Bank of Canada Rates - "mid-cycle" slowdown and Dow Jones hits 12,000 mark - comments

HIGHLIGHTS
The BoC leaves rates unchanged at 4.25%
Small cut in policy rates still in the cards
for 2007 despite rising core prices
Further evidence of U.S. mid-cycle slowdown
Dow Jones hits the 12,000 mark


Big week for Canadian monetary policy


There were a lot of new developments surrounding Canadian monetary policy this week. First, the Bank of Canada announced on Tuesday that it was maintaining the overnight rate at 4.25%. Since this decision was widely expected, it is the accompanying statement that caught financial markets’ attention. Notably, the Bank revised down its real GDP growth forecasts for the remainder of 2006 and 2007.


Everything else being equal, weaker economic growth would translate into less accumulation of slack in the economy, thereby increasing market expectations for eventual rate cuts. But, the Bank has also lowered its estimate of potential output growth – i.e. the growth in production the Canadian economy can achieve with existing labour, capital, and technology without accelerating inflation. Putting the two together, the Bank estimates that the economy is still operating slightly above capacity.

The downward revision to potential output growth was explained in more detail in the Monetary Policy Report (MPR) released two days later. In particular, the Bank now assumes weaker trend labour productivity growth – 1.5% per year instead of 1.75% – because of structural changes in the economy. Combined with growth of 1.25% in trend labour input implies potential output growth of 2.8%, an estimate that TD Economics agrees with. Back in October 2005, we warned about this risk. In a special report entitled “Key Issues Arising from the Bank of Canada’s MPR”, we argued that productivity trends could have crucial implications for the future path of monetary policy. In particular, we said that “the estimate of potential could adjust to actual developments fairly quickly and any failure of labour productivity to accelerate as anticipated could easily result in the Bank lowering its assessment of potential in 2007”. This risk has materialized, just a notch earlier than we anticipated.

As a result of both downward revisions to actual and potential output growth, the Bank expects the economy to run slightly above its capacity for the next two years. In such an environment, the Bank would not be inclined to alter monetary seetings. Certainly, Friday’s CPI inflation report for the month of September corroborates with the Bank’s neutral bias. Core prices rose by a greater-than-expected 0.5 per cent from the previous month, lifting the year-over-year tally to 2.3% – above the Bank’s target of 2%.
We still see modest cut in rates in early 2007

With September’s brisk increase in core prices, the odds are very high that the Bank will stay on the sidelines at the last policy meeting of the year on December 5th. Admittedly, the odds that the Bank keeps rates unchanged in the early stages of 2007 also increased a notch. Still, TD Economics sticks to its call of a modest reduction of 25 basis points in each of the first two quarters of 2007. Why? The answer lies in the fact that our base-case scenario has factored in weaker economic conditions than the Bank over the next few quarters. The Bank believes Canadian real GDP growth will start gaining ground in the last quarter of 2006, whereas we believe it will not happen until the second half of 2007 (see table on page 1). In this context, we believe a small cut of 50 basis points in policy rates would help ensure that the economic slowdown remains moderate.

Further evidence of a modest U.S. economic expansion

This week provided more evidence that the U.S. mid-cycle slowdown is far from over. Housing starts rose unexpectedly by 5.9% in September, but are still 18% lower than the same time last year. Furthermore, residential building permits fell by 6.3% in September to its lowest level since October 2001. On that basis, we believe that September’s rise in starts was a blip and that the cooling U.S. housing market has not hit the bottom yet. Look for weaker homebuilding activity down the road. September’s U.S. CPI report also provided evidence of moderation. First, the sharp drop in energy prices drove down headline inflation from 3.8% to 2.1%. But what matters more for the Fed is the third consecutive monthly increase of 0.2% in core prices. This figure is less worrisome in comparison of the March-June period, when core prices were rising at a brisker pace of 0.3% per month. The annualized pace of inflation during the July-September period now stands at 2.7%, a full percentage point lower than this summer. This development appears consistent with the overall capacity utilization rate, which slipped from to 81.9% in September from 82.5% in August.

