Wednesday, March 26, 2008

Canadian households dodge U.S.-style credit woes - No Sub-Prime Crisis in Canada

Hi All,

Here is confirmation of what I have been saying since the sub-prime situation arose in the US. Canada is not going to have a sub-prime mortgage crisis because sub-prime mortgages were never allowed here in Canada. Read on and let me know your thoughts.

ROMA LUCIW

Globe and Mail Update

Canadians have dodged the severe credit woes gripping the U.S., where the collapse of the mortgage market has triggered rising delinquency and foreclosure rates and left households saddled with debt, says a report from CIBC World Markets.

The author's report, CIBC senior economist Benjamin Tal, maintains that the credit crunch has not affected the Canadian household credit market in a significant way. And although he expects the U.S. economic downturn will spill across the border and curb consumer spending, Canada will escape the bulk of the carnage.

“It would be naive to assume that the Canadian consumer will totally escape this U.S. credit crunch and weakening American economy, especially in Ontario and Quebec,” Mr. Tal said in an interview. “But it is a question of degree. The likelihood of a consumer-led recession in Canada is very, very remote at this point, because consumers did not get into the same kind of trouble as in the U.S.”

In his mind, the reasons for Canada's more solid credit situation is twofold. “First of all, the Bank of Canada has been very active in cutting interest rates, which has eliminated some of the damage coming from the credit crunch,” Mr. Tal said. “So, if you are a regular person with relatively reasonable risk profile, you probably don't feel the credit squeeze because the rates have not changed in a significant way.”

The other reason is that in the U.S., the kind of high-risk borrowing that characterized the subprime mortgage market made up a significant portion of the credit landscape. In Canada, that type of borrowing was small and has had only a marginal impact on the overall housing market and consumer credit situation.

To date, Canada's mortgage market has stayed defiantly healthy, with the pace of growth in overall residential mortgages outstanding rising by 13 per cent last year, up from 10 per cent growth in 2006, the CIBC report said. Furthermore, data suggest that activity levels remain “very strong” in the first two months of 2008, a direct contrast to the sharp downturn in the United States.

But with economic growth and the housing market set to cool from last year's strong levels, Mr. Tal expects that the overall growth in mortgages outstanding in 2008 will be roughly 8 to 9 per cent.

The U.S. is in the throes of the first consumer-led recession since 1992, Mr. Tal said. The collapse of the housing market, which has been an extremely important factor for the U.S. economy and consumer spending, and the falling stock market are both lowering the wealth effect.

At the same time, the “quality of borrowing in Canada has stayed much better than in the U.S.,” Mr. Tal said.

The arrears rate on mortgages in Canada, which is still “extremely low” at 0.26 per cent, is also forecast to trend higher in the next year. However, a strong jobs market will underpin the economy so that the rate will likely remain low by historical standards, Mr. Tal said.

There has been a rebound in both direct loans and personal lines of credit recently. Overall growth in consumer credit remains strong, rising nearly 11 per cent in 2007, with personal lines of credit dominating growth, the report said. It noted, however, that delinquency rates in the direct loans portfolio are starting to show a “modest” tick higher.

“When adjusted for inflation, credit growth during this cycle was not as strong as in previous cycles,” Mr. Tal said in the report. “This means that any softening in the pace of household borrowing in 2008 will not be as dramatic as in the past.”

Canadian households are juggling higher levels of debt. Overall debt rose 3 per cent in the fourth quarter of 2007 while personal disposable income climbed 1.6 per cent.

The recent drop in stock markets, combined with a slower pace of increase in home valuations, led the debt-to-asset ratio to climb in the fourth quarter of 2007 to 17.1 per cent, its first increase since early 2006, the CIBC report said. Over the past year, the debt-to-income ratio in Canada edged up from 122 per cent to 130 per cent.

“At the same time, the debt service ratio, as measured by debt interest payments as a share of disposable income is still about 30 basis points higher than it was in 2006,” Mr. Tal said. “With widening credit spreads offsetting the declines in both prime and government bond rates, debt interest payment will remain relatively stable over the next few months.”

The number of consumer bankruptcies, which climbed by a mere 1 per cent during the year ending January 2008, is forecast to pick up by as much as 5 per cent this year as the slowing U.S. economy impacts growth in Canada, according to the CIBC report.

Tuesday, March 18, 2008

More Rate Cuts on the Way!

Hi All,

Here's more evidence of rate cuts coming that should have an upward effect on Vancouver Real Estate. Read on and let me know your thoughts.


Inflation rate hits six-month low

Globe and Mail Update

Canada's inflation rate is the most sluggish in six months thanks to a strong dollar, leaving plenty of room for the Bank of Canada to keep cutting interest rates if economic conditions worsen.

