Real Estate in the GTA and Canada - ECONOMIC & FINANCIAL UPDATE

ECONOMIC & FINANCIAL UPDATE


August 2006


The global economy has been performing remarkably
well in recent years. World economic growth has been
running at its strongest pace in more than three
decades, fueling a dramatic rise in commodity
prices, rapid growth in profits and better labour
market opportunities. Booming economic conditions in
China, India and a number of other emerging
economies led the way, but the industrialized
nations participated as well. For example, after
more than a decade of stagnation, Japan turned a
corner last year with its banking sector
recapitalized, deflation drawing to a close and amid
stronger domestic economic conditions. In Europe,
the corporate sector has fared well, and although
economic growth has been modest, there were signs of
improvement in late 2005 and in the first half of
2006.


In North America, economic times have also been
better than most people realize. Economic growth in
both the United States and Canada has been solid, as
unemployment fell to historically low levels and
profits advanced at a robust pace. Also, domestic
demand in the form of consumer spending and business
investment has proven strong. In Canada, the main
economic handicap has been the lagged fallout from a
high-flying Canadian dollar. Although it has been a
painful adjustment, businesses have coped well by
cutting costs and boosting their productivity in
order to limit their loss of competitiveness; as a
result, the Canadian economy expanded at a healthy
pace. Looking forward, however, it appears that
economic conditions may be less robust.


Economic expansion to moderate


In the United States, the U.S. Federal Reserve has
raised interest rates considerably from their 1.00
per cent trough in order to ensure that inflation
remains in check. The result of these higher
interest rates means that monetary policy could act
as a headwind to the economy going forward. In
addition to tempering consumer spending, and to a
lesser extent business investment, higher interest
rates are cooling U.S. real estate markets. This is
likely to dampen consumer spending as the powerful
wealth effects arising from past home price
increases, mortgage refinancing and cashing-out of
home equity wanes. As a result, TD Economics
believes that the average annual pace of U.S.
economic growth in 2007 will likely slacken.
However, a hard landing is not anticipated and some
improvement can be reasonably expected in the latter
part of the year.


Any moderation in U.S. economic growth will impact
other economies. Softer U.S. demand would likely
dampen international exports, leading to slower
economic growth in the major U.S. trading partners.
However, given the momentum in world expansion, the
overall pace of global growth is expected to remain
above its historical average, and there is little
chance that the Chinese and Indian boom could be
derailed. Canada could be adversely affected, as
exports represent roughly 40 per cent of the economy
and as 85 per cent of Canadian shipments head
Stateside. Simultaneously, the Canadian economy will
be feeling the lagged effect of the Bank of Canada’s
rate hikes delivered in late 2005 and in 2006, which
suggests some moderation in consumer spending and
housing markets. Overall, the annual pace of
Canadian economic growth is forecasted to slow
modestly in 2007, but this national perspective
masks the likelihood of continued above-average
growth in Western Canada, and a sub-par performance
in Central Canada and parts of Atlantic Canada.


Financial implications


This economic backdrop has many financial
implications.


First, weaker economic growth suggests a modest pace
of corporate profit growth in 2007. However, strong
corporate balance sheets should allow the majority
of firms to ride out any weaker economic times.


Second, commodity prices are vulnerable to a further
correction, as a slowdown in the world’s largest
economy – the United States – could result in softer
global demand for raw materials. Having said that,
price levels should remain high, supported by strong
demand from Asia. Some commodities may also break
from the general trend. So, while oil prices could
drop, natural gas prices are forecast to rise –
barring another extraordinarily mild winter.


Third, interest rates are likely to decline in late
2006 and early 2007. Weaker economic growth would
lower the risks of inflation, leading to a rally in
bonds. There is also a possibility that the Federal
Reserve and the Bank of Canada could cut rates to
limit the slowdown. However, as economic conditions
gradually recover, interest rates would most likely
rise once again.


Fourth, the U.S. dollar is likely to lose ground
relative to the other major currencies, including
the Japanese yen and the euro. The Canadian dollar
could also benefit from U.S. dollar weakness, but in
recent years the dominant driver behind movements in
the exchange rate has been commodity prices.
Nevertheless, even if commodity prices decline as
anticipated, the Canadian dollar should remain
strong and it will likely hold well above its
estimated fair value of 82 U.S. cents.