September was not a good month for U.S. industrial production, which fell for the first time in 8 months by 0.6 per cent. Altogether, this string of economic indicators is consistent with our view that the U.S. mid-cycle slowdown is underway this fall, which will eventually push the Fed to cut fed funds rate by a full percentage point over the first half of 2007.

The Dow is on a roll this year

However, the big news of the week in U.S. financial markets was not the Fed’s intentions, but rather the performance of the Dow Jones Industrial Average index. The Dow ended Thursday slightly above the 12,000 points mark for the first time ever (note, however, that the Dow pulled back below the 12,000 mark in early trading on Friday). The Dow has provided a 10-per-cent cumulative return on investment since the beginning of the year, fueled by rising corporate profits and falling energy prices. However, investors who have held U.S. equities in their portfolio for a long period of time may see things differently. Indeed, it took seven and a half years for the Dow to move up to 12,000 since it hit 11,000 for the first time in the summer 1999. Thereafter, the burst of the high tech bubble and the 2001 U.S. recession hurt investors’ holdings. This explains why the cumulative return of the Dow was a mere 9 per cent over the last seven and a half years. In comparison, it took only four years for the Dow to move up from 4,000 to 11,000 points in the second half of the 1990s – for a cumulative return of 175 per cent. Still, U.S. equities should remain part of a well-diversified portfolio over the long haul because of stronger growth potential in productivity and population gains relative to many other industrialized countries. On that front, it was just announced on Tuesday that the U.S. population surpassed the 300 million mark.

This article is courtesy of Paul Chadwick, 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
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TD - Canada Trust - Ramifications of the US housing market decline

THE DECLINE AND FALL OF THE U.S. HOUSING MARKET: WILL THE BROADER ECONOMY FOLLOW?

October 2, 2006

The U.S. housing sector directly contributed more than $2 trillion to the national economy in 2005 and accounted for one-quarter of real GDP growth. Don’t expect a repeat performance any time soon. Data over the past five months show that the housing market is in the midst of a correction. The supply of detached resale homes has hit a 13-year high, affordability has eroded to late-1980s levels, and all three major housing markets – new, existing and construction – have absorbed double-digit declines in activity relative to last year.

The question is not whether the housing market correction will dampen U.S. economic growth over the next year. It will. The cliffhanger is whether it can single-handedly tip the economy into a recession. Indeed, the current housing cycle is already mirroring trends leading into past recession cycles. So why would it be different this time?

To evaluate the risk of an economy-wide recession, we cannot look at the housing sector in isolation. Other factors also enter into the equation, such as interest rates, inflation, labour market conditions, inventory overhang and the overall health of Corporate America. These influences bear little resemblance to patterns seen in prior pre-recession cycles, and we believe this tips the scale in favour of an economic slowdown rather than a recession.

The importance of housing in the American economy

The real estate sector has been punching above its weight in the American economy since the housing boom gained traction in 2002. More and more jobs, incomes and consumption have become leveraged to the performance of the housing market over the past four years – leaving little doubt that a housing correction will have knock-on effects to the broader economy. In fact, housing-related indicators alone leave the impression that a recession is just around the corner.
There are three main ways in which the housing boom has weaved its way through the economy. There is the direct link of residential investment, which accounts for 5.5% of real economic activity, a share that has risen a full percentage point in just four years. This sector has consistently contributed about half a percentage point to real GDP growth since 2002, twice its historical norm. Over the next year, however, the opposite is expected to be true, with residential investment shaving half a percentage point from annual economic growth. On its own, this would be a barely audible hiccup in the economic expansion, but residential investment has been a heavyweight in influencing recent labour market conditions.

Construction and real estate jobs are to credit for one-fifth of all American job growth in the past four years. This is remarkably disproportionate to its size in the labour market. For instance, the construction industry accounts for less than 5 per cent of all jobs. Not surprising, regions that had the greatest gains in home prices during the boom also experienced the most robust demand for construction workers. New England can thank the construction sector for more than one-third of all job growth over the past four years (August 2002-August 2006). The respective shares in California and Nevada are similarly high at 28 and 24 per cent. A pull back in housing, therefore, presents a clear and present danger to employment, and hence incomes and consumption across America.

