This week’s top stories include how home sales were slightly down during the month of April, what the expectations for inflation look like, how the U.S. consumer price index is set to drop, how housing starts south of the border have reached highs not seen in almost two years, how trader.ca is adding to the MLS and Competition Bureau debate, how housing starts are expected to rise, how Greater Toronto Area existing home sales were up 7%, how recreational properties saw a decrease in sales, how deflation may put a hold on interest rate hikes across Canada and how Employment Insurance claims were down another consecutive month in March.
Home Sales down in April
This April was considered to be the busiest April on record for Canadian real estate agents. Agents listed roughly 100 000 homes in the month but home sales edged further downwards in the month as buyers try to sidestep the expensive housing market.
The Canadian Real Estate Association (CREA) stated that 99 901 homes were listed for sale in the month, which sets a new record for April. The market seems to be at its peak, which has pushed more Canadians to list their homes and get the most for their money. Higher mortgage interest rates mixed with rising home prices is discouraging many from trying to enter the market right now.
The abundance of homes is causing slower reactions from many as buyers now have more choice with listings and feel that they can hold off, rather than getting into multiple offer scenarios. Seasonally adjusted national homes sales were down 2.6% from the month of March and are still 6.8% less than the figures seen in December.
The average price of a home in Canada was up 12.2% to $344 968 when compared to a year ago. This was considered to be the smallest increase in eight months with month over month comparisons shrinking as the recovery continues to take hold.
CREA commented by saying, “With last year’s string of downwardly skewed average price values having now mostly passed, and with activity in British Columbia’s lower mainland having settled down, year over year national average price comparisons are coming back into line with changes in the national weighted average price.”
Gregory Klump, CREA’s chief economist commented, “Next month will mark the passage of one year since the national average price rebounded from the recessionary trough to return to the pre-recession peak, so the rise in the national average price is expected to be more subdued next month.” I’ve got to agree with Gregory but what’s your take on it? Please comment below.
Inflation expectations
This week’s economic calendar has one major event in it. The inflation report! It is considered to be one of the key elements in aiding the Bank of Canada (BoC) in its decision to raise interest rates across Canada. Economists currently believe that inflation was higher on a year to year basis in the month of April. They feel that it will rise from 1.4% in March to 1.7% for this month.
The expectation leaves room for the BoC as their target rate of 2% will still not be met. The core inflation rate, which does not include volatile items like energy and certain foods, is expected to reach 1.8%. TD’s senior strategist, Millan Mulraine commented by saying, “This is going to be a key inflation report. In fact, it will be more important than the GDP report, which will come the following week.
Inflation was on the rise in February’s report with core inflation passing 2% for the first time since December of 2008. The BoC did not expect price growth like that until the second half of 2011 and was caught off guard. February’s inflation was actually tied to the Winter Olympics and was actually a temporary condition that seemed to have eased off in the month of March.
High inflation numbers will definitely push the BoC to raise interest rates in June, ahead of the previous commitment given for July. The only mitigating factor that could hold off the interest rate rise is the government debt crisis in Europe. If the crisis creates too much uncertainty about the global economic recovery, it may force the BoC to hold off on interest rate rises until it’s resolved. What do you think? Please comment below.
U.S. price index to drop
Deflationary fears south of the border are displacing the slow recovery of the pricing environment south of the border. This is the latest as the European debt crisis continues to reach out to countries outside of its borders. The expectation is that the U.S. consumer price index (CPI) will show little or no growth in prices.
A flat U.S. housing market mixed with strong gains in the U.S. dollar has pushed the CPI into the negative zone and this may mark the first monthly decline in over a year. Currently, the year over year measure of core consumer price index growth is in danger of slipping below 1% for the first time since 1966. The crisis in Europe has continued to add downward pressure to U.S prices since the end of April.
Eric Green, chief U.S. rates strategist at TD Securities in New York commented, “One thing is certain, we don’t really need any help down on inflation.” The United States economy has been trying to make its way out of a pricing hole that was dug during the recession and continues to be held back by several sectors including the largest holdback in the housing market.
The threat of deflation has continued to stay at the forefront of the economy due to labour markets and credit conditions that have remained at a standstill. Whenever money supplies and wages decrease, deflation will be a risk. This is relative to all countries because money and credit are decreasing everywhere in the world. In order for the U.S to make progress they will need to grow their way out of debt and inflate their way out of debt. What do you think? Please comment below.
U.S. housing starts hit highs
April saw housing starts south of the border reach their highest levels since October of 2008. This could have been caused by a home buyer tax credit being offered through the government but did not fare as well for building permits, which reached a six month low.
The U.S. Commerce Department stated that housing starts reached a seasonally adjusted annual rate of 672 000 units, which is up 5.8%. March’s housing starts were adjusted to a 5% increase from the previous 1.6% increase that was reported last month. Housing starts were expected to reach 650 000 units. When compared to April of last year, housing starts have increased 40.9% and is the largest increase since March of 1994.
Starts for single family dwellings were also up 10.2% to an annual rate of 593 000 units after seeing a rise of 2.1% during March. The volatile multifamily segment dropped 18.6% to a 79 000 unit annual pace. This reversed last month’s gain of 24.4%. The current flood of foreclosure properties is stagnating the housing sectors recovery from the current three year slump it has been in. It’s only a matter of time before the sector begins to gain traction. What do you think? Please comment below.
MLS data debate
Trader.ca, you may know as autotrader.ca, is taking on Canada’s largest real estate website with a new site that will provide thousands of home listings. Trader.ca is currently owned by Yellow Pages and already has a grasp on the new homes and rental markets. It now is launching hometrader.ca to try and gain some traction in the resale homes market.