Weakness will pass


Lastly, it should be stressed that the economic
slowdown should prove mild and transitory. While
economic and financial volatility may be present,
the underlying fundamentals should remain positive.
Unemployment is forecast to remain low, interest
rates are anticipated to remain modest by historical
standards, and income is likely to continue to rise.
As a result, households, businesses and investors
should not panic if there are signs of economic
moderation, as the economies should recover in the
near future. Used with permission from TD Canada Trust.

For more information please contact A. Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com

Proper Pricing of your home is very important for your sale

The Majority of prospect activity on a new listing occurs in the early period of marketing. This happens because real estate agents maintain an inventory of active prospects that have been cultivated over time.

When a home is newly listed, real estate agents will arrange for the buyers to see it. Once this "actively looking" group has seen the property, showing activity decreases to only those buyers that are new to the market.

For this reason it is important that sellers have their home in the best condition and at the best price at first exposure to the market.

For more information please contact A. Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com

Is it smart to be buying or trading up when you are in a down market?

A declining market can be an excellent time to make a move up to a higher priced home. In this example as shown on the graph at the right, the owners of Home 'A' have experienced a 10% decline in value. By itself, this seems like a negative outcome.

Had the owners of home 'A' sold at the peak of the market, they would have also purchased Home 'B' at the peak of the market. The difference would have been $80,000. When the tide of the market goes down, the prices of all homes go with it.

Home 'B' also experienced a decline, but by a greater amount. The difference is now only $72,000. By taking the 'loss' in the sale of Home 'A', they realize a net gain of $8,000 in the overall transaction.


Everyone seems to have specific ideas on when the right time is to sell. Some base their theories on the overall economy, while others will tell you that there are key buying months that you'll want to capitalize on.

If you're not buying and selling strategically or for investment, the best time to sell is really when you feel your existing home will not meet your future needs. The best reason to purchase a new home is to take advantage of your family and lifestyle changes. Do you wish to be closer to a school? Are you switching jobs? Do you have an aging parent to care for?


In Canada, weather and holidays do play a factor. Almost no one goes house hunting around Christmas, and few give up their summer vacations. Of course, those with school-aged children are less likely to move during the school year and summer is an ideal time. In some areas, there is a definite "spring cycle" -- perhaps it's a bit of spring fever and a wish to break out of the bonds of winter.

Some gamblers look for winter bargains and then try to sell their homes during the spring cycle. But overall, that could be more tension and aggravation than you wish. And the monetary results may be disappointing.

Another key factor to consider is the economy. Are interest rates higher or lower in comparison to your current mortgage? If they are higher, you may want to stick with your current home, as your new mortgage payments could be uncomfortable. If rates are lower, you might be able to trade up to a more expensive home without a significant increase in your monthly mortgage obligation.

What's more, if it's a buyers' market, you may be in a strong position to purchase a new home, especially if you have accumulated some equity in your current property.

Conclusion:
You may wish to buy when the market is seasonally 'soft' early July or December, see seasonal trends here




For more information please contact A. Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com

Toronto Real Estate Board Reports average price at $358,045 - over 8,000 Sales - Good for June 2006

July news and stats update - Summer Starts Strong

TORONTO, July 6, 2006--The summer of 2006 got off to a booming start, with 8,730 resale home sales in the month of June, incoming TREB President Dorothy Mason announced today.

"This marks the fourth month in a row that sales have topped the 8,000 mark, giving us a year-to-date total of 45,797 sales," Mrs. Mason stated. "That figure is up two per cent over 2005, which turned out to be the best year ever recorded."

The average price came in at $358,035 in June, up four per cent over the $345,065 recorded in June of last year. "Prices remain affordable," Mrs. Mason said, "yet homeownership remains an excellent investment, with an annual return that exceeds inflation."

Average time-on-market remained at 32 days, and inventory fell a little (three per cent) from May to 25,393. "There is still plenty of product out there on the market," Mrs. Mason noted. "And that should keep a cap on price increases."

This was the news release that was issued by the Toronto Real Estate Board regarding the strength of the May sales

TORONTO, July 6, 2006--The Toronto Area real estate market began the summer season with a strong showing in June, Toronto Real Estate Board President Dorothy Mason announced today.

