This week’s top stories include how Ontario and British Columbia will lead the economy recovery for Canada, how the banks cut fixed mortgage rates, how the trade surplus in the mont of March narrowed, how the MLS and Competition Bureau are still not on the same page, how home prices continue to rise, how the loonie is expected to hit par with the American greenback and how U.S. jobless claims are down but not enough to change the unemployment rate.
B.C and Ontario will lead recovery
According to a new outlook released on Monday from the Conference Board of Canada, a rebound in the automotive sector and strong domestic demand will push Ontario’s economy out of the depths of the recession this year. Ontario will lead growth with British Columbia, with both economies expected to expand by 3.8% this year.
Mari-Christine Bernard, associate director of provincial forecasting commented by saying, “There are clear signs of economic recovery from coast to coast. The improved domestic economies of Ontario and B.C., along with increased demand from the United States, will support a strong rebound in both provinces.”
Other provinces are expected to rebound gradually over the next two years. The Ontario labour markets have been on the rise since bottoming out last year with many labour sectors hiring again now. Manufacturers have hired over 33 000 new workers since June of last year. This is fueling domestic demand and the hot housing market.
Saskatchewan and Alberta are also expected to have a strong recovery with growth of 3.5% and 3.3% respectively this year. This will be fuelled by a rise that is expected in potash fertilizer prices and oil prices. Manitoba will also improve once base metal prices begin to rise again and manufacturing and service sectors begin to rise.
The Atlantic Provinces will also see a rise but it will be below the national average with growth only ranging between 1.8% and 2.4%. Overall, the news is quite positive but only time will tell what the real growth numbers will actually be. What do you think? Please comment below.
Banks cut mortgage rates
The European bailout that sent stock markets soaring on Monday also lead to some mortgage rate cuts across Canada. Several banks cut residential mortgage rates late last week and early this week. RBC lowered mortgage rates by 10 to 15 Basis Points (Bps) or 0.1% to 0.15% of a percentage point.
This follows suit with BMO and TD who lowered rates on Friday and had National Bank and Scotia Bank following shortly behind. The decreases were applied to fixed rate mortgages and did not effect the variable rate mortgages that are tied into the prime rate. The prime rate is set in relation to the Bank of Canada’s (BoC’s) key overnight rate, which is currently at an all time low of 0.25%.
The mortgage rate changes are a reflection of easing in the bond market in the wake of the $1 trillion European bailout package, which was resolved over the weekend. Canadian banks originally raised interest rates to reflect higher borrowing costs in the bond market. More recently, investors fled the European and corporate bond markets in search of something more secure. That raised prices in North American bond markets.
We are now waiting on the BoC to increase the overnight lending rate starting as early as June 1st of this year. This should help fight inflation as the Canadian economy gains traction. The BoC did note that the Canadian economy’s recovery has been stronger than expected, particularly in the labour market, consumer spending and the hot Canadian housing market. This will make borrowing costs higher for the remainder of the year.
Trade surplus narrows
Statistics Canada released a report on Wednesday outlining how trade surplus fell to $254 million in the month of March. February saw a trade surplus of $1.2 billion. Exports declined on weaker prices for energy products as imports increased on the strength of precious metals.
Exports fell 0.7% in the month of March while imports rose 2%. Economists previously expected the trade surplus to rise to $1.6 billion in the month of March, which seems way off when you look at the numbers. Exports dropped to $33.5 billion from the $33.8 billion witnessed in February. This ends six straight months of gains in the exports sector.
Imports were up to $33.3 billion from $32.6 billion seen in the month of February. This is the highest level on record since December of 2008. Canada’s surplus with the U.S. was down to $3.82 billion from the $4.31 billion seen in February. Exports also dropped 2.5% and imports fell 0.6% during the month. The U.S is Canada’s largest trading partner. Exports to other countries were up 4.2%, which was the third consecutive monthly advance.
MLS V.S Competition bureau
Real estate professionals have agreed that the move by the Competition Bureau to encourage more competition in the real estate market will eventually lead to lower customer service standards. This is according to a recent survey of 1726 realtors from Royal LePage. The realtors state that the industry is already competitive without the new changes.
Phil Soper, president and CEO of Royal LePage stated, “Our agents welcome competition in the industry, but are very concerned that the severe deregulation of the residential real estate brokerage industry would hurt, not help, Canadian home buyers and sellers. Within the industry we see that there are already people who will offer very low fees, so we are a little baffled as to what end all this effort will be if low cost alternatives already exist.”
The results of the online poll show that 86% are concerned that the push to foster increased competition in the industry will result in lower customer service standards. The Competition Bureau is taking the Canadian Real Estate Association (CREA) to court. CREA currently owns the rights to the Multiple Listing Service (MLS) system. The MLS system is where 90% of real estate transactions take place. The bureau is trying to force CREA to unbundle the services that a realtor currently offers with use of the system.
The move has been praised by consumer groups but has been receiving less than praise from many in the industry who feel that it will eat into their livelihoods. What do you think about the move? How will it effect you? Please comment below.
New home prices rise
February saw a 0.1% increase in the New Housing Price Index followed by a 0.3% rise in the month of March. The index has been rising slowly since July of last year. The index reflects rises or decreases in home values across Canada. This is the latest information provided by Statistics Canada.
Home prices seemed to have rose the most in London Ontario, where the increase was 1.7% between the months of February and March. Montreal and Kitchener followed behind with a 1% increase. The largest monthly decline was in Charlottetown of 0.5% with Hamilton and Edmonton following with declines of 0.3% in both cities.
When looking year over year, the index rose 1.6% in March and followed a 0.9% rise in the month of February. The largest year over year rise was in St. John’s Newfoundland with a 5.1% increase followed by Winnipeg and Vancouver with a 4.5% and 4.3% rise respectively.
Loonie will hit par
Citigroup Inc. released a statement this week outlining that the Canadian dollar will return to par with the American greenback. It’s currently headed towards 99.31 cents per U.S. dollar, which was previously reached on April 21. Back on April 6 the loonie reached par with the American dollar for the first time in almost two years.
Analysts referring to a rally that started in March of last year stated, “We now believe that a move towards the trend lows at 99.31 will be completed.” Yesterday saw the Canadian currency advance for the fourth consecutive day, which is the longest stretch seen in almost six weeks. The gains followed an increase in global stocks and raw materials.
Last week the loonie fell 2.5% on concerns that Europe’s sovereign debt crisis would reduce demand for currencies related to economic growth. This was the largest drop since January of this year. How do you think the loonie will fare this year? Please comment below.
U.S. jobless claims down
There were further signs that the U.S. job market is improving as new claims for unemployment benefits dropped for the fourth straight week. Encouraged by the recovering economy, employers have begun to hire once again. Unfortunately, the pace of hiring is not fast enough to reduce the current jobless rate.
The Labour Department stated yesterday that initial claims were down by 4000 to a seasonally adjusted 444 000. That is still above analysts estimates as last weeks numbers were revised upwards to 448 000. The four week average had a larger decline falling by 9000 to 450 500. This is very close to the lowest average level this year that was previously reached at the end of March.
After seeing U.S. claims drop consistently from last years peak of 651 000, first time claims have hovered around 450 000 since January of this year. Economists state that claims need to drop below 425 000 in order to achieve sustained job creation. The real question is when this is expected to occur. The U.S. economy did expand at a 3.2% pace in the first quarter of this year, which was its third consecutive quarter of growth. The next quarter will be the one that counts. What do you think? Please comment below.
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