This weeks top stories include how Canadians are wealthier but more in debt, how now is the time to take the real estate plunge, how a new survey shows that Canadian’s are living a fine financial line, how bankruptcy data is showing signs of improvement, how new home prices are back to normal, how existing home sales are still going strong, how August see’s a boost to our recovery from the help of home builders, a list of the newest risks to our economic recovery, how there is a long jobless recovery expected for Canada and how the inflation rate is still below zero.
Canadians wealthier but more in debt
A look at Canadian households, during the second quarter of this year, show’s that Canadians are wealthier in this quarter after taking losses for the previous three quarters. Household net worth was up by $141 billion to an astounding $5.6 trillion as stock market gains helped lead the recovery. Markets had a partial recovery in the second quarter with the S&P/ Toronto Stock Exchange composite index up nearly 20% says Statistics Canada. The increase in the stock market brought up the value of household financial assets as shares, pension assets and mutual funds increased and were the main factor behind the rise in household net worth. Availability to, and the use of, credit rose in the second quarter as people applied for mortgages and took car loans, shown through the upswing in the resale housing market and the automotive sector. Although there was a rise in credit market debt, household debt relative to net worth declined during the second quarter and gains in assets offset the increase in liabilities. The first quarter saw a debt of 24.9 cents for every dollar of net worth but that edged down as the second quarter only saw 24.8 cents of debt for every dollar of net worth. The report was a positive sign suggesting that the worst of the economical crises is behind us and that the slow process of repairing the damage done to most balance sheets is already occurring. We are likely to see further improvements in household net worth in the up and coming quarters as our economy continues to expand and grow. Despite the improvements we are seeing now, household net worth is still 6.1% below its peak of $6 trillion that was reached in the second quarter of 2008. How do you feel about our recovery? Please comment below.
Now is the time to take the real estate plunge
The Canadian economy grew 0.1% in the month of June says Statistics Canada. This was the first monthly increase seen since July of 2008 as home and auto sales offset declines in the manufacturing sector. This, along with low interest rates and motivated seller homes, leaves financial experts saying that now is an ideal time to buy a home. Margot Bai the author of “Spend Smarter, Save Bigger” cautions buyers to be conservative. She says that relying on low interest rates to get into a more expensive home is risky. She urges people to choose a smaller, more affordable, option as rates may make home ownership unaffordable at renewal time. She also says that doing so will leave room to build equity quicker and some cushioning in the event of a job loss. She also reminds people that Canada is in a different position that the U.S. as the GTA never entered the bubble territory and home prices have adjusted accordingly. Although there was a mild change in prices the largest effected was definitely the condo market. Condo builders are left altering market plans and adjusting blueprints to cope with the economic recovery. Builders are not offering the upgrades they were before such as granite counters and hardwood floors, instead they are now concerned with the price and location to sell the unit. When buying from builders make sure to educate yourself on the builder’s history, how long they have been in business, their successfully completed jobs and the quality of their product. Also, know what you can afford by obtaining a mortgage pre-approval, it will hold the rate for 120 days as well as provide you with negotiating power when making an offer. The key is to be reasonable with your purchase. Don’t forget that you will need money for land transfer tax, property tax, condo fee’s and other closing costs. For a full list of closing costs, click here to download our checklist.
New survey shows Canadian’s living a fine financial line
More than 2800 employees from across the country recently participated in a survey that found majority of Canadians are feeling strapped for cash and unable to save as much as they would like. Almost 2/3 of Canadian workers said that they would have financial difficulty making ends meet if their paycheque was delayed by a week. The Canadian Payroll Association conducted the survey and said that younger workers feel more enclosed with 45% of those between the ages of 18-34 saying it would be difficult to meet financial obligations if a paycheque were delayed. 72% of single parents concurred that they would have trouble making ends meet if their pay was delayed. 1/3 of Canadians say that they have been trying to put away more money than the year before because of the economic uncertainty but have been unable to do so and 42% said that they are not even trying to save additional funds. Half of Canadians say that they are unable to save more than 5% of their net pay for retirement which is still half of what financial experts recommend for retirement. 2/3 of people surveyed feel that it is more important to receive higher wages from their employer when compared to better health benefits and educational funding. 59% fell it’s likely that they will receive a pay increase within the up and coming 12 months and 31% feel that they will not get an increase. One thing is for sure, we can’t control the overall environment but we can control what we spend. Make a budget and stick to it. This is the time tried true way to save money.
