Canada Mortgage-Business loans: January 2010

Canada’s inflation accelerated less than economists expected last month, staying below the central bank’s target because of lower costs for mortgage interest, natural gas and clothing. Prices rose 1.3 percent in December from a year ago, and fell 0.3 percent from November, Statistics Canada said today in Ottawa.

Economists predicted annual inflation would speed to 1.6 percent from November’s 1 percent, and that prices would fall 0.1 percent on a monthly basis, according to the median estimates of Bloomberg News surveys.

Bank of Canada Governor Mark Carney yesterday kept his benchmark interest rate at a record low 0.25 percent, and said he plans to keep it there through June unless the outlook for prices veers from his forecast.

The bank also said that “considerable excess supply remains” and inflation won’t return to policy makers’ 2 percent target until the third quarter of next year. “For the Bank of Canada, this report underscores the lack of inflation pressure in the economy,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

“It gives the bank ammunition to keep interest rates low later into this year.” The Canadian dollar weakened 1.1 percent to C$1.0433 per U.S. dollar at 7:13 a.m. in Toronto, from C$1.0314 yesterday. Price Declines Natural gas costs dropped 31 percent in December from a year ago, while Statistics Canada’s index of mortgage interest cost declined 4.9 percent.

Clothing and footwear costs fell 0.8 percent. The rise in inflation from a year earlier was led by a 26 percent jump in gasoline costs. Prior gasoline-price declines helped drive the inflation rate below zero for four straight months through September, the longest period since 1953.

The so-called core inflation rate, which excludes gasoline and seven other volatile items, was 1.5 percent on an annual basis in December, unchanged from the previous month. On a monthly basis, core inflation fell 0.3 percent. The Bank of Canada said yesterday that core inflation has been “slightly higher than expected in recent months.”

Economists forecast the annual core inflation rate would be 1.7 percent, based on the median of 26 estimates, and fall 0.2 percent on a monthly basis. The inflation rate was 0.3 percent for all of 2009, the lowest since 1994, Statistics Canada said.

Tightening mortgage eligibility rules to prevent a housing bubble may not be such a bad idea, says the founder of Canada’s largest homebuilding company.

“Housing is meant to shelter. Secondly, it is an investment,” Peter Gilgan, chief executive officer of Mattamy Homes, told a luncheon at Wilfrid Laurier University Wednesday.

Gilgan, who was in town to accept the Outstanding Business Leader of the Year Award from Laurier’s school of business and economics, was asked about recent statements by federal Finance Minister Jim Flaherty that Ottawa may increase minimum down payments for residential mortgages to ensure that homeowners don’t face huge bills if interest rates rise.

“It would be a very responsible thing to do,” said Gilgan, whose Mississauga-based company has built several thousand homes in Cambridge, including some in an indoor factory, and has land available for development on the west side of Kitchener.

When people start treating houses “as a derivative,” as some kind of vehicle to make a quick buck, “it creates too much volatility in the market,” Gilgan said.

As for the province’s recent law establishing greenbelts around urban areas in southern Ontario to avoid sprawl, he said builders have to adjust to the new reality. Twenty years from now, all the desirable greenfield land in the Golden Horseshoe will be gone, he said.

Mattamy has enough greenfield land to build on for the next 10 years, he said, but after that it will have to adopt a new strategy of infilling, intensification and redevelopment in urban areas.

Gilgan doesn’t oppose the province’s thrust as long as everyone faces the same rules. “You can throw anything at me. As long as it’s a level playing field, we’ll figure it out.”

The development restrictions in Ontario are one of the reasons Mattamy is expanding into other geographic areas such as Alberta and the U.S., he said.

Since its launch in Burlington in 1978, Mattamy has built more than 47,000 homes in over 100 communities. Fifty per cent of those homes are in greater Toronto and beyond, Gilgan said, with Cambridge accounting for about 10 per cent of that activity.

The company has had mixed success south of the border. It has “dug a little trench” in five American cities and hopes to break even this year. Doing business in the U.S. is different, Gilgan said. While Canadians tend to plan a lot and adopt a cautious approach, Americans plunge ahead much more aggressively, he said.

Gilgan also touched on the company’s efforts over the years to be innovative. During the 1990s, it decided there was a better way to build housing than having the garage as the most dominant feature. It started building houses on wider lots, as much as 36 feet in width, so that more living space could look onto the street.

"We’re providing something more than a house, we’re providing a community.”

“Pocket parks” or smaller green spaces among subdivisions was another popular Mattamy innovation, he said.

“Be really aware of the competition,” he advised young entrepreneurs, but try to do something unique or different.

Gilgan had the audience in stitches when he told them about his daughter enrolling at Laurier 13 years ago. When he came to visit her, she and four roommates were living “in something resembling a house on King Street.” You could put your hand through open space in the front door, he said. “There was no glass there.”

He drove around the neighbourhood and found a house for sale on Ezra Street. With the help of an all-female team of architects and designers, he turned the house into a “chick machine” with five bedrooms, five bathrooms and a giant shoe rack.

He assuaged his guilt over doing this for his daughter with the knowledge that some years later “a greater fool” would buy it. And sure enough, someone did. A few years later he came back when his son enrolled at the University of Waterloo, but the house was already gone. It had been replaced by a residence for 80 students.

“At first I was offended. Then when I did the math on it, I thought, yeah, it makes sense.”

Canada Mortgage-Business loans

Canada’s Inflation

Tighter Mortgage Rules

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