“The year continues to be very active,” Mrs. Mason said. “June’s 8,730 sales are within five per cent of last June’s total of 9,153, which was part of a record year.”

Mrs. Mason noted that although June was more balanced than previous months, 2006 remains about two per cent ahead of last year’s pace.

“Yeartodate figures show the record first quarter has been followed by solid, steady results in the late spring and early summer.”

According to Jason Mercer, Senior Market Analyst for the Canada Mortgage and Housing Corporation, favourable economic conditions are helping to keep demand strong.

"Robust June sales are testament to the fact that demand for ownership housing remains strong in the Greater Toronto Area. Steady increases in employment and wages coupled with low borrowing costs have kept the number of home buyers near record levels," Mr. Mercer said.

Areas consisting primarily of detached homes were particularly active during June, compared to figures from a year ago.

Wilson Heights in North York saw 42 per cent more transactions than in June 2005.

In Scarborough, the Birchmount Park / Cliffside area of the waterfront had 38 per cent more homes change hands as compared to June 2005.

North of Toronto, the northern part of Richmond Hill had a 17 per cent increase in overall transactions led by detached home sales.

Meanwhile, a jump in activity of semidetached homes helped push the Junction / High Park area of Toronto 33 per cent higher than last June in terms of overall sales.

The market is still very healthy and there is a lot of choice for all types of homebuyers,” Mrs. Mason added. “It’s a very good time to be in the housing market.”

Toronto REALTORS® are passionate about their work. They adhere to a strict code of ethics and share a stateoftheart Multiple Listing Service. Its 25,393 listings resulted in June’s 8,730 sales. Serving over 24,000 Members in the Greater Toronto Area, the Toronto Real Estate Board is Canada’s largest real estate board.

For more information please contact A. Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com

Sales of Luxury homes increases across Canada

Luxury home sales surge

Million-dollar home sales are climbing at a rate never before seen in major centres across the country, says a new report from Re/Max.

“If the market continues at this pace, existing sales records for all types of real estate, including upscale properties, will be shattered by year end,” says Michael Polzler, executive vice-president, Re/Max Ontario-Atlantic Canada, in a news release.

The Re/Max report says luxury home sales rose to new heights in 12 out of 13 markets in January to May 2006 compared to one year ago, with percentage increases ranging from eight per cent in Halifax/Dartmouth to as high as 177 per cent in Edmonton. Only Windsor, Ont., where concerns over the future of the automotive industry are having an impact on real estate in general, reported a decline in sales.

Elton Ash, regional executive vice-president, Re/Max of Western Canada, says “Existing homeowners cashing in on substantial equity gains to re-invest in the top end of the market; strong economic performance across the country; and solid consumer confidence levels” are responsible for the boom. “Limited inventory has further served to underscore the intensity of the marketplace.”

Rising values and renovation have been major factors in the upper-end of the market, redefining price points and reclassifying residential neighbourhoods across Canada, says the report. Infill is occurring in virtually every older, established community located in close proximity to the downtown core, creating new upper end enclaves. Limited inventory levels in Vancouver, Calgary, and Toronto are placing serious upward pressure on prices in “'blue chip neighbourhoods,” with many properties now selling in multiple offer situations, says Re/Max.

Other highlights from the report:

- The highest-priced MLS sale in Canada this year – $10,880,000 – was in Greater Vancouver.

- The most expensive property listed for sale is a $45 million waterfront estate in Oakville, Ont.

- Out-of-province and international purchasers are a factor in Vancouver, Victoria, Kelowna, Edmonton and St. John’s.
- Teardown and infill is occurring in Vancouver, Victoria, Calgary, Edmonton, Winnipeg, Hamilton/Burlington, Toronto, Ottawa and St. John’s.

- Turnkey properties are most sought-after in Vancouver, Kelowna, Windsor, and Halifax-Dartmouth.
- Upper end condominiums are popular in Victoria, Kelowna, Edmonton, Winnipeg, Toronto, and Halifax-Dartmouth.