The annual rate eased to 1.8 per cent last month, Statistics Canada said Tuesday, as car and car rental prices tumbled at the steepest pace in more than half a century. That said, the more stable core rate edged higher to 1.5 per cent on higher home costs.

Overall inflation has been easing in recent months though, and was markedly slower than January's 2.2-per-cent pace, leaving the central bank the option to cut rates if market turmoil spreads and the economy deteriorates further.

Canadian inflation remains “comfortably within the Bank of Canada's target range,” said Douglas Porter, deputy chief economist at BMO Capital Markets, in a note. “There may be less urgency to cut rates in Canada than stateside, but the bank still has plenty of leeway to do what they see fit in the months ahead.”

Inflation is likely to stay weak for the next few quarters, bottoming out at just over 1 per cent by the middle of the year, said Jacqui Douglas, economics strategist at TD Securities, who expects “a string of further 50 basis-point rate cuts over the next three meetings.”

Canadian inflation remains well below other countries. The average among OECD countries is 3.5 per cent and in the U.S., it's running at 4 per cent.

February's cooling stemmed from less upward pressure from gasoline prices along with tumbling car prices, the report said.

Buying and leasing a car was 6.8 per cent cheaper, the fastest decline since February, 1956, as many dealers cut prices to match U.S. rivals. Factories lowered their suggested prices and dealers discounted 2008 models ahead of the arrival of 2009 models – something that normally only happens later in the year.

Food inflation is a growing problem around the world, but that strong dollar is making Canada an anomaly. Fresh vegetable prices saw their biggest drop in 12 years, with a 16.9-per-cent drop from last year's level thanks to the loonie. Prices were relatively higher last year, due to a California frost.

Fresh fruit prices tumbled 14.5 per cent, led by a slide in oranges and grapes.

Computer equipment and supplies prices continued to fall, led by laptops, and so did women's clothing.

Economists had expected inflation to cool to 1.8 per cent and a core price increase of 1.2 per cent.

On the flip side, gasoline prices were 17.1 per cent higher this February than last as world crude oil prices rocketed, though that's down from the previous month's 20.9-per-cent increase in gasoline.

Housing costs also got more expensive. Mortgage interest cost climbed 8.1 per cent last month, a pickup from January and the eighth straight monthly acceleration. The gain stemmed more from higher new housing prices than a rise in mortgage renewal rates, the report said.

Homeowners' replacement cost, which represents the cost of maintaining a home, rose 4.8 per cent, the second month in a row of increases.

“Builders reported higher labour costs, as well as increases in the cost of certain materials, such as concrete, roofing, exterior siding and heating equipment,” Statscan said.

Among provinces, Ontario consumers experienced the fastest slowdown in consumer prices. As in previous months, inflation was especially strong in Alberta and Saskatchewan.

On a monthly basis, higher hotel and tour prices sent consumer prices 0.4 per cent higher in February after a GST cut prompted a previous monthly 0.2-per-cent drop.


Thursday, March 13, 2008

Why Vancouver's Real Estate Market is Hot and Why It Will Continue to Be So

This article dovetails well with my argument made in previous posts that the Vancouver Real Estate Markets continuing strength is caused by huge demand for BC's natural resources from Asia particularly China, irrespective of the present economic woes in the US.


I'd love to hear your thoughts.

CHINA'S QUEST FOR RESOURCES

A ravenous dragon

Mar 13th 2008
From The Economist print edition

China's hunger for natural resources has set off a global commodity boom. Developed countries worry about being left high and dry, but the biggest effects will be felt in China itself, says Edward McBride (interviewed here)

Newspix

BESIDE the railroad track, between two hillocks of rust-red soil in the midst of Congo's mining belt, three Chinese labourers appear as if from nowhere. There are lots of Chinese around these days, explains one of their compatriots, Harvey Lee, who is driving through the scrub to the nearby copper plant he runs for a Canadian metals firm. On his way, he points out several rudimentary smelters. “That one”, he says, waving at a clump of corrugated-iron sheds and belching chimneys, “is owned by a man from Shanghai.” Moments later, when another ramshackle compound comes into view, he adds, “and that one belongs to two ladies from Hong Kong.” In all, he reckons, Chinese entrepreneurs have set up half of Lubumbashi's 50-odd processing plants.

All around Lubumbashi, the capital of Congo's copper-rich province of Katanga, there are signs of a sudden Chinese invasion. Chinese middlemen have begun buying ore from the area's many wildcat miners and selling it on to processing plants like Mr Lee's. Locals point out several villas in the city's leafy colonial cantonment that are occupied by mysterious Chinese businessmen. Katanga Fried Chicken, hitherto Lubumbashi's most popular restaurant, now has three busy Chinese competitors.