And the impact from housing doesn’t end there. The third and biggest influence has come through two arteries of consumption: direct housing-related purchases and the wealth effect. The former includes the likes of furniture, appliances and other expenditures related to household services and operations. These purchases accounted for just over 18 per cent of the real economy in 2005. Meanwhile, housing wealth effects have been fueled by the rapid appreciation in home prices coupled with record levels of refinancing and home equity withdrawals. Unfortunately, the peak in refinancing has already long passed and if current declining trends continue through this year, refinancing activity will have slumped over 60% from 2003. Meanwhile, cashed-out home equity is projected to fall by 40% in 2007 alone!

The significance of this should not be overlooked. In the past three years, we estimated that housing wealth effects accounted for, on average, 2 percentage points of the annual growth in real consumer spending each year. The U.S. is now facing a situation where the unwinding of housing wealth effects will drag consumption growth. The second quarter of 2006 presents some preliminary evidence that this process is already underway. According to our proxies for capital gains and cashed-out equity, quarterly declines in both marginally detracted from real consumption growth. Even so, the overall wealth effect continues to support spending growth because the biggest driver is real estate assets valued at nearly $17 trillion in inflation adjusted terms. But even here cracks are forming. This measure expanded by just half a per cent in the second quarter, marking the slowest pace since 1997. As overall wealth effects continue to reverse course, we estimate that it could shave at least a full percentage point from real GDP growth over the next 12 months.

How close is the U.S. to a recession?

With all these dire predictions, would there be an outright contraction in U.S. economic activity? There is significant risk of a recession in 2007 or early 2008. However, the most likely outcome remains a mid-cycle slowdown. Although a number of housing indicators are mirroring the path of past recession cycles, the data provide an incomplete picture and can often send false signals. Interest rates, inflation and employment are also material in shaping the economic landscape.

Starting with the housing market backdrop, the news is somewhat glum. There is a strong link between real estate assets and recessions. The annual growth rate in inflation adjusted real estate has contracted in three of the past four recessions. On average, asset growth hits a trough of -3% following several quarterly declines that either preceded or coincided with the start of the recession. Currently, this seems a long way off since real estate assets were still expanding by a healthy 7% annual clip in the second quarter. However, the slowdown in the quarterly growth rate is a red flag. In addition, the annual pace of growth for detached real home prices moved deep into negative territory (-5.3%) in August, which does not bode well for the wealth measure in the third quarter. But, readers should bear in mind that there are also instances when price growth dramatically slows or turns negative that does not coincide with recessions. The mid-1990s offers a perfect example of repeated false signals, though a mid-cycle slowdown did ensue.

Sharp double-digit declines in the annual growth of housing starts in August also put this indicator in bad company for either a recession or cyclical slowdown. But, the data is inconclusive on which one it would be because single-family housing starts contract steeply in both cases. The only distinguishing feature is that activity during a recession cycle remains in the red for a longer period of time. For this outcome, we’ll have to wait and see, but what we do know is that construction activity in the most recent quarter has already contracted to a greater extent than the initial backslide leading into an average recession cycle.

Another possible signpost that the U.S. is on the cusp of a recession is if purchases of big-ticket housing items begin to contract on a quarterly basis. Falling expenditures on items like furniture and household equipment tend to precede a recession by 1-to-3 quarters. This has yet to occur in the present economic cycle, but we would not be surprised if it did. However, the bigger economic determinant is if a contraction in spending for non-housing items follows in toe. When this occurs, a critical threshold of consumer confidence has been breached.