For more information please contact A. Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com

Interest Rates - Inflation and the Canadian Economy

HIGHLIGHTS

Both Canadian inflation and retail sales surpass expectations
Odds of a further BoC hike increase, but outcome will hinge on future data
Even though the Stanley Cup will remain in the United States for another season, the spotlight on economic data swung back to Canada this week, revealing a few more pieces of the economic puzzle facing the Bank of Canada. Unfortunately, the picture has become increasingly murky as stronger-than-expected readings for both inflation and retail sales joined the spectacular May employment report released two weeks ago in stoking fears that the Bank would plow ahead with a further rate hike at their upcoming Fixed Announcement Date (FAD) on July 11th. This stands in stark contrast to the extremely dovish message conveyed in the May 24th communiqué which suggested that the tightening cycle was complete. This week presented an ideal opportunity for the Bank to express any change in this view during Governor Dodge’s speech and subsequent press conference on Wednesday. However, the Governor stuck to his guns and urged calm in the face of the recent volatility. He went on to say that the evolution of economic data since the last FAD has remained consistent with the overall outlook articulated in the latest Monetary Policy Report. Taking the Bank at their word, a case can be made to leave rates on hold once you dig into some of the details underlying the headline figures. However, the final decision will likely depend on the evolution of the data between now and the decision date.

Inflation risks far from clear

From the perspective of financial markets, the strongest piece of evidence supporting a further rate increase was the CPI report for the month of May. While energy prices continued to fuel total inflation, the real surprise was a sharp increase in the core rate of inflation, which hit a year-over-year growth rate of 2.0% – four tenths of a percentage point higher than the rate observed in April and the strongest yearly increase since December 2003. While much of this jump was due to a surge in the homeowners’ replacement costs, the effect of a regulated increase in Ontario electricity prices also played a role.

This highlights a quirk in the Bank of Canada’s definition of core inflation. Whereas traditional core simply excludes the effects of all food and energy prices, the Bank of Canada preferred measure excludes eight of the most volatile components, which removes most, but not all energy prices. The price of electricity falls into this category since it is typically regulated and, therefore, relatively devoid of monthly volatility. However, there has been a trend towards more deregulation in the electricity markets, which has translated to greater price volatility. To assess the impact, consider the traditional calculation of core inflation, which rose by 1.7% in May, matching the increase observed in the previous month. This suggests that the underlying momentum in May’s core prices may not be as strong as the Bank’s own definition would let on.

A second force exerting upward pressure on Canada’s inflation rate in May was price pressures in Alberta. This should come as little surprise, since the boom in commodity prices has propelled the Western provinces to the top of the heap of pretty much every piece of economic data, skewing the national average higher in the process. For example, core inflation in Alberta, as measured by total inflation excluding food and energy prices (Statistics Canada does not provide a provincial breakdown based on the Bank of Canada’s definition of core) was 3.6% in May, marking the eighth consecutive month that Alberta experienced the hottest inflation amongst the provinces. What is even more interesting is that all of the other provinces in Canada were below the national average. When faced with this degree of dispersion, it is important to remember that the Bank has only one policy tool at its disposal for all of Canada and will set monetary policy with the national picture in mind. While the regional variation will be a component of the analysis, policy will not react exclusively to any one province, unless it threatens to unhinge overall inflation expectations. And, this captures the Bank’s true dilemma. A red-hot Albertan economy may create upward pressures on national measures of economic activity and prices, but further modest interest rate hikes are unlikely to cool it down, while additional tightening in policy could hit other provinces quite hard.

Consumption continues to shine

The effect of higher prices was also visible in the Canadian retail sales report, which trounced market expectations as total nominal sales increased by 1.7%. However, higher gasoline prices played a significant role, accounting for over half of the total increase. When the effect of higher prices is stripped out of the calculation, retail sales increased by a more moderate 1.2%, still indicative of a strong consumer, but not as spectacular as the 1.7% headline. As noted in the “TD Consumer Pulse” released this week, the pace of consumption is expected to wane somewhat in the coming months, but will remain healthy.

