This weeks top stories include how Canada wants other countries to do more for the economy, the top spots in Ontario for investors and investments, how the heated real estate market could trigger mortgage rate hikes, how the real estate price record was shattered in Toronto, how housing construction was down in the month of September and how increasing home sales will increase the renovation market.
Canada wants other countries to do more
Canada’s finance minister Jim Flaherty and the Bank of Canada (BoC) Governor Mark Carney stated that other countries must make an effort to stabilize the world’s economies now that Canada has done its part. Imbalances that world leaders have identified as threats to a global recovery are between countries like the United States, that run large trade deficits, and surplus countries such as China. Asian countries have been asked to allow their currencies to float more freely than they are now. Carney recently said in an interview that there is no question about Canada’s contribution to this effort and the real issues lie elsewhere. The G7 released a statement citing excessive volatility and disorderly movements in exchange rates that threaten the global recovery. The G7 did not single out the U.S. dollar but the statement came at the end of a week in which policy makers from Canada to France stated that a sliding dollar risks impeding their recoveries from the global recession. This comes on the heels that the U.S. dollar has dropped 14% against the Canadian dollar over the last 6 months. Canada had seen a 30 year run of trade surpluses until December of last year. This year has seen postings of record deficits amid slumping sales to the U.S. Rebalancing of global growth will require the narrowing of the “orders of magnitude” of current account surpluses and deficits through changes in macroeconomic, structural and exchange rate policies in some countries. Carney stated that some of those shifts in policies have begun and added that the rebalancing of the global economy will also take a shift in relative exchange rates. He also said that we have seen tremendous volatility over the last year and that anyone active in the currency market can confirm that volatility. Flaherty added to his comments by stating that the lack of flexibility in some Asian currencies creates imbalances and distortions in the world marketplace and that is what we are trying to avoid. If we are going to have our currencies as market currencies, then we all need to have our currencies fluctuate. The concern is that the strong Canadian dollar is a risk to the bank’s inflation forecast. Currently the bank looks at currency movements in the context of their effects on inflation. The only reason it is being mentioned right now is that it is a downside risk to inflation.
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Ontario’s top spots for investors
Vancouver investor Don Cambell feels that Scarborough is due for it’s time in the real estate market. He’s worked it out and said that there is the greatest potential in price gains for Scarborough, when looking at the Toronto area, in the next five years. He makes money in real estate by buying in unpopular areas and watching the money grow as the neighbourhoods go up in value. He says that Scarborough is the most affordable area in Toronto and that there is an emerging pride of ownership occurring in the area. He feels that Scarborough has been beaten down perception wise but that people are fed up with the bad press and are moving on. According to a report on the best cities to invest in Ontario, Toronto’s eastern hub is a break out region in the city that has the greatest things on a plus side for investors. Home prices are consistently below other areas of Toronto and planned rapid transit expansion is in the works and will create rapid growth for the region both economically and population wise. His extensive checklists helps him calculate what areas are best to invest in and he tells us that it is not just about flipping a property. The area’s he chooses are long-term investments over a period of 5 years or more. Kitchener, Waterloo and Cambridge came in as the top spot to invest in as it is currently considered to be the technology triangle. It also offers access to 60% of Canada’s population and 40% of the United States population within a 24 hour drive. The technology sector held strong during the recent recession and the universities are keeping it a hot spot to purchase investment housing. Toronto made the top ten list but only came in 8th place as a good investment centre. Hamilton came in second as steel town has recently begun to reinvent itself in a positive way. Building permit values in Hamilton have grown for the second year in a row during the downturn and has developers taking a good look at the area’s surrounding it. In the GTA, Vaughan and Whitchurch-Stouffville came in at number nine and ten. Vaughan leads Canada for building permits issued per capita. With the Vaughan Corporate Centre under construction and the more recent extension of the Spadina TTC line you can see how it is stacking up to the rest. Vaughan also boasts the lowest commercial and industrial taxes in the whole of the GTA. Companies are being forced further north of Toronto and Markham by rising costs and are making their ways to Stouffville and Whitchurch, which is creating new developments and even more jobs. Where do you feel is the best place to invest in Toronto? Please comment below.
Heated real estate market could trigger rate hikes
The possibility now exists that the Bank of Canada (BoC) may have to break its previous interest rate promise if the housing market continues to stay on fire. The BoC will be watching developments in the Canadian Real Estate market closely, if surging existing home sales don’t slow down, they will be inclined to respond. The BoC, in an effort to revive the economy, has lowered its benchmark overnight lending rate to 0.25% until June 2010. This has drawn homebuyers in swarms to the housing market and hasn’t slowed down for a minute. This report was released just after Australia’s central bank surprised world markets by raising its benchmark rate by 25 Basis Points (Bps) which is a clear indication that Australia believes its economy is already in a recovery mode. The BoC has hinted in the past that it may raise the overnight lending rate earlier than the June 2010 deadline if it seems fit. The original expectation was that inflation would set in before the BoC took this step but now there is no telling what or when they may do it. With Canada’s housing sales on the rise there has been a dramatic rebound in resale home prices. The Canadian Real Estate Association (CREA) estimated that national home sales were up 18.5% year over year for the month of August and that national average home prices had increased 11.3% year over year. Economists believe that the real estate market will moderate and home price growth will not become excessive as the pent up demand is filled. Economists do feel that there is a material risk involved if the real estate market continues on the path it is currently on. What do you think? Please comment below.
