Record For Resale Housing

As Canada drives through one of the worst recessions in more than 70 years, the Hamilton- Burlington area reported June as being the highest selling month in local real estate history.

“June marked the sixth straight month of increased sales and had the highest number of residential sales on record, surpassing the record number sold in May 2007 during that year’s scorching market,” said Bruce King, president of the Realtors Association of Hamilton-Burlington (RAHB).

According to RAHB figures, the sale of residential properties in June totalled 1,560 with 1,267 freehold properties and 293 condominiums sold. There were 213 properties sold on the Hamilton Mountain, 64 in Ancaster, 46 in Dundas, and 122 in Stoney Creek. The remainder were sold in Hamilton and Burlington.

The average price of a residential property sold in June went up 1.9 per cent over June of last year to $315,055.

Marvin Ryder, lecturer of Strategic Market Leadership at the DeGroote School of Business, said one of the main factors contributing to the increase in sales in the resale house market is low interest rates.

“Even 40, 50 years ago we weren’t seeing numbers like this,” he said. “I would be reluctant to say they (the interest rates) are the lowest ever in recorded history, but they are the lowest in recent history, and that’s got to be good news for the market.”

The current prime rate in Canada is 0.25 per cent. This rate fluctuates when the Bank of Canada decides to raise or lower lending rates. The prime rate affects the average consumer because the rates on mortgages, credit cards and cars, follow the rise and fall of this rate.

The Bank of Canada has guaranteed the low rate through to June of 2010.

“We suspect the Bank of Canada rates will creep up within the later part of 2010, and possibly by Christmas of 2010 it may be around 1.5 to 2.0 per cent,” said Mr. Ryder. “Which means a mortgage will be around 4.5 to 5.0 per cent, and that still is very, very low. That’s what people were paying 40 years ago.”

He also said another factor for the thriving resale market is consumer confidence, which comes from the fact that seven of Hamilton’s top 10 employers are in the public sector, and have been relatively unaffected by the recession.

Mr. Ryder said these employees feel more confident about their future and carrying a mortgage.

One of the areas not benefiting from this booming market is new home sales. According to reported figures from Canada Mortgage and Housing Corporation, new home starts in Hamilton in 2009 dropped 60 per cent, from 1,165 units built in June 2008 to 405 in June of 2009.

Douglas Duke, the executive officer of Hamilton-Halton Home Builders’ Association, said one of the things driving the resale market are specific price point products such as homes selling from $200,000 to $275,000.

“You don’t find new homes in that price range now,” he said. A single detached new home in Hamilton would cost around $375,000, Duke added.

“I think we’ve seen the worst of it, but I don’t think the worst is over. It’s going to continue to be slow for the rest of this year and it won’t be until the end of next year that it will come back up in a positive way,” Mr. Duke said.

Despite the decline in new home sales, the resale market is expected to remain stable, said Mr. King.

“With prices remaining reasonable, consumers have found their way back to the housing market,” he said. “June’s numbers show us once again, that the greater Hamilton-Burlington area remains a great place to live and a great place to buy and sell real estate.”

Interest Rate Announcement

With the central bank due to issue the scheduled interest rate announcement today and the quarterly Monetary Policy report Thursday, economists and investors are waiting to hear what Bank of Canada governor Mark Carney has to say about what looks like an economy on a razor's edge between recession and recovery.

Today's headline decision on interest rates is a no brainer.

As the central bank announced in April, the policy rate is to stay at the practical 0.25 per cent floor until at least next spring barring any nasty surprises. That means borrowing costs tied to the central bank rate and the banks' prime rate - many types of mortgages, lines of credit, as well as consumer and car loans - will remain stable for at least another year.

But the question is what will Carney say about the economy, for the rest of this year and going forward?

And will Carney begin hinting about exit strategies from some of the extraordinary measures the bank and the federal government have introduced to keep the money markets functioning during the crisis?

When he last pronounced on the economy in April, Carney got one thing wrong and, according to C.D. Howe Institute chief executive Bill Robson, one thing spectacularly right.

Carney's call for the economy to shrink by three per cent this year will almost certainly be revised because it was based on the first quarter coming in at negative 7.3 per cent, instead of the 5.4 per cent Statistics Canada later reported.

The consensus is now for the shrinkage to be held at 2.3 per cent, a significant difference in a $1.5 trillion economy.

What will be intriguing is what Carney says about output during the current third quarter, said economist Douglas Porter of BMO Capital Markets.

The last bank estimate was for a one per cent contraction, "but it's a pretty close call if it will show positive growth," Porter said.

"There are even some people who are looking for strong growth in the third quarter," he added, which would mean the recession is effectively over.

In April, Carney also unveiled the bank's options for intervening in financial markets through so-called quantitative and credit easing - the short-term purchase of government and corporate bonds to pump cash into the economy and ease the credit crunch for consumers and businesses.

"It was a masterful explanation of what might happen because it explained it clearly, but also because it dampened expectations of the bank actually doing it," said Robson.

"At the time there was some disappointment the bank wasn't signalling a more aggressive stance, but I think it was appropriately measured. Canada's response to this crisis has consistently been energetic as it was appropriate, but far more measured than what we've seen in other places."

Carney, of course, wasn't faced with the total meltdown of financial markets as his counterpart Ben Bernanke had to deal with in the United States.

But economists point out that the Bank of Canada governor did manage to introduce quantitative-easing light with the decision to maintain $3 billion in settlement balances to assure markets that there will be an available store of money to keep cash circulating in the economy.