So where does all of this leave the Bank of Canada? As outlined above, there certainly have been some economic indicators that have surprised on the upside in recent weeks. However, the downside is not without representation. For example, the export side of the economy is struggling with the effect of the higher dollar and things are likely to get worse before they get better as an expected mid-cycle slowdown in the United States begins to take hold over the second half of the year. Furthermore, growth in the housing market (at least in Central Canada) has shown some signs of waning in recent months. Fortunately, the Bank does have some time to decide what to do with rates and it will receive a fair bit of data between now and then. One of the most important pieces will be next Thursday’s real GDP report, which will help reveal if the mere 0.1% growth observed in April may be a sign of things to come or just an isolated touch of weakness. Another important piece of the puzzle will be the release of June’s employment report on July 7th, which will determine if the gain seen in May was just a blip or whether the labour market really does have superhuman powers. At the end of the day, while the odds of a further rate increase have materially increased in light of the recent data, it will fall to the strength of the upcoming data to conclusively tip the balance. And, regardless of whether the Bank hikes or not in July, we believe that the end of the rate tightening cycle is close at hand

Reprinted with permission from TD Canada Trust

For more information please contact A. Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com

Sales of Luxury homes in residential Markets are surging across the country - says RE/MAX

Luxury homes sales surge in residential markets across the country, says RE/MAX
Affluent Canadians are fuelling unprecedented demand for luxury homes from Halifax to Vancouver this year, according to RE/MAX.

Million dollar home sales are climbing at a rate never before seen in major centres across the country. Clearly, the Canadian love affair with residential real estate is far from over – and if the market continues at this pace, existing sales records for all types of real estate, including upscale properties, will be shattered by year end.

The RE/MAX Upper End Report found that luxury home sales rose to new heights in 12 out of 13 markets in January to May 2006 compared to one year ago, with percentage increases ranging from eight per cent in Halifax/Dartmouth to as high as 177 per cent in Edmonton. Only Windsor, Ontario, where concerns over the future of the automotive industry are having an impact on real estate in general, reported a decline in sales.

The surge in upper end sales can be directly attributed to three factors. Existing homeowners cashing in on substantial equity gains to re-invest in the top end of the market; strong economic performance across the country; and solid consumer confidence levels. Limited inventory has further served to underscore the intensity of the marketplace.

Rising values and renovation have been major factors in the upper-end of the market, redefining price points and reclassifying residential neighbourhoods across Canada. Infill is occurring in virtually every older, established community located in close proximity to the downtown core – creating new upper end enclaves. Limited inventory levels in areas like Vancouver, Calgary, and Toronto are placing serious upward pressure on prices in ‘blue chip neighbourhoods,’ with many properties now selling in multiple offer situations.

Local buyers, including young professionals, corporate executives, and entrepreneurs are behind the push for upscale homes and condominiums. More and more Canadians are reaching millionaire status and that position is often reflected in their choice of a home.

Highlights:
 The highest-priced MLS sale in Canada this year -- $10,880,000 -- occurred in Greater Vancouver.
 The most expensive property listed for sale is a $45 million waterfront estate in Oakville, Ontario.
 Out-of-province and international purchasers are a factor in Vancouver, Victoria, Kelowna, Edmonton and St. John’s.
 Teardown and infill is occurring in Vancouver, Victoria, Calgary, Edmonton, Winnipeg, Hamilton/Burlington, Toronto, Ottawa, and St. John’s.
 Turnkey properties are most sought-after in Vancouver, Kelowna, Windsor, and Halifax-Dartmouth.
 Upper end condominiums are popular in Victoria, Kelowna, Edmonton, Winnipeg, Toronto, and Halifax-Dartmouth.

Market**	Luxury homes start at…	Sales 2005	Sales 2006	Percentage +/-
Vancouver	$1.5 million	212	403	90%
Victoria	$1 million	42	62	48%
Kelowna	$1 million	16	36	125%
Calgary	$1 million	92	206	124%
Edmonton	$500,000	52	144	177%
Winnipeg	$500,000	12	24	100%
Windsor	$500,000	15	7	-54%
London / St. Thomas	$500,000	32	38	19%
Hamilton / Burlington	$500,000	158	225	42%
Greater Toronto	$1.5 million	221	289	31%
Ottawa	$500,000	145	222	53%
Halifax / Dartmouth	$500,000	37	40	8%
St. John's	$500,000	4	5	25%

** Based on local board MLS statistics (January – May), RE/MAX

RE/MAX is Canada’s leading real estate organization with over 16,060 sales associates situated throughout its more than 615 independently owned and operated offices across the country. The RE/MAX franchise network, now in its 33rd year of consecutive growth, is a global real estate system operating in over 64 countries. More than 6,375 independently owned offices engage 118,450 member sales associates who lead the industry in professional designations, experience and production while providing real estate services in residential, commercial, referral, relocation and asset management. For more information, visit: http://www.remax.ca/

