This week’s top stories include how analysts are trying to figure out when the U.S. recession came to an official end, how multiple unit building permits were down as were starts, how Canadians are filing for less bankruptcies this year, how Canadian exports are more in demand as Canada posts a trade surplus, how fixed interest rates had a hefty increase again this week, how real estate listings reached a new high in the month of march and how everyone seems to be asking the magic question of whether or not it’s time to lock in their variable rate mortgages.
When did the U.S recession end?
The National Bureau of Economic Research (NBER) stated on Monday of this week that although the U.S has shown significant economic improvements, it would be premature to try and pinpoint the end of the recession based on the economic data seen thus far.
Economists agreed that a lot of the key economic indicators seem to be preliminary at this time and are expected to be revised in the coming months. They also stated that the government tends to change its estimates of job creation and economic growth as more information emerges. The panel of economists are weary to make a decision on the end of the recession when there is a chance that the key government numbers could see a change.
NBER did pinpoint the start of the recession as December of 2007. The economy began to see expansion in the second quarter of last year, which followed four straight quarters of declining activity. Now the economy has begun to generate jobs again at a snails pace. Americans now face a moderate economic recovery with a weak jobs market hindering growth.
The outlook is that many will continue to struggle as unemployment continues to rise well after the end of the recession. What do you think? Has the recession finally seen an end south of the border? Please comment below.
Multiple unit buildings down
March saw an unexpected decline in housing starts, which fell 1.5% and was the first decline of this year. There were less builders breaking ground in March for multiple unit dwellings like condos.
Housing starts dropped to 197 300 units, on a seasonally adjusted basis according to Canada Mortgage and Housing Corporation (CMHC). Economists had previously expected starts to reach 205 000 units in March. Housing starts have been gaining momentum in recent months due to an uptick in the real estate market.
Levels for the month of January and February were revised upward to 189 00 units and 200 400 units respectively. Bob Dugan, chief economist as CMHC stated, “The moderation in March housing starts was due to a decrease in the volatile multiple starts segment. Helping to offset this was an increase in singles starts as well as more activity in rural areas.”
Urban multiple starts dropped 15.2% as single urban starts increased by 6.9%. Rural starts are currently estimated to be at 22 100 units in the month of March. These are in line with a report released last week that noted a decline in building permits due to a lack of momentum in the multiple units sector.
Building permits were down for the second month in a row in February dropping 0.5% to $5.7 billion during the month. Starts dropped by 16.3% in British Columbia and were also down 15.5% in Ontario with an 8% decline in Atlantic Canada. What do you think of the new figures? Please comment below.
Less Canadian bankruptcies
The start of this year saw fewer bankruptcies from Canadian businesses and consumers. This January saw the largest drop in bankruptcies in the last twenty years. The total number of insolvencies, which include proposals and bankruptcies, dropped by 6.7% in the month of January when compared to the previous month. Bankruptcies also were down 9.4% on a monthly basis.
Over the last ten years, insolvencies have generally been higher in the month of January when compared to December. This year was the beginning of a change as the drop in insolvencies in the month of January is noted to be the largest decline recorded in twenty years according to the Office of the Superintendent of Bankruptcy.
As the economy begins to expand, insolvencies will continue to slow. Insolvencies were down 2.7% in January when compared to the same time last year. Consumer insolvencies were also down 1.9% when compared to the same time last year and business insolvencies were also down a whopping 18.5%.
Canadian exports in demand
The month of February saw Canada’s trade surplus pass analysts expectations as a recovering global demand for metal ores, fertilizers and autos gave strength to the Canadian export market. Canada’s export surplus was up to $1.4 billion in the month of February, which was up almost double form the $754 million seen in the month of January according to Statistics Canada.
Exports were up 2.8% and outpaced the mediocre 0.9% increase in the imports sector. This is the newest sign that the Canadian economy is gaining momentum as growing global demand for Canadian products continues. Exports reached $34 billion as volumes and prices both rose. This was the fifth increase seen in prices and export volumes over the last six month period with industrial goods and materials accounting for more than half of the growth seen in the exports segment.