Consumers hold the key to economic expansion…

In past recession cycles, consumer spending was undermined by three critical variables: inflation, interest rates and unemployment. There is good news on all three fronts in the current economic cycle. The graph below shows that present inflation behaviour is more akin to periods of mid-cycle slowdowns than recessions. U.S. core inflation typically accelerated ahead of recessions and was at least double current levels. Because movements in inflation and interest rates are highly intertwined, acceleration in the former usually prompted the central bank to respond with higher interest rates – often causing monetary policy to overshoot to the point of choking off domestic demand. This is evident in the graph on the following page, where the real fed funds rate climbs, on average, about 2 percentage points over the course of four quarters preceding a recession. The current cycle has produced an equivalent amount of tightening, but it has been gradual by comparison, occurring over eight quarters. Equally important, the level of real interest rates remains a full 2 percentage points below peak pre-recession periods. So in both cases, interest rates appear to be only tapping on the brakes, rather than driving the economy to a full stop.

This may account for why household credit is still showing little sign of stress, even at this late stage in the monetary tightening cycle. There has been much made of recent up-ticks in foreclosures and delinquencies, especially in states that have a notorious reputation for the use of riskier debt products, such as California and Nevada. Yet, the national level of delinquency rates remains low. And, in the subprime market, California and Arizona still ranked as the lowest delinquency states in the U.S. even though both have a disproportionate amount of non-conventional mortgages. In the first quarter of 2006, negative amortization loans represented 9 per cent of new mortgages in the U.S. In Nevada and California, those respective shares were 22.5 per cent and 21 per cent.

With this in mind, we fully recognize that the high use of ‘exotic’ mortgages does present a near-term risk to the economic expansion. In 2005, nearly 40% of new mortgages were either negative amortization or interest-only products. What’s more, it is estimated that $1 trillion of adjustable rate mortgages will adjust in 2007, or about 8% of outstanding mortgage loans. However, once again we take comfort in the inflation-interest rate link. Without the shackles of high inflation in the current cycle, we believe the Fed will react quickly to an economic slowdown and will cut interest rates by 100 basis points in the first half of 2007. This should help alleviate the interest rate strain on some of the more vulnerable credit holders.

The labour market backdrop is the third factor supporting the outcome of a mid-cycle slowdown. The final scenario graph below has two useful insights. First, the current labour market looks to be paralleling the path of a cyclical slowdown, referring to the fact that there has not been a material deceleration in job growth that typically precedes a recession. Meanwhile, growth in real wages per employee has recently accelerated, which is opposite to pre-recession behaviour. Second, the amount of new jobs relative to total employment is much lower in the current cycle than either of the scenarios of a recession or mid-cycle slowdown. This is good news because less job buildup going into a slowdown provides some insulation against the risk of mass job layoffs.

This possibility is further enhanced when we consider that the job boom that typically takes place in post-recession periods did not occur after the 2001 recession. Rather, corporate restructuring scratched nearly 3 million jobs from payrolls between 2001 and 2003. And, in some sectors, employment restructuring has yet to cease. For instance, the manufacturing sector continues to shed jobs five years after the official end of the recession.

Current lean employment structures provide some reassurance that aggressive job cuts are not waiting in the wings. This is a vital component to any economic cycle, because mass layoffs cause a sudden interruption in household income that is highly destabilizing to an expansion. Total wages in the economy amount to over $4 trillion, which is more than five times the amount of mortgage equity withdrawal.

…but Corporate America is in driver’s seat

But, the security of job growth ultimately hinges on the response by Corporate America to an economic slowdown. Even here we find a number of key positive features in the present cycle. For one, the ratio of prices to unit labour costs is typically falling heading into a recession period. This is definitely not the case in the current cycle, plus the ratio is at a historical high reflecting the fact that businesses have successfully constrained unit labour costs to lift profits. Second, corporate liquidity and savings have never been better. If the U.S. economy was nearing a recession, growth in retained earnings would normally be slowing, but the opposite has occurred. Given that retained earnings are at a record level, firms should not find themselves in dire straights as demand growth tapers off, especially if the slowdown extends a short period of one year, as we predict. And, as we already mentioned, job restructuring occurred only three years ago, so there’s not much fat to cut off these bones.