Bankruptcy data shows signs of improvement
Bankruptcies in Canada were up a third in July when compared to the previous year but down when compared to the previous month. Data from the Office of the Superintendent of Bankruptcy shows that the number of consumers applying for bankruptcy are down and is being taken as a sign that the worst of the recession may have passed. Analyst feel that the slowdown is just typical of midsummer as less people file for bankruptcy in the summer. 10 726 personal and business bankruptcy filings took place in July while the previous year saw 7 908 filings in the same month. That’s an increase of almost 36% which is huge in reflection to the data provided. Bankruptcy filings were down 5.4% in July when looking at June’s filings of 11 338 with majority of the filings by consumers as the number of business bankruptcies fell from the same time last year. July saw 10 294 consumers go bankrupt in Canada which was up 38.1% from the previous year but still down 4.9% from the previous month. This is the first time since December 2008 that we have seen a sequential improvement in consumer bankruptcy filings. March and June saw a 50% increase in the number of bankruptcies when compared to the previous year but the data did not come as a surprise as the recession took effect and the unemployment rate was on the rise. The overall state of the economy is improving but we haven’t come out of the hole that we dug. Insolvency is a lagging indicator, meaning economists expect bankruptcies to rise even after the economy begins a recovery. Businesses saw 432 bankruptcies in the month of July, down 16.1% from the 515 bankruptcies filed the previous month and a 5.3% decrease from July the previous year. Proposals were up 31.1% as consumers tried to settle with creditors that are owed money. Majority of the bankruptcies took place in the manufacturing, retail and construction sectors that are currently now on the mend.
New home prices back to normal
July saw the first increase in prices for new homes since September 2008 as the Canadian housing sector showed more signs of recovery. Statistics Canada released its latest report that shows a jump in the new house price index of 0.3% during the month. Economists had previously predicted a decline of 0.1% in new home prices for July after June showed dismal numbers with a decrease of 0.2% Vancouver led the pack with gains of 1.2% followed by steel town Hamilton which was up 1.1% followed by Windsor and Calgary, both up 0.5%. Edmonton also saw an increase of 0.4% which was its first increase since October 2007. Builders had been recording lower selling prices in the month of July but returned to their regular list prices after a few months of reduced prices. The largest decline seen on the market was in Victoria where new home prices fell 3.5% in response to declining market conditions and some just lowered prices in order to finalize their sales. The report, when looked at as a whole, is a reflection of the buoyancy that has been seen in the Canadian existing homes market finally filtering over into the new home sales market. Either way, homes are selling and our economy is looking better than before. What do you think? Please comment below.
Existing home sales still strong
The Canadian Real Estate Association recently released a report highlighting existing home sales numbers and they were great. Canadian existing home sales were up 18.5% in the month of August when compared to the same time last year. 42 438 homes traded hands in August which was the third consecutive year over year increase of more than 15% showing the strength of the Canadian housing sector. Sales were 6.6% below the previous record that was set in August of 2007 as consumers take advantage of low interest rates and more affordability in the market. This is a sign that consumer confidence is continuing to rise and will reflect well in activity expected in the up and coming months. Sales also increased year over year but saw a slight dip when looking month over month in seasonally adjusted terms by 0.6%. Prices from a year ago levels were also up by 11.3% to $324 779 and is the highest average price seen for the month of August. The high prices are a result of demand in the more expensive housing markets which are skewing the figures slightly upward. This improved demand, mixed with fewer listings on the market, is bringing down the inventory levels even more as listings are down 13.3% in August. What does this mean for you? If you’re thinking about selling, now might be the best time for you to do so.
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August see’s recovery boost from home builders
August saw home builders lay foundations for new homes at a pace of 150 000 units. The 12% increase from July will add to the country’s recovery which is already on track. The laying of so many new foundations is an important factor as housing starts is an exceptionally powerful fuel for economic growth. New homes require more local labour and Canadian made materials than cars or even locally made televisions. The reason being is that home owners tend to spend more money locally when landscaping or furnishing their house in the months after their purchase and it stretches out the impact it will have on our economic growth. With most regions showing no gains there was an exception in Quebec where the August housing starts were above their year ago level. This is not only due to a substantial revival but also because the housing starts never slowed to the point seen in Ontario or British Columbia where auto industry factors and the housing bubble deflation took its toll. Ontario was the lone region where there was no increase in August as construction is at half the levels it was at a year ago. Analysts expect this to change in the near future now that the auto industry is coming back to life and job growth has returned to the province. Expectations are that Ontario will have the biggest turnaround of all of Canada’s provinces. The only thing that may hold down the housing starts sector is that builders are currently sitting on a large number of new homes that are unsold and may be inclined to limit their construction in the coming months if their current inventory is not sold. Resale’s of existing homes account for twice as many transactions as new homes and influences new home construction with a small lag of a few months. Resale’s have seen an increase in the market, after a slow start this year, with July registering 18% more transactions that the previous year in July. Low mortgage rates and an improvement in consumer confidence have depleted the supply of existing homes on the market in every province. This reaction has the resale market in a transition from having an excess of homes for sale to being in the early stages of developing a shortage in the market. Toronto mortgage brokers and realtors are now reporting multiple offers on most resale properties and this leaves us wondering when the trend will shift to the oversupplied new home market.