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Real estate price record shattered in Toronto
A Toronto realtor who recently listed a client’s bungalow for sale last month expected to get a decent response on the property from potential buyers. The property was deliberately underpriced for a 1000 square foot bungalow at Yonge St. and Sheppard Ave at $380 000. In a matter of one week the property was shown 170 times and took in 35 offers. At the end of it all, the property sold for $550 000 which was a whopping $170 000 above the asking price. His response, “It really shows how much stronger the market is despite the recession.” According to the Toronto Real Estate Board (TREB) in regards to the most recent numbers released on Monday, existing home sales in the Greater Toronto Area (GTA) were up 28% in the month of September when compared to the same time last year. September saw 8 196 homes trade hands in the month with the average price of the existing home up 10% to $406 877 shattering the old record. The higher prices for homes have skewed overall prices upwards as strength in the financial services sector gave a helping hand. The added confidence in financial services has helped the higher end neighborhoods in terms of sales. There is also a shortness of listings on the market which are creating multiple offers as people scurry to get into the home ownership market. September saw a decline of 42% active listings on the market down to 15 984 which is helping sellers clean up on current market conditions. The average home is now listed on the market for 27 days instead of the 36 days we saw last year at the same time. Part of the magic behind the most recent upsurge is coming from the low interest rates that are currently being offered without a guarantee of how long they will be around. The way things are going right now, people that were looking to buy next year are buying this year to avoid the HST and take advantage of government incentives that are being offered until February 2010. These people are taking away from next years sales and probably even sales from 2011 so realtors be expecting slower than normal sales in the up and coming years. My concern is that while it’s great that people can come in and buy at the low rates offered today, will they be able to afford their mortgages 5 years from now when the rates are in the 7% – 8% range. My advice, purchase well below your means so that you may maintain affordability down the road.
Housing Construction down in September
Canadian housing starts declined a touch in the month of September with the seasonally adjusted annual rate of housing starts totaling 150 100 units. This was down from the month of August by 7 300 from 157 300. The decline was attributed to the volatile multiple starts segment. Starts of single homes were up in September as they reached their highest level of the year. The rebound in existing home sales and the upward trend in new home construction has supported expectations that housing demand would strengthen and that housing starts would be stronger in the second half of this year. While the decline was on the disappointing side of things, the fact that single family units posted its second monthly double digit gain is proof that there is an improvement in Canadian housing market activity. New home construction is a gauge of the trend in overall housing market activity and is welcomed news when positive. Urban housing starts were down 5.2% to 131 500 units in the month of September as urban multiple unit construction also dropped 21.4% to 62 700 units. On a good note, we did see urban single nit starts up by 16.8% to 68 800 units with urban construction also up by 11.8% in Ontario. Quebec saw a decline where starts fell 20.2% followed by B.C where starts were down 18.1% and Atlantic Canada that saw a decrease of 4.7%. Rural housing starts were also considered to be quite flat in the month of September coming in at 8 600 units. Based on the above numbers the average price of a home should increase to $310 000 this year up $6 000 from last year and are expected to reach $325 000 in 2010. TD economists feel that the economy will have rebounded by 2011 and that the rising housing prices will slow sales in that year.
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As home sales increase, so will renovations
Canada’s extensive rebound in the housing market is setting the stage for a large recovery in the renovation sector. While home owners are still watching their wallets on big ticket home purchases, they are ready to spend more on improving their properties. This is even more so when it comes to the assistance provided through the governments home renovation tax credit. The tax credits have recently been helping renovators across Canada as the most recent marketing campaign received a large push in advertising through the government. Rona and other home improvement retailers had previously been expected to take a large hit this year as they were hammered with declining sales due to the recession. More recently, expectations for the company’s revenue have been readjusted to reflect the stronger than expected sales recovery and are now looking brighter than before. According to a 2007 industry study, the average housing transaction generates general household purchases of $2 025, furniture and appliances purchases of $6 525 and renovation spending of $15 000. As the economy recovers even more, renovation spending is expected to be less than it was at the pre recession time but the increase in activity will still be helpful to home improvement retailers. The best part is that we are expecting to see a trending improvement due to the current housing activity and the value seen in the renovation tax credits so take advantage of them while they are still available.
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