Sunday, December 17, 2006

Hi All,

Here's is some more evidence that we are not looking into the abyss. Changes that were made to our economy over the last 20 years (Free Trade, Privatisation, the ending of Federal Gov't deficits, and changes to our tax structure) are paying off. As is mentioned near the end of the article, the BoC of is not forced by high inflation to raise rates and thus ending the party.

For the Vancouver market I see a moderating stabilisation of the market and then a gentle rise in the Spring.

Looking forward to you thoughts!

HEATHER SCOFFIELD

Globe and Mail Update

Canada's economy is in a rut, but economists say it won't take much to lift it out.

Recent U.S. data and some signs of strength in Canada suggest that the continent may be ready to exit the doldrums by the middle of next year From today's lethargic 2-per-cent annual pace, the Canadian economy is widely expected to kick into a higher gear within about six months, edging up to almost 3 per cent.

And if that's the case, the current downturn will be one more proof that the economy is generally on an even keel, with the ups and downs much less pronounced and much less painful than in previous decades.

“It's certainly no disaster,” said Avery Shenfeld, a senior economist with CIBC World Markets Inc.

The reluctant recognition by Bank of Canada Governor David Dodge last week that Canada was indeed enduring a slowdown jolted observers and sent the Canadian dollar sinking. But things probably won't get much worse than they are now, economists say.

Canada has just come through two quarters of sluggish growth and this year's fourth quarter and the first half of are expected to be much the same.

But with a bit of help from American consumers, Canadian governments and central banks on both sides of the border, Canada's economy should pick up by next summer.

There are signs that help is on its way. Data for retail sales in the United States last week was surprisingly strong, rising 1.0 per cent in November — despite continuing troubles in the housing market.

For now, the U.S. economy has some strong signs that it is struggling: the decline of the housing sector, falling employment in construction, and withdrawals of mortgage equity, points out Michael Gregory, senior economist with BMO Nesbitt Burns.

But it also has some encouraging signs: energy prices are falling, equity markets are rising, interest rates are low, and tight labour markets mean wages are accelerating and jobs are secure. Business investment is strong, and consumers are showing signs of resilience.

For Mr. Gregory, the key signal that the tailwinds are beginning to win out over the headwinds was the fact that applications for new mortgages are rising.

“It has definitely turned,” he said. “It's definitely a sign that people are taking out mortgages to buy houses.”

The fate of the U.S. housing market is important for Canada's economy, partly because American consumers draw much of their spending power from their real estate wealth, and partly because Canada's exporters supply many of the materials used in building and furnishing new homes.

The softest spots in the Canadian economy have been exports and manufacturing — both which would benefit from a recovery in U.S. housing.

Still, few economists want to declare the housing rout over, and consumption could yet become weaker in the United States, said Don Drummond, chief economist for Toronto-Dominion Bank.

But that's where central banks come in, he adds. He expects the U.S. Federal Reserve will cut its benchmark interest rate by three-quarters of a percentage point starting next spring, helping to boost the U.S. economy.

In Canada, many economists believe the Bank of Canada will cut rates a little bit as well, once it sees that inflation is well under control.

The Canadian economy could also get a lift from a slow depreciation of the currency, back down to the 83-cent (U.S.) level, said David Wolf, economist and strategist with Merrill Lynch Canada Inc. And with elections pending in Quebec, Ontario and at the federal level, significant fiscal stimulus is probably on the horizon, he said.

Economists differ in their estimate of the timing of the turnaround for Canada and the United States, but they agree that the downturn, for Canada, has been shallow by historical standards.

The manufacturing sector has suffered deeply, with tens of thousands of jobs lost, and profits taking a hit. And exporters have struggled to deal with the rapid rise in the Canadian dollar.

But the damage has not spread too far, and Canadian households have been able to depend on low interest rates and a healthy job market.

Interest rates and inflation are the main difference between this downturn and downturns of the past that turned into recessions, said Mr. Drummond.

In the past, inflation was usually high when the economy lost steam, and the central bank had to raise rates to fight inflationary pressure, exacerbating the downturn, he said.

“Those other cycles went down a lot further because they were monetary-induced slowdowns,” he said. Now, with rates relatively low and inflation in check, “we don't need to slam the breaks on the economy.”

And while Canada's recovery depends to a great deal on what happens in the United States, the fact that the Bank of Canada has kept its key rate below U.S. rates is helping the economy maintain some strength now, and will help it recover more quickly than the United States, Mr. Shenfeld said.

“They [the Bank of Canada] protected the domestic side of the economy,” Mr. Shenfeld said. “They made a wise decision.”

Friday, December 08, 2006

Housing starts edge higher in November (And htere is still strenght in the Vancouver Market)

Hi All,

This is some tangible evidence of what I have been seeing over the last few weeks. It has slowed because of the holidays, but I forsee a busy New Year.

Looking forward to reading your thoughts!


ROMA LUCIW

Globe and Mail Update

The pace of new-home construction edged higher in November, led by strength in condos and apartments, but the overall market is still expected to pull back next year as the economy cools.

