potential as it said in the previous rate announcement in July. Some took this as evidence that output expectations are easing as export demand is poised to slow, and argued that rates could head lower before they head higher.

“Although the Canadian economy is in fundamentally better health than its U.S. counterpart – which should allow it to outperform on the growth front – the economic slowdown that is materializing in the U.S. will inevitably spill over to this side of the border,” said Marc Lévesque, chief North American forex and fixed-income strategist at TD Securities. “As a result, we are expecting several quarters of below-potential growth — and the next Bank of Canada move not to be a hike, but a cut in 2007.”

Tuesday, September 05, 2006

Inversion and reversion

Sep 5th 2006 | LONDON
From Economist.com
Some things are too good to last

THE outlook for financial markets over the next 12 months depends on the answers to two questions. First, what does it mean for the American economy that short rates are above long bond yields—that, in the jargon, the yield curve is inverted? Second, can companies continue to earn today’s high level of profits as a share of GDP?

Take the optimistic view and you can construct a bullish case for equities. The yield curve is not a signal of impending recession, simply a reflection of greater confidence in the ability of central banks to control inflation. And with the balance of power in the global economy having shifted from workers to employers, there is no need for corporate profits to come under pressure.

The pessimistic view is that the yield curve does indeed signal economic troubles as it has in the past—and at a time when profits are already cyclically high. If so, profits and share prices could be in for a double blow as the economy slows and margins come under pressure.

Buttonwood is a great believer in reversion to the mean. Because the optimistic school implicitly argues that “things are different this time”, it is tempting to side automatically with the pessimists.

But the facts are a little more complex. The standard assumption in finance textbooks has been that long-term rates should be above short rates because borrowers must pay a premium for illiquidity, just as UK building societies pay higher rates to savers willing to lock away their money for 90 days.

An upward-sloping yield curve has come to be perceived as “normal”. Hence the use of the term “inverted” to describe the situation today.

But as Andrew Smithers, of the economic consultancy Smithers & Co, points out, in the 19th century an inverted yield curve was the norm. It was only in the 20th century, when inflation unexpectedly surged, that the curve became upward-sloping. Bond investors demanded a premium for the risk that inflation would erode the real value of their holdings. Now that inflation has receded, perhaps this premium can disappear.

Another way to think about this is to remember that volatile assets should carry a risk premium. Over the short term (less than 12 months), bonds are usually more volatile than cash. But over a period of several years, this may not be so, since short rates are adjusted frequently by central banks in an attempt to damp the economic cycle and keep long-run inflation stable. Investors, such as pension funds, with a long-term horizon, have no need for bonds to offer a risk premium. Indeed, in Britain, because of actuarial theory and accounting regulations, the very longest-dated government bonds are much sought after and offer lower yields than cash or short-term bonds.

A flat, or inverted, yield curve could well become much more common than in the past 50 years. Even the recent direction of bond yields does not necessarily provide support for the pessimists. Ten-year Treasury bond yields have dropped from 5.24% in June to 4.74% this week. But if that is because investors are nervous about global growth, then it is hard to explain why emerging markets have rebounded so strongly from their June lows or why commodity prices are just 6% below the year’s high.

The case for profits to revert to the mean looks rather more clear cut. After all, in both the United States and Britain, profits are at a 40-year high as a share of GDP. Figures from UBS show that corporate profits are taking their biggest bite of GDP in the G7 countries in the past quarter of a century.

Optimists say that globalisation has changed the rules. The entry of China, India and the ex-Soviet block into the global economy has, in effect, doubled the labour force. That has enabled companies to expand without meeting one of the normal constraints of the economic cycle: rising wages. In the early part of this decade, lower interest rates also slashed debt costs.

Neither the increases in commodity prices nor the recent tightening of monetary policy seems to have made much of a dent in this: profits in America and Europe are still rising at double-digit percentage rates.

But how long can this trend continue? Theory would suggest that, even if the odds have shifted in favour of capital, balancing factors should come into play. If returns on capital are high, more companies will be created and existing companies will invest more money. The resulting competition should drive down returns. Only if new businesses face barriers to entry could high returns be sustained. That is unlikely given how competition seems even more intense in a globalised world.

However, reversion to the mean could take years and, in the interim, investors will not be too concerned if companies are returning cash by the fistful in the form of buy-backs, higher dividends and takeover deals.

People typically see corporate cashflow as a strong support for the market and James Montier of Dresdner Kleinwort says that buy-backs could add three percentage points to the American dividend yield in 2006.

However, today’s high level of buy-backs may indicate that companies are aware their earnings strength is temporary. Managers are reluctant to increase dividends in the face of a transient boost to profits, lest they have to cut their payments in later years—a signal that is taken badly by the markets.

Mr Montier finds a close correlation between net repurchases of equity in the American market and the deviation of earnings from their trend value. Both are at their highest level in the past 20 years.

So perhaps investors should not read too much into the inverted yield curve. On the other hand, they should be concerned about profits, which look unsustainably high. With the Conference Board’s measure of chief-executive confidence showing a recent decline, it looks as though companies are starting to fear that the best years of this cycle are behind them.