And he helped restore stability in Canada with a precedent-setting commitment, albeit conditional, to keep rates at a specified level for one year. Financial conditions have improved since April, but this is no time to be talking about exit strategies from low rates, argues CIBC chief economist Avery Shenfeld, because any hint interest rates could rise would add uplift to the already high-flying loonie.

In fact, Shenfeld said Carney may want to again warn as he did in early June about an overly inflated loonie representing a danger to the economy, a tactic that may have dampened speculation in the currency last month.

"A shot across the bow of these speculators, with perhaps a clear hint that the bank could intervene against them if need be, could help cool their ardour for the Canadian dollar," Shenfeld said. He noted that both Australia and Switzerland intervened recently to halt upward pressure in their currencies.

If exit strategies are hinted at, Robson believes it will not be the low interest rate "guarantee," but more subtle measures, such as the central bank's purchase and resale agreements by which it injects extra cash into money markets.

Recent offerings of the bank's term PRAs, as they are called, and of Ottawa's mortgage asset swaps show a diminishing appetite for the financial vehicles, an indication credit conditions are becoming closer to normal.

"Exit strategies aren't the high profile measures here they are in the U.S., where the Fed has extended itself further, but there's a lot of importance to conveying to people that we are getting back to normal," Robson explained.

The bank governor has taken some grief in the past over what many believed was an overly optimistic view about the Canadian economy's ability to recover.

Now with conditions materially improving, Robson believes he has some reason to crow - in cryptic bank speak, of course.

"I think when we look back on Mark Carney's optimistic forecast, it's going to look more sensible than people thought at the time," he said.

Housing starts show small gain

The pace of single-detached homes started in the Edmonton region picked up by 10 per cent in June over last year, said the Canada Mortgage and Housing Corp. Thursday.

Foundations were poured for 268 single-detached starts, up from 244 started in the same month last year.

That was a promising highlight in the agency's latest figures, which show total housing starts dropping by 19 per cent year-over-year--the sixth consecutive month of double-digit yearly decreases in home construction. Total housing starts in the Edmonton census metropolitan area fell to 450 units in June, from 556 a year earlier.

Another dismal month for multifamily starts drove down the total figures in June. Starts in this market totalled 182, down 42 per cent from the 312 started in June 2008. However, within the sector, semidetached and row starts increased year-over-year by 24 and 31 per cent respectively. The gains were countered by zero apartment starts reported in June, said CMHC.

As was the case in April and May, all June multiple starts were for the homeowner and condo market, with no rental starts.

"Developer concerns over rising rental apartment vacancies and a growing inventory of unabsorbed new condominiums will hold down multiple unit starts for the balance of 2009," said Richard Goatcher, CMHC's senior market analyst in Edmonton.

Across Alberta, housing starts in the seven largest centres rose to 1,446 in June, up one per cent from 1,434 a year earlier.

"Alberta's stronger housing-starts report is consistent with the modest improvements the province is seeing throughout its residential housing market," said ATB Financial senior economist Todd Hirsch.

"Prices have been gaining, inventories of existing homes have ebbed and home sales are rising. That all points to more confidence among homebuyers--and home builders are responding."

But Hirsch predicted housing starts are unlikely to match the feverish pace set in late 2007 any time soon, and it will be a bumpy ride to full recovery.

"Recent housing market strength has been boosted by record low mortgage rates. Higher rates and more economic turbulence in the future may keep Alberta's housing starts relatively subdued."

Unemployment To Rise

Canada's finance minister said Friday that the country's economic recovery will likely be modest and job losses will mount into 2010 even after growth has begun.

Jim Flaherty gave his most recent, sobering assessment of economic prospects in a conference call from Chile, after a meeting with finance ministers from the Americas.

Responding to surprisingly high job losses reported in the United States earlier this week, Flaherty said all of his colleagues are concerned with the toll the recession is taking on workers. He warned that while the economy may be stabilizing, labor markets are not.

"We'll start to see stabilization, which we are seeing now, and then a return to economic growth but continuing deterioration in employment," he said.

On Thursday, the U.S. Labor Department reported that payrolls fell by 467,000 in June — about 100,000 more than expected — raising concerns that the recession could persist longer than anticipated.

In Canada, economists expect about 30,000 job losses for June. Since October, Canada has lost 363,000 jobs.

In the past, the finance minister has cautioned that difficult times remain for Canadians, but he has also expressed confidence that Canada would lead most industrialized countries in the swiftness and strength of the recovery.

In Friday's assessment, he appeared more circumspect, saying there was agreement among finance ministers that the rebound would be tepid.

"The anticipation is that the recovery will be modest, so that we'll experience some continuing increase in unemployment, but as we move into 2010, we'll start to see modest recovery," he said.

Canada's unemployment rate rose to 8.4 percent in May, the highest level in 11 years.

Most of the job losses have occurred in manufacturing in central Canada. More than 70 percent of Canada's exports go to the United States.

The country has avoided bank bailouts and has not experienced the failure of any major financial institution. There has been no crippling mortgage meltdown or banking crisis north of the border where the financial sector is dominated by five large banks.

But the global sell-off of commodities hurt Canada last fall. The recent run-up of commodity prices is helping western Canada, a resource-rich economy dependent on oil and other commodity prices.

The Canadian government has committed 22.7 billion Canadian dollars ($19.5 billion) in stimulus funds earmarked for this year.

Prime Minister Stephen Harper has said Canada's deficit of CA$50.2 billion ($43.2 billion) is significant, but more manageable than other countries.

Canada's central bank has warned that the 20 percent surge in the value of the Canadian dollar since March threatens the country's economic recovery.