Housing starts climbed less than 1 per cent to 225,000 units from 223,200 units in October on a seasonally adjusted basis, the Canada Mortgage and Housing Corporation said Friday. Economists were expecting a rise of 220,000.

Rishi Sondhi, an economist with Royal Bank of Canada, said the report indicates that new home activity "remains decent."

For the second straight month, the gains were driven by the multiunit starts, a volatile segment that gets knocked about by the start of construction on large-scale apartment buildings, and also includes semi-detached homes, townhouses and condos. Urban multifamily unit starts jumped 5.7 per cent to 105,600 units, after surging 23-per-cent in October.

The gains in the multiunit category offset declines in the construction of detached single-family homes, the bellwether component of the new homes report. Urban single-family housing starts, the bellwether component of the new homes report, dipped 4.2 per cent to 87,900 units in November.

David Tulk, an economist at Toronto-Dominion Bank, said multiple-unit starts were bolstered by increasingly scarce land in urban centres like Vancouver and Toronto, as well as declining affordability for detached homes in cities like Calgary.

He expects growth in multiple unit projects will remain robust as Canada's cities" continue to attract new immigrants, while "single unit starts will likely feel the brunt of the cooling housing market."

November's CHMC housing data contained huge regional divides, with activity in the Prairie and Atlantic regions bustling while the rest of Canada declined.

Urban starts dropped 11.7 per cent in Quebec, 7.9 per cent in British Columbia and 3.8 per cent in Ontario. Gains in new home construction were seen in the Atlantic and Prairie regions, with urban starts rising 21.4 per cent and 26 per cent, respectively.

To date, Canada's housing market has defied expectations and avoided the sharp downturn unfolding in the U.S. Canadian building permits surged to their second-highest level on record in October, according to a report released earlier this week, making a mockery of consensus forecasts for a drop.

Most economists expect that strength will wane next year.

”With a slight dip in both economic and employment growth forecast for the coming year, housing starts in both the singles and multiples segments are expected to moderate," sad CHMC economist Bob Dugan.

Jacqui Douglas, an economic strategist with TD Securities, also agreed that an easing is in the cards. ”We expect to see the Canadian housing market make a gradual downward shift, as the economy slows and higher interest rates have an effect.”

TD's Mr. Tulk forecast housing starts will remain solid at 205,000 next year and 195,000 in 2008, on the heels of this year's projected tally of 228,000.

New home construction will be "buoyed by reasonably low inventories of new and existing dwellings" as well as strong economic fundamentals such as low unemployment, higher disposable income and reasonable levels of affordability.

Mr. Tulk pointed to a new generation of home buyers - the echo generation - who will boost sales. "This cohort has been moving into the 25 plus age category, providing a large pool of first time buyers, which when combined with continued immigration, will provide further support to this mature stage in the housing cycle."

Tuesday, December 05, 2006

Bank of Canada stands pat on interest rates (Bank of Canada leaves interest rates alone)

Hi all,

Looks like rates are going to stay where they are for the time being and could very well drop.

TAVIA GRANT

Globe and Mail Update

The Bank of Canada left its key interest rate unchanged at 4.25 per cent, as expected, and said rates are at the right level to achieve the bank's inflation targets over the “medium term.”

The central bank's overnight lending rate has been steady since May, though many economists are expecting a rate cut next year. In Tuesday's statement, the bank gave little indication that it plans to lower interest rates in the coming months.

It still sees core inflation and overall inflation in Canada converging at 2 per cent in the second half of next year.

“In line with the bank's 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,” the central bank said.
Related to this article
Bank of Canada Gov. David Dodge speaks to members of The Sydney Institute and the Canadian Australian Chamber of Commerce in Sydney on Monday.

Bank of Canada Gov. David Dodge speaks to members of The Sydney Institute and the Canadian Australian Chamber of Commerce in Sydney on Monday. (Rick Rycroft/AP)

The most important change to the central bank's statement was removing a reference to the economy as operating above capacity, noted National Bank Financial. The bank dropped the reference amid expectations of weak economic growth in the second half of this year.

“This is an important development as it is the first step for opening the door to fine-tuning of monetary policy in 2007 (read rate cuts),” said economists Stéfane Marion and Paul-André Pinsonnault in a note.

“Should job creation take a downturn, we would anticipate the Bank of Canada to alter its risk assessments of the economy and its inflation outlook as soon as...January,” they said, adding that they expect a rate cut in March.

The central bank said its outlook for Canadian economic growth and inflation through to 2008 is “essentially unchanged” from its views in October.

However, “some recent indicators suggest that output growth in Canada and the United States in the fourth quarter of 2006 may be a little weaker than previously expected,” the bank said.

The bank again noted that a risk remains that the U.S. economy could slow more sharply than expected, leading to lower Canadian exports.

“The bank judges that, overall, risks around the inflation projection are roughly balanced,” it said.

The Bank of Canada makes its next interest-rate decision on Jan. 16, followed by its monetary policy report update two days later.