This week’s top stories include how Canada’s building sector was held down by Toronto strike, how employers will speed up the hiring process across Canada, how Flaherty says it’s too early to speak of a recovery, how housing starts surpassed expectations for August, how home ownership is more affordable now but not for long, how the HST is on the way so buy now, how steep hikes in interest rates are coming up and how Canada had a $1.4 billion trade deficit in the month of July.
Canada’s building sector held down by Toronto strike
As expected the after effects of the July Toronto civic workers strike is still lingering. It is currently being blamed for the poor numbers in building permit values for the month of July. Statistics Canada released a report earlier this week showing a decrease of 11.4% in permit values from the month of June when looking at July. Economists had originally expected a 0.4% increase without the strike. If Toronto is taken out of the picture, we still witnessed a slight decrease of 1.8% nationally for the month of July. Municipalities still managed to issue roughly $2.6 billion in residential permits for the month of July which is a decline of 4.1%. Non residential permits saw a larger decrease of 19.3% and came in around $2 billion. When looking across the boards, Ontario saw the greatest decline with a significant drop of 27.5% to just $1.4 billion, showing the effects of the strike. B.C, Quebec and Alberta also saw declines in permit values but not at the level that Ontario saw. P.E.I, Newfoundland and Labrador, New Brunswick, Nova Scotia, Saskatchewan and Manitoba all saw increases in building permit values. P.E.I led the way with a whopping increase of 71.9% followed by Saskatchewan at 57.5%. June figures released by Statistics Canada showed a surprising rise in building permits across Canada, up by 1.2%. Economists originally expected starts for the first months of summer to decrease by roughly 3%. The key factor pushing permits down in July was the month long strike in Toronto but expectations are that permit approvals in August will make up for lost permits from the month of July. What do you think? Please comment below.
Employers to speed up hiring across Canada
The pace will be modest but employers are expected to pick up the pace of hiring in the fourth quarter of this year. The net employment outlook for this quarter indicates that the previous sluggish pace of hiring reported in the previous quarter will improve in the last quarter of 2009. Employers are planning to hire but they will do so in a conservative manner. This is from a Manpower Canada survey recently released of 1900 employers who say that 15% plan to increase their payrolls during the current quarter while 11% expect more cutbacks and 73% expect to maintain current staffing levels. Manpower’s current forecast for the current quarter improved 8 percentage points from the last quarters reading of 5. Before that it was at a reading of -3% while the current reading is 9 percentage points below last years reading. Employers in finance, insurance, construction and real estate reported the most favorable forecasts with outlooks of 10% with seasonal variations removed. Across the board, Western and Atlantic Canada are expecting the most favorable hiring environment with intentions for stronger hiring in the coming quarter. This will be good news for the unemployment levels we are currently seeing but only time will tell if these forecasts will prove true.
Too early to utter recovery
Finance Minister Jim Flaherty said that it is too early to be talking about an economic recovery. He agreed that the world economy is stabilizing but that no clear recovery is evident as of yet. He is remaining cautious as fears that we may return back to a recession still linger. His thoughts are that a global recovery is stabilizing but the recovery has not yet been established. Earlier this week he stated, “We are not out of the woods and we must stay the course… We must remain focused on fully implementing our stimulus packages.” These comments were given from the latest G20 meeting and Flaherty was not only speaking about Canada but was referring to all G20 countries. The top finance officials from rich and developing countries came to a consensus to stop the payments of large banker’s bonuses and agreed to maintain current stimulus measures such as low interest rates and extra government spending. U.S. Treasury Secretary Timothy Geithner stated, “Growth is now under way. However, we still face significant challenges ahead. We’re also very concerned about unemployment.” The G20 joint statement stated that fiscal and monetary policy will stay expansionary for as long as needed to help reduce the risk of a double dip recession. Although unemployment numbers released recently showed that the economy had created 27 100 new jobs in August and the private sector added another 49 200 jobs, Liberal Leader Michael Ignatieff insisted that the developments would not change his plans to topple the government this fall. Flaherty responded by saying that a federal election will only serve to disrupt government when Canada needs to focus on economic growth, helping the unemployed and continued stimulus to the Canadian economy. As of June of this year, 80% of federal stimulus money was being implemented in our economy. Current reports are indicating that the Canadian deficit will balloon past the projected $50 billion for this fiscal year. Flaherty says that Ottawa will not increase taxes or reduce federal transfers to the provinces to make up for the projected shortfall. He feels that the economy is moving in the right direction and that the collective response by our nations is making a difference. What do you think? Please comment below.