If all goes according to plan, these fledgling businesses will soon be overshadowed by Chinese investment on a much grander scale. In late 2007 the Congolese government announced that Chinese state-owned firms would build or refurbish various railways, roads and mines around the country at a cost of $12 billion, in exchange for the right to mine copper ore of an equivalent value. That sum is more than three times Congo's annual national budget and roughly ten times the aid that the “consultative group” of Western donors has promised the country each year until 2010. The Chinese authorities, it seems, are so anxious to obtain enough minerals to sustain their country's remarkable economic growth that they are willing to invest billions in a dirt-poor and war-torn place like Congo—billions more, in fact, than Western governments and investors combined are putting in.

And Congo is not the only beneficiary of China's hunger for natural resources. From Canada to Indonesia to Kazakhstan, Chinese firms are gobbling up oil, gas, coal and metals, or paying for the right to explore for them, or buying up firms that produce them. Ships are queuing off Australia's biggest coal port, Newcastle, to load cargoes destined for China (pictured above); at one point last June the line was 79 ships long. African and Latin American economies are growing at their fastest pace in decades, thanks in large part to heavy Chinese demand for their resources.

China's burgeoning consumption has helped push the price of all manner of fuels, metals and grains to new peaks over the past year. Even the price of shipping raw materials recently reached a record. Analysts see little prospect of an end to the boom; the prices of a few commodities have fallen on the back of America's worsening economic outlook, but others, including oil, wheat and iron ore, continue to set new records. China, with about a fifth of the world's population, now consumes half of its cement, a third of its steel and over a quarter of its aluminium. Its imports of many natural resources are growing even faster than its bounding economy. Shipments of iron ore, for example, have risen by an average of 27% a year for the past four years. Western mining firms are enjoying a sustained boom.

Unwelcome advances

But China's sudden global reach is generating as much anxiety as prosperity. In 2005 America's congressmen, citing nebulous national-security concerns, scuppered the proposed takeover of Unocal, an American oil firm, by CNOOC, a state-owned Chinese one. The opposition candidate in Zambia's presidential election in 2006 made a point of attacking the growing Chinese presence in the country. Residents of Russia's far east fear that China is planning to plunder their oil and timber and perhaps even to colonise their empty spaces.

Some non-governmental organisations worry that Chinese firms will ignore basic legal, environmental and labour standards in their rush to secure resources, leaving a trail of corruption, pollution and exploitation in their wake. Western companies fret that the Chinese state-owned firms with which they suddenly find themselves competing have an agenda beyond commercial gain. The Chinese government, they say, is willing to pay over the odds for mining or drilling rights to secure access to physical resources. It also intervenes unfairly on its companies' behalf, they claim, by offering big aid packages to countries that welcome Chinese investment. All this, it is feared, will dent the profits of big oil and mining firms, stoke inflation and imperil the West's access to resources that it needs just as much as China does.

Diplomats and pundits, for their part, fear that the West is “losing” Africa and other resource-rich regions. China's sudden prominence, according to this view, will reduce the clout of America, Europe and other rich democracies in the developing world. China will befriend ostracised regimes and encourage them to defy international norms. Corruption, economic mismanagement, repression and instability will proliferate. If this baleful influence spreads too widely, say the critics, the “Washington consensus” of economic liberalism and democracy will find itself in competition with a “Beijing consensus” of state-led development and despotism.

Such fears are not entirely groundless if the recent conduct of some of Congo's neighbours is anything to go by. Angola, to the south, has been receiving so much aid and investment from China that in 2006 it decided it had no need of the International Monetary Fund's billions and all the tiresome requirements for transparency and sound economic management that come with them. Sudan, to the north, has shrugged off Western threats and sanctions over the continuing atrocities in Darfur, thanks in large part to China's readiness to invest in Sudanese oilfields and buy their output. Farther afield, China's eagerness to do business in Myanmar, and its consequent reluctance to chide the tyrannical generals that run the place, helped to prevent a forceful international response to the violent repression of peaceful demonstrations there last year.

Nonetheless, this special report will argue that concerns about the dire consequences of China's quest for natural resources are overblown. China does indeed treat some dictators with kid gloves, but it is hardly alone in that. Its companies do not always uphold the highest standards, but again, many Western firms are no angels either. Fifty years of European and American aid have not succeeded in bringing much prosperity to Africa and other poor but resource-rich places. A different approach from China might yield better results. At the very least it will spur other donors to seek more effective methods.

