This weeks top stories include how the Canadian economy expanded more than expected during the month of November, how interest rate increases are on the horizon and are considered to be inevitable, how high unemployment numbers will continue to burden Canada in 2011, how fiscal restraint will be felt by all provinces this year, how Toronto condo sales almost reached a record high in 2010 and how business bankruptcies reached an all time low last year.
Economy grows
Expansion in the retail, oil and gas, real estate and financial sectors helped the Canadian economy grow by 0.4% in the month of November. This was the fastest pace of growth in eight months. Gross domestic product (GDP) was also up for the second consecutive month after 0.2% growth in October.
Statistics Canada released their report on Monday of this week claiming that the energy sector led the expansion and overcame the declines witnessed in the manufacturing and construction sector. Stewart Hall, economist at HSBC Securities stated, “The economy is performing moderately better than expected. However, while domestic demand is holding in, torquing up Canada’s GDP picture amounts to turning around the picture on net trade. This has proven to be the real challenge throughout this economic recovery.”
Despite the strength in the loonie, growing demand south of the border should help aid growth in Canada during the first quarter of this year. This should lead to interest rate hikes later in the year as the economy sputters back to life. What do you think? Please comment below
Rate increases inevitable
As the risk of high debt levels continue to be a scare for the economy, interest rate increases also stay on the minds of many consumers. Mark Carney and Finance Minister Jim Flaherty continue to try and scare consumers but there is a reality to what they are stating. The rise in interest rates is an inevitable one and should not be overestimated.
Both Carney and Flaherty recently changed mortgage guidelines, yet again, tightening the noose around our Canadian housing market. The move was considered by many to be over the top but for some it seems like the move was a little too late. Flaherty stated that only 14% of the Canadian mortgage market is on a variable rate and that interest rate increases would only affect those consumers.
I disagree with Flaherty as the other 86% of consumers that are on fixed rate mortgages, coming due in 5 years, may have a handful that have extended themselves to the max on their purchase. A simple 1% increase in rate on their mortgage renewal would put them over the top and incapable of meeting their mortgage obligations. If you feel that you are one of these people, contact me now to discuss a plan for your future.
High unemployment in 2011
Canada’s unemployed have reached a whopping 1.4 million people with the slow growing economy providing little hope for the near future. Finance Minister Jim Flaherty stated that we should anticipate resistance to the unemployment rate coming down.
Employers in Canada continue to put off hiring new employees due to their views about the current economic state of the economy. With stronger numbers expected south of the border, there is still hope on the horizon for many but only time will tell what the future will bring. Weak projections from the Bank of Canada show that the economy will expand by only 2.4% this year compared to growth of almost 3% last year.
Flaherty’s new budget will come out next month but a date has not been set as of yet. The goal will be to balance the budget by 2015 but there is speculation that this might be an impossible feat. What do you think? Can the budget be balanced within the next four years? Please comment below.
Fiscal restraint to be felt by all
Provincial governments will be hard pressed for extra money this year as the focus moves from stimulating the economy to balancing the budget. As spending is cut, there will be less money for each province and the programs that they offer.
The cuts will affect gross domestic product (GDP) growth in every province. Most provinces, especially Ontario and Nova Scotia, have majority of real GDP growth linked back to direct spending by the government in the last 5 years. This includes government related hiring, construction and public administration. With stimulus measures being cut and the government looking to trim their budgets, we can expect to see a reduction in the government work force to help curb costs.
Ontario has a long way to go to balance the budget but there are more debt burdened provinces than our own. Quebec and Nova Scotia have already begun corrective actions to help curb spending. There are also many things that could change during the course of the year as provincial elections could adjust the economic priorities of any given province. What do you think? Are we in for a troubled year? Please comment below.
Toronto condo sales up
The fourth quarter of 2010 was one for the books as condo sales in the Greater Toronto Area (GTA) reached near high record levels. Last year witnessed the sale of 37 041 new and resale condominiums. That was the second best year on record and was just 3% shy of the all-time record, which reached 38 306 sales in 2007.
A strong rebound in the new condo sector came as a surprise to many with new unit sales coming in well above expectations. Last year’s sales were a 20% increase to 2009 numbers. Currently there are 286 active condominium projects on the go in the GTA with 73 953 condo units being built. This is the most units being built anywhere in North America. Analysts cannot help but assume that there will be a market correction on the horizon that has been held off by extremely low interest rates.
Regardless, prices have continued to hold in the new condo market while prices seemed to have flat lined 2 months ago in the resale condo market. Even though high rise sales now account for more than half of the new home sales inside the GTA, do you think that we can fill 73 953 condo’s by the end of this year? Please comment below.
Business bankruptcies decline
There are signs that the corporate sector in Canada has made a comeback. The rate of business bankruptcies in Canada has now reached an all-time low as it bounced back from one of the deepest global recessions in more than 50 years.
Last year, Canada recorded 3.4 bankruptcies for every 1000 businesses. This is lowest bankruptcy rate on record by far. Roughly 3500 companies declared bankruptcy in the first 10 months of last year, which is 26% below the same period a year before. Benjamin Tal, CIBC world economics commented, “The situation is definitely different than any other recession, and it’s definitely different than the situation in the U.S. We just went through what was supposed to be the mother of all recessions. Not only is the business bankruptcy rate low, but it is also falling.”
The low rate of bankruptcy stems from businesses taking precautions early in the year by cutting back operations, laying off staff and cutting spending. It seems that it has all paid off. But it took more than just slashing the balance sheets and payrolls. Companies were carrying less debt than previous recessions and Canadian banks continued to extend credit to those that were still qualified borrowers. It looks like this may have been the best recession on record. What do you think? Please comment below.
Prime Rate: 3%
You Can Also Find Me Here:
Paul Sidhu: President / Principal Mortgage Broker
Useful Information: Mortgage 101
Learn More About Your Mortgage:
Now that you know what it takes to get a Canadian mortgage, check out our other handy reference articles filled with Useful Mortgage Tips.