For more information please contact Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com

The Real Real Estate Market in Canada is Surging

Canada's Real Estate Market Surging

While eastern Canada's real estate market may be cooling off, the booming Western Provinces are more than making up for it. The Canadian Real Estate Association (CREA) reports that home prices were up 12.9 per cent in April compared to the same month last year. The average home sold in Canada through the MLS system cost $280,740 in April.
After prices increased by 10.2 per cent in 2005, CREA is predicting a further 6.1 per cent increase this year and another 4.7 per cent hike in 2007. Meanwhile, Canada Mortgage and Housing Corp. (CMHC) says prices will go up 11.2 this year, recording their strongest growth in 17 years. It says more balanced conditions next year will slow prices to an increase of 4.8 per cent.

RBC Economics, which has compiled a Housing Affordability Index since 1985, says rising interest rates and higher prices means the cost of home ownership rose at a faster pace than income for the last two quarters. British Columbia is the least affordable province. The home ownership costs of a detached bungalow in Vancouver was 64.4 per cent, which means that mortgage payments, utility costs and property taxes would take up 64.4 per cent of a typical household's monthly pre-tax income. In Toronto, the index was 41.7 per cent; in Montreal, 34.9 per cent; and in Calgary, 32.7 per cent.

CMHC recently published a study that used average hourly earnings data for different centres across Canada, and calculated the number of hours a person would need to work in order to bring the mortgage payment on an average house down to 30 per cent of monthly income. The 30 per cent benchmark is generally recommended to determine if you can afford to buy a house, but the CMHC study included only mortgage payments and not utilities or taxes.

It found that to own a house in Vancouver, with mortgage payments at 30 per cent of income, someone would have to work 331 hours a month. There are only 162.5 hours available in a typical work month.

Toronto required 257 hours, Calgary 186, Montreal 168, St. John's 125, and Saguenay, Quebec, 82.

The same study was conducted to see how many work hours would be required to pay rent. Toronto was the most, at 157 hours, followed by Vancouver at 153 and Halifax at 129. In Thunder Bay, Ont., fewer hours were required to own a house (97) than to rent (108).

With prices rising and affordability deteriorating, how is it that housing sales will set a new all-time record this year, according to CREA forecasts?

Even though the Bank of Canada has increased interest rates seven times since last September, mortgage interest rates are still near historically low levels.

Economist David Tulk at TD Economics says that although variable-rate mortgages are impacted by the prime lending rate, fixed-rate mortgages are tied more closely to the bond market, and they have not increased as much as the Bank of Canada rate. He says it's the level of the rate, which is still low, rather than recent changes that impacts the real estate market the most. Most economists believe the central bank's rate will not rise again for some months.

Personal income in Canada strengthened steadily throughout last year, says CMHC. The unemployment rate set a 32-year low in March and a record share of Canadians are employed, says the federal housing agency. That creates high levels of consumer confidence and strong demand for housing.

Immigration into the country is also set to exceed the target range for new permanent residents this year and in 2007, says CMHC. Newly arrived immigrants generally settle into rental housing at first, and then many move to home ownership.

More Canadians are also moving into less expensive housing as the boom in multi-unit buildings continues. "The apartment/condominium market is witnessing particularly explosive growth, having accounted for fully two-thirds of multi-family starts last year," says Adrienne Warren of Scotiabank Group. "The number of apartment starts in Canada has increased at a 15 per cent average annual rate since 1998 - three times the growth in the stock of single-detached homes, semi-detached homes or townhouses. Not since the early 1970s have we seen such an extended boom in apartment construction."

Warren says that "for many young renters contemplating home ownership, condominiums and other multi-unit developments represent an affordable entry point, and perhaps the only viable option."

Copyright © 2006 Realty Times. All rights reserved. 6/2/06
Used by permission.