For all the hue and cry, China is still just one of many countries looking for raw materials around the world. It has won most influence in countries where Western governments were conspicuous by their absence, and where few important strategic interests are at stake. Moreover, as China is becoming more involved in places such as Congo, its policies are beginning to change. It has promised to co-operate with the World Bank in its development efforts in Africa. It no longer seems prepared to back its most objectionable allies in the face of international opprobrium. Its diplomats, for example, did eventually stop parroting their line about unwarranted interference in the internal affairs of a sovereign state and allow United Nations peacekeepers to be deployed in Sudan.

The saga over Sudan shows how sensitive the Chinese authorities have become to criticism, despite their impassive reputation. When Steven Spielberg resigned as an adviser to the Beijing Olympics in protest at China's failure to do more about Darfur, a shrill chorus of criticism arose from China's official media—suggesting that such gestures do indeed have an impact.

Chinese companies will inevitably find themselves in fierce competition with Western ones for natural resources, as they must if global markets are to work efficiently. For the most part, however, they do not operate very differently from their peers. To the extent that the Chinese government does subsidise oil production, it helps to bring down the price for everyone else (its subsidies for oil consumption are another matter). As the world's biggest consumer of many commodities, China naturally wants to ensure a steady supply of them to keep its economy going. But markets for commodities are global, and the risk of any one consumer cornering supplies, or securing them at a lower price, is negligible.

Own goal

The worst fallout from China's quest for natural resources will be seen not in the countries they come from, nor in the countries that are competing for supplies, but in China itself. Over the past few years the volume of raw materials it consumes per unit of output has risen sharply. In particular, China has gone from miser to glutton in its use of energy, and is now struggling to diet. That has involved bigger imports of oil, gas and coal, and so more foreign entanglements. But it has also led to the rapid depletion of resources that China cannot import, such as clean air and water.

China is building a huge stock of grimy heavy industry, just as its coastal provinces are getting rich enough to care about the consequences. Protests about environmental issues are on the increase. There is not enough water in the Yellow River basin, which covers a huge swathe of northern China, to supply both farmers and factories. Acid rain from coal-fired power plants is reducing agricultural yields, raising the spectre of increased rural unrest. As it is, the authorities are struggling to ensure that the air will be fit for athletes to breathe at the Olympics in Beijing this summer. All the while, the number of noxious steel mills, cement kilns and power plants relentlessly increases. Global warming, which is fed by their fumes, will make all these problems even worse.

Environmental concerns are unlikely to bring down the Communist regime, or even to stir as much resentment as the arbitrary confiscation of land currently does among China's poorest. But those concerns are certainly prompting the government to reflect on what sort of economic path it wants to pursue. So far, its efforts to temper economic growth, encourage energy efficiency and wean the country off heavy industry have had little effect. But continued failure would eventually make China a less prosperous and more unstable place.

Tuesday, March 04, 2008

High Commodity Prices Drive BC's Economy - Record High Prices Supercharge BC's

Vancouver's Real Estate market is being driven to a large extent by record high demand for natural resources in China and India. These countries are industrializing developing their domestic economies at such a rate that China has recently overtaken the US for #1 spot in the consumption of many types of natural resources. This demand for our resources is having a huge positive effect on Canada's economy as well as Vancouver's real estate market.

More people working in Vancouver for better wages means more money for more real estate. Prices are still rising and with the recent interest rate cut, expect more price increases for Vancouver real estate.

I'd love to hear your thoughts! Feel free to post comments!


Canada's changing work force: a snapshot

Globe and Mail Update

Rising commodity prices have ignited demand for workers in everything from construction to energy, mining and retail, making Canadian employment growth the fastest among G7 nations, latest census data show.

Total employment in Canada swelled at an annual average rate of 1.7 per cent between 2001 and 2006, the fastest percentage increase among the Group of Seven nations, Statistics Canada said in its sweeping study of changes in the labour market.

“Employment rose in every part of the country,” the report said. “However, growth was strongest in the West, and especially in Alberta and British Columbia.”

The fastest employment growth was in the mining, oil and gas industries, where employment jumped at nearly four times the national average. “Alberta alone accounted for 70 per cent of the employment growth in this industry,” the report said.

Oil and gas well drillers, testers and related workers led the gains, soaring 78 per cent Growth in the larger construction sector increased 4.5 per cent on average per year, driven by low borrowing costs and a healthy economy. In the five-year period, the sector added almost 200,000 workers, particularly carpenters.

