This week’s top stories include how U.S. housing starts increased in the month of July, how July saw a drastic decrease in home sales, how the commercial real estate market was great during the first half of 2010, how there are signs that the Bank of Canada may keep interest rates on hold, how Toronto’s existing homes market has slowed and how wholesale sales had a drastic decline in the month of June.
U.S. housing starts rise
U.S. housing starts in the month of July were up but at a lower rate than previously expected. Permits for home construction dropped to their lowest point in more than a year according to the latest report released on Tuesday by the Commerce Department.
The department stated that housing starts were up 1.7% to a seasonally adjusted annual rate of 546 000 units. At the same time, June’s housing starts were revised downward by 8.7% more than the forecasted 5%. Analysts had previously forecasted that housing starts would increase to 560 000 units. New building permits were down 3.1% to a 565 000 unit pace last month and was the lowest month on record since May of last year.
April was the end of the homebuyer tax credit and that has created a void in the housing market, which has lead to depressed sales and building activity. Could this be the foreshadowing of the double dip? What do you think? Please comment below.
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Home sales drop
According to the latest report from the Canadian Real Estate Association (CREA), there has been a 30% decline in home sales from a year ago in July. The decline in sales is being attributed to the new Harmonized Sales Tax (HST) in Ontario and B.C. CREA reported a 6.8% dive in home sales in the month of July from the previous month.
The decline was forecasted in advance with consumers rushing to close properties before the HST took effect. Tighter mortgage guidelines combined with expectations of higher interest rates and an early rebound from the recession caused the market to peak earlier than usual this year. When all four were combined at the right time it created a heated real estate market for the beginning of 2010.
With sales declining 30%, the next big decline that is expected will be in home prices. As rates increase, home prices historically trend downward. If rates increase at this moment, it could be disastrous for the housing market so don’t be expecting quick bursts of mortgage rate increases in the near future. Activity is forecasted to be down for the remainder of the year and only time will tell the true effect. What do you think of the slowdown? Please comment below.
Commercial real estate rises
The first half of 2010 was a great one for the commercial real estate market. The market had a drastic rebound with the value of deals increasing by 60% as the market recovered well from the depths of the recession. The latest reports show that $7.8 billion in commercial deals were done from January to June of this year. The same period last year had only $4.9 billion in deals.
It is important to note that the midyear figures from last year were far below the historical average due to the global meltdown. When comparing to an average year, volume is up by 22.8% Toronto lead the way with $2.9 billion in transaction volume with Vancouver producing $1.6 billion in volume and Montreal rounding out the top three with $1.1 billion in volume.
BoC may keep rates on hold
The Bank of Canada (BoC) raised interest rates twice this summer but it may be forced to keep future increases on hold as weakness in the U.S. economy continues to hinder Canada’s growth. Avery Shenfeld of CIBC commented by saying, “North America’s story is again darkening. We were looking for a material second half slowdown for the U.S. but as it turns out, it’s already happened.”
The outlook from Mr. Shenfeld calls for the overnight lending rate to not exceed 2% in 2011, which should put the prime rate at roughly 4% by next year. With the U.S. Federal Reserve releasing a downgraded outlook this month there is no reason for the BoC to increase interest rates in the near future. Canada is definitely in better economic shape than the U.S., U.K. and the euro zone but cannot move to normalized interest rates as long as the U.S. Federal Reserve stays on hold.
Even with the uncertainty in the global economic recovery, the BoC is still going to carefully consider and weigh future interest rate decisions. They have not guaranteed that there will be no increases but chances are, without better economic numbers, there will be none. What do you think? Please comment below.
Toronto sales slow in August
Toronto’s existing homes market has taken a drastic downturn as sellers try and obtain yesterdays prices and buyers fight to lower prices with lowball offers. This has created a stalemate in the Toronto real estate market. It seems that almost everyone is sitting on the sidelines waiting to see what happens.
Existing home sales in Toronto fell 29% in the first two weeks of this month when compared to the same period last year. The Toronto Real Estate Board (TREB) announced that there were only 2732 sales in the first half of August. This is causing concern on buyers that home prices are set to fall. TD Bank stated on Monday of this week that they are expecting national housing prices to decrease 10% between now and next year.
Nationally, sales have been down 30% according to a report released by the Canadian Real Estate Association (CREA) on Monday of this week. Throughout the majority of last year, the number of monthly sales was above the expected long term trend so it makes sense that the numbers of transactions have slowed over the past few months when compared to last years numbers. What do you think? Please comment below.
Wholesale declines
Wholesale sales numbers were down 0.1% by volume in the month of June. Wholesale sales were down 0.3% to $43.9 billion in the month. According to Statistics Canada, the largest decreases were in machinery and equipment and supplies sub sector. The sub sector fell 2.3% to $8.9 billion in the month of June.
The other machinery, equipment and supplies industry was also down at a whopping 4.5%. Building material and supplies sub sector also dropped by 2% with agricultural supplies raising 18% during the month after seeing a 28.6% decline the previous month. Overall, 13 of 25 wholesale trade industries reported higher inventory levels.
Prime Rate: 3%
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