For more information please contact Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com

TREB (Toronto Real Estate Board) reports May 2006 was a record month

These are the latest results from TREB (Toronto Real Estate Board) reporting that May 2006 was a record month



May breaks all-time record

TORONTO, June 5, 2006 -- More Toronto Area homes changed hands during the month of May than in any other previous single month, Toronto Real Estate Board President John Meehan announced today. The 9,434 transactions that took place during the month were two per cent higher than last May and nearly two per cent above the previous monthly record of 9,275 sales set in June 2004.

“This result is very positive for a number of reasons,” Mr. Meehan said. “We are seeing strong sales totals, yet the pace is very steady and controlled which is a good sign. This speaks to the overall health of the GTA housing market.”

The Scarborough waterfront was one of the most active areas during the month as Guildwood and Scarborough Village saw 33 per cent more transactions than during May of last year. A strong increase in sales of condominiums and townhomes helped fuel the increase, though the majority of transactions were detached homes.

Willowdale, in North Toronto, saw 25 per cent more homes change hands than during May 2005, with condominiums showing the largest increase of any housing type.

Immediately north of Willowdale just outside Toronto city limits, Thornhill showed a 34 per cent increase in overall sales compared to last May.

Ted Tsiakopoulos, regional economist for the CMHC, noted that the larger economic picture shows the Toronto real estate market is a very healthy market to be in.

“Record resale volumes in May suggest that consumer confidence remains strong. A steady pace in home price appreciation, modest rate hikes and rising incomes have kept housing demand healthy across the GTA," Mr. Tsiakopoulos said.

Mr. Meehan agreed that confidence is high. “A big reason there is so much confidence in this market is the consistency it has shown month after month. Consumers are understanding that this is a market with a strong foundation, and that there is a lot of choice out there for established homeowners and first-time buyers alike.”

Toronto REALTORS® are passionate about their work. They adhere to a strict code of ethics and share a state-of-the-art Multiple Listing Service. Its 26,220 listings resulted in May’s 9,434 sales. Serving over 23,000 Members in the Greater Toronto Area, the Toronto Real Estate Board is Canada’s largest real estate board.

For more information please contact Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com

Perspective: Why the latest Bank of Canada interest rate increase is insignificant

This article talks about Why the latest Bank of Canada interest rate increase is small potatoes

Just released on May 29, 2006

Since February 2005, TD Economics has forecast that a rebalancing in monetary policy would see the Bank of Canada raise its benchmark overnight rate to a peak of 4.00% in mid-2006. We stuck to this call for 15 months. However, the communiqué accompanying the April rate hike - which lifted short-term rates to our 4.00% target -suggested that the Bank was still leaning toward pulling the trigger one more time, and it delivered with a quarter point increase last week. If we had been conducting policy, rates would have been left on hold. But, like most sore losers, we’ll now argue that the last hike is no big deal.

The central bank’s latest decision has sparked a considerable amount of criticism, most of which is a bit unfair. The focus has been on the fact that rates have been increased seven times in a row, that the increase in borrowing costs has eroded housing affordability, and that rate increases have contributed to the strength in the Canadian dollar. A more sober assessment reveals two important observations: First, it is the level - not the change - in interest rates that is of critical importance to the economy. Second, the interest rates actually faced by consumers have not moved to the same degree as the Bank’s overnight rate. When these two observations are taken into consideration, it is evident that there is nothing especially damaging about the current conduct of monetary policy and while we would have stopped at 4.00%, the extra 25 basis points won’t break the economy.

It’s all about the level

The Bank of Canada’s decision to raise rates one further time is largely innocuous because the level of interest rates across the yield curve is very low by historical standards. Despite the removal of 175 basis points of stimulus, the overnight lending rate sits at a very modest 4.25%. Using the Bank Rate as a guide, the policy rate has fallen over this cycle to a level not seen since the late 1950s. You would also have to go back that far to find the last time that longer maturity yields displayed the levels seen recently. After removing the effect of inflation, the real interest rate based on 3-month Treasury yields has fallen during this cycle to levels last seen during the late 1970s.

The Bank has been able to keep their lending rate so low because they have been very successful in their mandate of low and stable inflation, and in the process, have grounded inflation expectations. While increased transparency and enhanced credibility of the Bank has played a role in keeping inflation subdued, the emergence of China and India has also contributed to falling prices for many manufactured goods and textiles. The sharp appreciation of the dollar, motivated in large part by surging commodity prices, has also put downward pressure on imported goods and has allowed the Bank to temper the pace of tightening.