Canada's second-largest service industry — health care and social assistance — also added almost 200,000, translating into 2.6-per-cent growth on average each year, much more than the national average. The gains were widespread, from ambulatory services to medical laboratories to hospitals, the study said.

Healthy consumer demand also prompted growth among retailers such as grocery stores, building materials and supplies stores and car dealerships. The industry increased 1.8 per cent a year on average, putting the number of retail jobs at just over 1.8 million.

On the downside, factories shed 136,700 jobs during the five-year period, or a 1.4-per-cent drop per year, as the Canadian dollar appreciated and companies shifted jobs offshore.

The number of sewing machine operators plunged by a third, while the number of metal fabricators, including steel workers, also dwindled.

Many workers moved west. More than half a million people, or 3.4 per cent of the total work force, moved to a different province or territory in the five-year period, with mobility rates the highest in the territories and Alberta. Most of the movement took place in the mining, oil and gas and public administration industries in 2006, the report said.

Among cities, Barrie, north of Toronto, had the country's fastest employment growth, followed by Kelowna, Calgary and Edmonton.

Of the three largest cities —Toronto, MontrĂ©al and Vancouver— Vancouver had the highest employment growth, amid a flurry of condo and Olympic-related construction.

Both Toronto and Montréal experienced slower employment growth, though, compared with the previous five years. Both cities were hurt by factory losses, though Toronto was helped by strong housing and financial markets and Montreal by increases in the construction and child-care sectors.

Windsor appears to be suffering the worst. The southern Ontario town saw steep declines in auto parts manufacturing, prompting the jobless rate to hit 8.3 per cent by 2006 from 6.3 per cent in 2001. That's the third-highest in the country after Saguenay and St. John's, however, jobless rates in both Saguenay and St. John's declined during this five-year period.

Atlantic Canada and pockets in the North still have the country's highest jobless rates.

Immigrants are making up a greater share of the work force. Foreign-born residents made up more than one-fifth of Canada's labour force in 2006, a greater share than in 2001.

The employment rate for core working-age immigrants increased to 77.5 per cent in 2006 while the comparable rate for Canadian born workers was 82.4 per cent.

Rates Cut - More to Come!

Hi All,

Looks like the Bank of Canada is giving us a nice spring gift! We here in Vancouver and BC are experiencing low inflation and good economic growth and now get a nice interest rate cut to ward off whats happening south of the border. Look for more more price increases for the Vancouver real estate market with this mix of good growth, low inflation, and falling interest rates.

I'd love to hear your thoughts on this article!

Bank of Canada slashes interest rates

Globe and Mail Update

OTTAWA — The Bank of Canada dropped its key lending rate by half a percentage point, and indicated that further cuts will be needed to insulate Canada from the effects of a U.S. economy that teeters on the brink of recession.

“The deterioration in economic and financial conditions in the United States can be expected to have significant spillover effects on the global economy,” the central bank said in its statement Tuesday.

“Further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to achieve the 2 per cent inflation target over the medium term”, the bank said.

Mark Carney's first policy decision as governor left the Bank of Canada's benchmark interest rate at 3.5 per cent. The central bank last reduced borrowing costs by a half point in November 2001 and has adjusted interest rates by that magnitude only four times since moving to a fixed announcement schedule in March 2000.

Mr. Carney and his five deputies on the Governing Council next fix interest rates on April 22.

The decision by the central bank to get more aggressive after quarter-point reductions in December and January shows policy makers doubt Canada's strong domestic economy will hold up next to weaker demand from the country's largest trading partner.

Canada's gross domestic product grew 0.8 per cent in the fourth quarter, the slowest in 4 ½ years and half as much as the Bank of Canada was expecting. The U.S. economy, which consumes some 80 per cent of Canada's exports, was even weaker in the fourth quarter, advancing at a 0.6 per cent annual rate.

“There are clear signs the U.S. economy is likely to experience a deeper and more prolonged slowdown than had been projected in January,” the central bank said in the statement, citing the housing market, which is suffering the biggest collapse in generation. “These developments suggest that important downside risks to Canada's economic outlook that were identified in (January) are materializing and, in some respects, intensifying.” The Bank of Canada sets interest rates to keep inflation advancing at about 2 per cent a year, and uses a measure that strips out volatile prices such as energy to predict where costs are heading.

Canada's core rate of inflation was 1.4 per cent, leaving plenty of room for today's half-point cut, economists said before the announcement.

While conceding that Canada's domestic demand remains “buoyant” and that companies were producing above capacity, policy makers determined the bigger worry is economy won't generate enough activity to keep inflation at its 2 per cent target.

“The bank now judges that the balance of risks around its January projection for inflation has clearly shifted to the downside,” the Bank of Canada said.