They are trying to get a piece of the Canadian Real Estate Associations pie. Since the Competition Bureau decided to take on the Multiple Listing Service, alternative sites have been popping up everywhere. This may be good news for those trying to find a house online but will challenge the industry which has been under the communist MLS service stranglehold for some time.
Don Lawby, chief operating officer at Century 21 commented, “If you lose control of the data and it starts going off to other websites, the data can be compromised. There are a lot of questions of how personal information would be used, who has access to what. Some people are comfortable with that, but we have chosen not to go with syndication.”
The battle continues between organized real estate and the Competition Bureau, who is taking the Canadian Real Estate Association to a tribunal over the belief that the association is preventing new companies from setting up alternative sources to the service it provides. MLS is important because it provides governance and policing which makes the information on it valuable. What do you think? Please comment below.
Housing starts will rise
Canadian housing starts are expected to rise this year when compared to 2009 and stabalize over the up and coming years. This was the latest information according to federal crown corporation Canada Mortgage & Housing Corporation (CMHC). CMHC expects starts between 166 900 and 199 600 units this year.
That rate is 18 000 to 50 000 units more than the 149 081 starts seen during the 2009 year. The midpoint estimate for 2010 is 182 000 housing starts with some moderation in 2011 to 179 600 units. Bob Dugan, chief economist at CMHC, stated that housing starts will be more in line with long term demographic fundamentals.
GTA home sales up
According to a report released by Canada Mortgage and Housing Corporation (CMHC) released this Wednesday, sales of existing homes may break the 100 000 mark for the first time by the end of 2010. 2011 is not expected to be as strong as the market will wind down from the hot numbers seen this year.
Shaun Hildebrand, senior market analyst for CMHC commented by saying, “The era of rock bottom mortgage rates is coming to an end and the red hot Greater Toronto Area housing market will begin to lose its steam.” CMHC is forecasting sales to reach 101 000 by the end of this year with average home prices increasing to $444 000.
CMHC did warn that prices may come down sometime late into 2010 or in 2011. The declines are expected to be minimal and short lived. They also noted that the upward streak in appreciation to home prices will continue and set a record for 16 consecutive years of increases. The forecast states that home prices will increase by 1.7% by the end of 2011.
Hildebrand went further to say, “There is a question of whether the bidding wars in Toronto have caused prices to overshoot. There is also a question of whether buyers will respond more negatively than expected to higher interest rates, but we think prices will likely hold.” CMHC expects prices to become stagnant after 2011 as affordability makes its way to the forefront and becomes an issue. What do you think? Please comment below.
Recreational property sales decline
Less Americans are venturing north and more Canadians are looking south when it comes to vacation properties. Canada’s recreational property market has slowed down and is struggling to keep pace with the residential sector. ReMax released its Recreational Property Report yesterday stating that sales increased 79% year over year in the 50 markets that it surveys. Out of those, only 43% of the regions saw their property value’s increase.
Michael Polzler, executive vice president for Ontario-Atlantic Canada commented, “While sales have been strong out of the gate, the number of waterfront cottages, condominiums, and back lot properties sold in the first quarter still fall short of prerecession levels.” The report outlines how the recreational market is currently where the residential market was last year.
Economists are warning that stricter mortgage guidelines mixed with higher mortgage interest rates may put pressure on homeowners that overextended themselves when buying their principal residence. A slowdown in the residential sector would have a large impact on the recreational market. The largest drag on prices has been the lack of American buyers that we are used to seeing.
ReMax stated, “Americans have virtually fallen off the map in Canadian recreational properties. Only Shediac Bay, where recreational property values are a fraction of those in the U.S., continues to draw eager purchasers from the eastern seaboard of the United States.”
Deflation may stop rate hikes
As a threat of deflation makes its way into the economy, central banks are wondering if they should put off increasing interest rates. The inevitable rate hike of June the 1st is no longer inevitable. Up until recently, Canada was expecting the Bank of Canada to follow suit behind Australia and raise the key interest rate. The most prominent traders on Bay Street now say that it’s a coin toss.
BoC Governor Mark Carney recently removed a conditional commitment to hold interest rate hikes until July or later depending on the outlook for inflation. The BoC has a core target rate of 2% for inflation which was almost reached in February, much sooner than the BoC expected. Inflation has since made its way back down but the housing market continues to gain strength along with the economy, which has gained back two of every three jobs that were lost during the recession.
Doug Porter, BMO chief economist commented, “We continue to lean to the view that the Bank will indeed begin hiking rates at the start of June amid the powerful rebound in employment and housing. However, the debate is by no means completely settled, with the Fed still in an extended holding pattern, core inflation fading again, and the very real possibility that European tremors could rumble louder.” What do you think? Will the BoC hike rates anyways? Please comment below.
EI down in March
March saw 668 100 people receive regular Employment Insurance benefits, which was down 24 200 from the month of February. This was the sixth consecutive monthly decline on record. Beneficiary numbers were down in most provinces in Canada with the largest declines witnessed in Ontario, Quebec and Alberta.
This was the latest numbers according to Statistics Canada, which also noted that half the increase in beneficiaries during the economic downturn has been offset by declines since June of last year. 229 000 renewal and initial claims were received during the month of March. This number was down 2.7% or 6300 claims from the month of February. Employment Insurance claims have been on a downward spiral since they peaked in May of 2009. Is this the coming of brighter days for workers in Canada? What do you think? Please comment below.
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