Exports south of the border were up 2% on a higher demand for automotive products. The trade surplus between Canada and the U.S. widened to $4.4 billion in the month of February compared to the $4.2 billion seen in the month of January. Exports to all countries, with the exception of the U.S., was up 5.2%.
Interest rates rise
For the second time in weeks, Bank of Nova Scotia and Royal Bank raised residential mortgage rates this Tuesday. This is expected to start another round of rate hikes all across the board as lenders follow suit right behind.
As of this week Wednesday, Scotia and RBC’s 5 year closed fixed rate mortgage has an interest rate of 6.1%. This is a significant change from the 5.25% seen just a few weeks ago. This is leading analysts to speculate that the Bank of Canada may raise its overnight lending rate before the expected date of June this year. Investors and analysts are both factoring in a 50% probability that the central bank will raise interest rates either before or on June 1st.
The central bank pledged to keep the overnight lending rate unchanged until June but was left conditional based on the outlook of inflation. Financial institutions have justified their rate increases by stating that their own cost of funding has increased and investors are demanding higher yields. Home buyers are also facing higher costs in the near future with tighter lending guidelines to take effect on April 19th and the Harmonized Sales Tax ready to take effect on July 1.
An RBC spokesperson commented by saying, “Mortgages are tied to the bank’s funding costs, which change from day to day. Our long term funding costs have gone up considerably since mid December and it is now necessary for us to increase fixed rate mortgages.” What do you think? Please comment below.
Listings reach high
March saw the number of new listing on the Canadian real estate market jump drastically. New listings reached an all time high with sales and average home prices following closely behind. The Canadian Real Estate Association (CREA) showed that sales and prices are beginning to moderate as supply began to make its way back into the market in February.
March was noted as another high month as more and more consumers jumped into the real estate market trying to beat out the April 19th regulatory changes and the HST, which is ready to take effect. This caused home prices to climb further as more and more multiple offers were placed on homes across Canada specifically in the Greater Toronto Area (GTA) and Vancouver.
March saw 97 663 homes listed for sale, which was a 20% increase from the previous high seen during March of 2008. 233 402 listings were booked since the beginning of 2010 and was noted as the highest bookings ever for any first quarter on record. The new listings are expected to help moderate the sharp price increases that have been taking effect in this sellers market.
National average home prices also increased in the month of March, reaching $340 920, which is just $300 shy of the all time highs reached in October of last year. From last year to this year, average home prices have increased 17.6%. March also saw 49 256 homes change hands, which is the second highest for any month of March on record and is 40.8% higher than March of 2008.
Is it time to lock in?
Experts have been warning that interest rates will continue to rise as the bond market reacts to concerns about high international debt levels and the Bank of Canada is expected to raise the overnight lending rate to curb inflation as the economy continues to improve.
Most consumers should be asking themselves where mortgage rates will be in the next five years and how much will their payment be around that time. This doesn’t seem to be the case as buyer’s press forward trying to beat the April 19th deadline for the new mortgage regulatory changes. The rules were designed to cool off the overheated real estate market and make consumers more aware of what they can afford.
On Monday, the rules move to more stringent criteria for lenders to assess the borrower’s capability to carry loans that are insured through the Canada Mortgage and Housing Corporation (CMHC). These are for all high ratio mortgages where a buyer has less than 20% down payment on their purchase. The new standard will require consumers to be qualified at the 5 year posted rate rather than the discounted rate on all mortgages regardless of the length of the term.
This means that buyers will require larger down payments, higher incomes or will just have to plain settle on cheaper properties than the ones they would be looking at today. This also means that people who were able to qualify for a purchase today, may not be able to qualify on Monday. The hardest people to educate on this matter are home buyers in their 20′s and 30′s that have spent the majority of their adult years witnessing historically low interest rates.
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