Does the overnight rate matter…

The Bank of Canada’s overnight rate is just one of a myriad of interest rates and one that Canadians will never directly face. Meanwhile, the rates that consumers typically borrow at have increased much more modestly than the overnight rate. This becomes increasingly apparent for interest rates at longer maturities, leaving the overall yield curve extremely flat. Since the Bank started tightening in September of 2005, 5 year Government of Canada yields have increased by 84 basis points, while the 10 year and the long-term benchmark have increased by just 72 and 23 basis points, respectively. Meanwhile, the five-year conventional mortgage rate has risen by 95 basis points.

Typically, changes in the overnight rate are reflected in prime rates charged by Canadian chartered banks, which then feed through to variable rate mortgages and other consumer loans before moving out over the remainder of the yield curve. Historically, the overnight rate has played a large role in the overall shape of the yield curve, as market participants assessed the future path of interest rates.

However, more recently, other factors such as high pension demand for longer maturity bonds and a glut of global savings have leaned on the long-end, depressing rates below what would normally occur. This was former-Fed chairman Greenspan’s famous “conundrum” characterization. Furthermore, the diametrically opposite fiscal performance in Canada and the United States has also exerted downward pressure on domestic yields at longer maturities, adding to the low long end of the yield curve.

… for housing affordability?

The housing market is a case in point of where there is a disconnect between the rates that borrowers face and those set by the Bank of Canada. While variable rate mortgages move in lockstep with the prime lending rate, which itself is tied to changes in the overnight rate, fixed rate mortgages generally track developments in the bond market. For example, 5-year fixed rate mortgages will follow 5-year government bonds. As noted above, even though the Bank has raised their policy rate by 1.75% since the fall of 2005, longer maturity yields, including mortgages, have not shown the same rate of increase.

The criticism raised against the Bank for causing a deterioration in affordability, while partially correct in spirit, has come a bit late. If anything, the modest rise in mortgage rates will help keep affordability in check. The true cause of declining affordability is the rapid growth rate in home prices, a trend set in motion by the massive dose of monetary stimulus administered by the Bank during the economic slowdown of 2001.

… for the Canadian dollar?

And what of the criticism that the Bank of Canada’s tightening cycle has pushed the dollar higher? While there is little doubt that the speed at which the Canadian dollar has appreciated is worrisome, especially for the manufacturing sector, the role that the Bank has played in fuelling the rise in the loonie is minor. The rise of the dollar is mostly due to a combination of soaring commodity prices and the continued weakness displayed by the U.S. currency. In fact, the spread between Canadian and U.S. interest rate continues to favour the United States as the pace of the tightening cycle in Canada has been eclipsed by that of the United States. So if anything, the interaction between monetary policy in Canada and the United States has placed downward pressure on the value of the dollar. However, it is important to recognize that empirical studies have noted that the channel between domestic interest rates and the value of the dollar is fairly small.

Global Insight estimates that a permanent 100 basis point increase in the Canada-U.S. interest rate differential results in a 2.8% appreciation in the Canadian dollar by the end of two years. Applying this relationship to the last two years suggests that in order to have kept the Canadian dollar around the U.S. 85 cent level that prevailed in September 2005, the Bank would have had to freeze their key policy rate at the rock bottom level of 2.5% while the corresponding U.S. rate rose to 5.0%. This is clearly one case where “everything else would not have been equal”. In the environment of robust Canadian economic growth, inflation pressures would have risen enormously with the greatest impact likely in housing markets, resulting in an even greater deterioration in affordability than has actually occurred.

Conclusion

The main message is that it is the level and not the change in interest rates that is important for economic activity. Despite the seven rate increases by the Bank of Canada, the level of the overnight rate remains fairly low. And, it is not just the level of the Bank’s benchmark overnight rate that matters, but the level of market interest rates across the entire yield curve that determines the borrowing cost for consumers and businesses. On this front, interest rates across the yield curve are not significantly restrictive. The big news is that it appears the Bank is set to pause, and despite the fact that they are set to do so at a rate that is 25 basis points higher than what we had predicted, we firmly believe that it is the prudent decision at this juncture.
Used with permission: Paul Chadwick from TD-CT

For more information please contact Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com