Housing starts surpass expectations
Wednesday showed more signs of improvement in Canada’s housing and construction industries as Canada Mortgage and Housing Corporation (CMHC) released its latest data on housing starts. Across the country we saw housing starts rise by more than 12% in the month of August, seasonally adjusted the annual rate was 150 400 starts up from the annual rate of 134 200 in July. Bob Dugan, chief economist for CMHC, said “Housing starts are trending higher, reflecting improvements in both the single and multiple segments. The improvement in housing starts is consistent with our expectation of a stronger second half for 2009.” Even construction of urban singles saw a rise of 2.5% from July and starts on multiple units, mostly condominiums, increased 23.8%. August showed further evidence that the rebound in residential construction activity is proof that the Canadian housing sector is in recovery mode. Expectations are that starts could follow sales even higher in the up and coming months. Construction in Western Canada was undeniable as starts were up 56% in British Columbia, 16.1% in the Prairies, 13.8% in Ontario, 9.6% in Atlantic Canada and 2.5% in Quebec. This was beyond analysts expectations as construction reached its highest level since last December but still remains 31% below last years marker. One thing is for sure, recent gains in new residential construction may be sustainable but we are very unlikely to see drastic advances in the pace of construction given the weak economic backdrop and soft labour market conditions. What do you think? Please comment below.
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Home ownership more affordable but not for long
As of recently, home ownership has become increasingly affordable for many but that will come to a halting stop as we see the real estate market recover. RBC Economics stated that home ownership in Canada became more affordable for the fifth straight quarter. With the home affordability levels at pre-housing boom level costs related to home ownership eased in the second quarter of 2009 with modest improvements seen across the country. The recuperative phase of the affordability cycle is drawing to a close as house prices are firming up all over the country and mortgage rates trending back upwards. The RBC index measures the proportion of pre-tax household income required to service the costs related to home ownership. During the second quarter the index fell to 39.1% for a detached bungalow, 44.4% for a standard two-storey home, 26.9% for a standard condominium and 31.5% for a standard townhouse. Robert Hogue a senior economist at RBC stated, “The leveling off of home affordability is not expected to stop the impressive resurgence in the housing market. Supply of properties for sale is dropping as demand bounces back, which is working to heat up prices again in many parts of the country.” The bottom line is that now may just be the right time to buy as prices and interest rates are expected to rise in the near future. Feel free to give me a call if you have a question.
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HST is on the way, buy now!