The newest risks to our recovery
Economists are currently weary of the strength seen in the Canadian dollar as a weight on the recovery of our economy. Although this has been ongoing for quite a while now, the Bank of Canada (BoC) recently identified other risks that could derail our economic recovery including rising government debt levels and possibly a failure by policy makers to withdraw stimulus in a timely fashion. The list of factor were released as the BoC latest report indicated that economic growth in the latter half of the year could exceed earlier expectations but that the strong dollar was hampering that growth. Other factors that could risk our recovery include uncertain sources of private demand in the global economy once government stimulus is effectively withdrawn. There are also concerns about the projected debt levels of many countries and especially with our counterparts in the U.S. which is on track to add another $9 trillion U.S. to its current debt over the next ten years. There is also disorderly global adjustment and uncertainty about other parts of the worlds financial systems which hasn’t come to light as of yet. Furthermore, there is the large risk of executing an exit strategy from stimulus measures where timing is of the essence. If we withdraw stimulus too soon, it will bring the economy to its knees and if we exit too late, the debt load may bring the economy to its knees. On the up side, Canada is definitely in a better position than most countries as exiting our stimulus measures should be smooth because Canada has fewer measures to unwind as well as clear and credible monetary and fiscal policy frameworks. I guess only time will tell.
Long jobless recovery expected for Canada
The Organization for Economic Co-operation and Development (OECD) released a report on Wednesday stating that Canada’s jobless rate could rise as high as 10% and would be followed by a slow period of recovery. OECD’s projection is that our country’s unemployment rate, that reached 8.7% in the month of August, could get as high as 9.8% in late 2010. OECD stated that even if the unemployment rate has already peaked, the country’s labour market will take some time to recover from the recession as that has been the case in the past. The unemployment rate in the early part of the 1990s recession did not peak until 1993 and did not reach its pre-recession level until almost 8 years later. The consensus is that the government stimulus package is expected to have a positive effect in slowing job losses through spending and tax cut measures that are slowing the decline in unemployment by 0.7% to 1.1%. The concern is that Canada currently has one of the least generous employment insurance systems among the western developed countries and ranks 19th out of the 29 countries that were studied. Only Korea, Italy, the U.S., Japan, Greece, Turkey and four eastern European countries ranked lower than us. OECD stated that the upcoming meeting of countries must advance measures to prevent long term unemployment because it is essential that governments focus on helping jobseekers in the up and coming months. How do you feel about the Canadian unemployment numbers? Please comment below.
Inflation still below zero
The low cost of gasoline and energy in the month of August created the third consecutive month where the annual inflation rate remained in negative territory. The annual inflation rate was at negative 0.8% for the month of August which was comparable to the lowest inflation rate in 56 years that was seen in July of this year at negative 0.9%. Gasoline continues to drive the overall price index down where the average cost to fill up is $1.01 a litre in August compared to $1.27 the same time last year. On a monthly basis gasoline prices were up 2.6% in August this year compared to July of this year. This trend is the key reason why analysts feel that Canada is not experiencing deflation which is when prolonged periods of falling prices can cause problems for the economy. Analysts feel that inflation will return to positive territory later this year when the price of crude oil recovers from the declines it has seen late last year and into early 2009. If energy was not in the picture, Canada’s inflation rate would be 1.4% which would be a more accurate reading of price changes over the past year. Also, high food costs are keeping inflation from falling even further but appear to be leveling out now. Food costs are 4% more this year August then they were last year the same time but still significantly lower than the 5% increase registered in July of this year or the 5.5% increase registered in June. August saw three major components of the consumer price index take a hit in August lead by transportation and gasoline, clothing and footwear and shelter. The cost of purchasing a vehicle also declined by 4.7% as household operations, furnishings, equipment, recreation, health and personal care, reading and education, tobacco and alcohol all increased from the same period last year.
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