The new harmonized sales tax (HST) being proposed in Ontario and British Columbia will definitely take a toll on anyone who waits to purchase a property. The HST has been hounded by resistance from the real estate and mortgage sector in Canada since its inception was proposed earlier this year. The government rebutted with concessions for home buyers that create a tax break on the HST rate. Currently, new homes in Ontario face a 5% GST that has been buried in the price of the home for the last 19 years since the tax was introduced. As of July 1, 2010, new homes will face the combined HST tax of 13% in Ontario. Many think that this is not the time for a combined tax as new home sales are on the decline already after a strong seven year run. The consensus is that it will decline the sales of new homes further than they are now. The government decided that any purchase signed before the effective date would not be subjected to the tax. They also came up with an exemption on the tax for the first $400 000 of any new home purchase. This may work well for the rest of Ontario but Toronto and the rest of the GTA will definitely be effected. When converted into statistics, 40% of the home sales in Toronto are over $400 000 which means that those 40% will be effected. If you’re looking to purchase a $500 000 home be prepared to pay an extra $6000 in taxes. That $6000 is broken down as a $40 000 cost in new taxes based on 8%. Builder’s will obtain a tax credit of 2% on their supplies lowering the original $40 000 to $30 000. The tax break is $24 000 on the first $400 000 which leaves you with $6000 more to pay out of your own pocket. If the price goes up to $1 million the increased tax on that home would total $36 000. Stephen Dupuis, chief executive of Toronto based Building and Land Development Association states, “I don’t think any builder will make the HST an extra closing cost because they imbedded the GST for so long. Maybe the extra tax is not added on to the sticker price, but at some point the consumer is going to pay. Maybe through a higher sticker price, cheaper materials or fewer finishing’s thrown in.” Economist Benjamin Tal, of CIBC World Markets, implied that the tax will definitely have an effect on housing sales and states, “It’s not like something you can brush under the carpet. There will be reduced demand.” He also stated that the industry will build more houses but they will not have all the finishing’s that we are currently seeing in new homes and how that will leave consumers to get work done on the black-market using contractors that won’t charge the HST. It happened in the Maritimes where the HST has been in effect for years and their is no reason to think that it won’t happened here. The real question will be how this untaxed income is suppose to help our economy? I think we’re better off without the tax. What do you think? Please comment below.
Steep hikes in interest rates coming up
Although the Bank of Canada (BoC) has stressed that they will not increase the benchmark rate until 2010, if we’re lucky even longer, we should be prepared for aggressive increases at a time. The chief economist at Laurentian Bank Securities says the rates will increase as high as 1% at a time. Economists are now asking themselves if the BoC will be able to keep its pledge to leave the overnight lending rate at 0.25% until June 2010 in an effort to stimulate the Canadian economy. Some feel that Mark Carney, the BoC governor, will be able to do so based on the amount of spare capacity in the economy and continuing job losses that are expected to peak next year. Once unemployment peaks the BoC will begin raising the rates and must do so before inflations hits the BoC’s target of 2%. As soon as inflation sets in, Canadians will witness steep rate hikes and see an aggressive tightening that will be necessary due to extremely low rates. The pace of the increases will not be slow and measured because the starting point is almost at zero. One of the errors we saw south of the border was that the U.S. Federal Reserve kept its key policy rate too low for too long. When rates were increased in 2004, the Fed used small gradual increases of 25 basis points (Bps), not aggressive enough, to try and cool the housing bubble that resulted in the financial market meltdown a year ago. If the BoC decides to take the same road, that would put the overnight lending rate at 3% by 2011. This will be too low for an economy that should be running at a steady pace with inflation at the 2% target. Economists say that the increases will come 50, 75 and 100 Bps at a time when the time comes. For those who need clarification 100 Bps is equal to 1%. The BoC released its latest interest rate statement this week and kept the target rate unchanged and stated that it would stay there until mid 2010. If you want to get in while the getting is good, call your Toronto mortgage broker.
Canada has a $1.4 billion trade deficit in July
July saw an increase in both imports and exports to and from Canada as a result of broad based growth in volumes. Imports were up 8.3% to $31.7 billion and exports rose 3.3% to $30.3 billion as Statistics Canada released their latest report. As a result we have Canada registering a trade deficit of $1.4 billion in the month of July compared to the $37 million trade surplus we witnessed in the month of June. The gain in imports brought an abrupt end to the four straight months of decline and resulted in an 8.7% increase in volumes as prices shifted downward 0.4%. The increases were wide spread but machinery and equipment, energy products and automotive products paved the way for the growth we are seeing. Our country’s trade surplus with our counterpart south of the border shrank to $1.9 billion in July from the $3.2 billion seen in June as growth in imports outweighed the increase in exports. Imports from the U.S. were up 9.9% as a result of higher imports of organic chemicals and aircraft. Due to aircraft exports, exports were up in the U.S. by 2.5%. Imports and exports to other countries than the U.S. were also up 5.7% as the trade deficit with these countries rose $3.4 billion in the month of July from the June number of $3.2 billion.
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