The final corporate variable that provides comfort is the historically low inventory-to-sales (I/S) ratio. Inventory swings have proven to be highly disruptive during an economic downturn and can often hasten job layoffs. When consumer demand growth trails off, I/S ratios tend to rise, causing firms to aggressively liquidate on-hand stock. The Fed estimated that this inventory adjustment process accounted for, on average, one-quarter of the overall slowdown in real GDP growth during postwar recessions. This is quite a powerful influence from a sector that represents a mere 0.5 per cent of GDP.

In the current economic cycle, I/S ratios across all sectors – retail, wholesale and manufacturing – are already flirting with record lows. In fact, these ratios have been extremely lean since 2004, the start of the Fed tightening cycle. So, it’s quite possible that firms have long been bracing for an economic slowdown. Low I/S ratios relative to past norms should limit the severity of an economic downturn, while also mitigating some of the negative risks that naturally flow to the job market.

Conclusion

We are not blind to the obstacles faced by the U.S. economy, such as a negative savings rate and high debt service costs. If the consumer back finally breaks, look for preliminary signals to emerge in the form of steep contractions in housing-related expenditures and escalating debt defaults. But, we remind readers that there is no single variable that can push America into a recession. The health of the economy is dependent on a confluence of many factors. Although recent trends in the housing sector are closely paralleling events leading into past recessions, deteriorating wealth effects and falling home prices alone do not portend a recession. The environment for interest rates, inflation and corporate balance sheets bears no resemblance to past recessions. We believe these factors will dominate, preventing the mass job losses that would compromise income growth and the ability for households to meet debt obligations and future expenditures. So, to return to the question we posed in the introduction as to whether the housing correction will lead to an outright recession, the likely answer is “no”. The economic indicators are precisely in line with previous mid-cycle slowdowns, such that the U.S. economy is more likely to bump along the 2 per cent mark for a one-year period, than contract outright.

Article courtesy of TD Canada Trust, Paul Chadwick

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
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Energy Efficient Homes are Important to Home Buyers

As costs rise, energy efficiency high on checklist of home buyer
JANE GADD of the Globe and Mail

The message of energy efficiency has got through to 90 per cent of home buyers in the Toronto and Ottawa areas, according to a survey released this week.

EnerQuality Corp., which oversees the federal Energy Star for New Homes program in Ontario, says an independent survey found that 9 out of 10 people buying single-family homes in those markets this year were looking for increased energy efficiency.

Their motivation was mostly financial -- more than six out of 10 gave energy bills as the main reason.

Being environmentally friendly was rated second -- 15 per cent said that that was their goal. The rest mentioned greater comfort or better resale value.

"I am not surprised to see that saving money is the No. 1 reason behind the growing demand for energy-efficient housing," said Corey McBurney, who heads EnerQuality in Ontario. "Builders have been telling us for some time that home buyers want to protect themselves against rising energy costs."

Four out of five new-home owners surveyed said that paying up front for better energy efficiency would be worth it.

The survey polled 1,830 new-home buyers in the Greater Toronto Area and Ottawa-Carleton this year.

Eighty-four per cent said energy efficiency was important to them, while 90 per cent said their next home would be an energy-efficient one.

Fifty per cent of respondents said the homes they bought were energy-efficient, and 89 per cent said builders should make energy efficiency standard.

Of those who said they'd bought an energy-efficient home, 89 per cent had bought an energy-efficient furnace. Other energy-efficient features were appliances (bought by 79 per cent), windows (66 per cent), lighting (54 per cent), increased insulation (31 per cent), airtight construction (30 per cent), and heat-recovery ventilators (11 per cent). This article appeared in the Globe and Mail, Sept 29, 2006


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
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Your Retirement options improve when you own real estate

You have many options when it comes to retirement if you own real estate.

You can take the real estate proceeds to finance your retirement home living, your retirement vacations and your extended health care. You should have extra money left over to help your children and grand children too.

Investment properties can provide a steady income stream for many years of your retirement. Just imagine receiving $1000 or $1500 per month net after expenses of operating that investment townhouse that you purchased 18 years ago. This is a reality that only you can decide to make happen.

There are many other options open to you and I would be more than happy to discuss any of them with you.

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
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RBC Royal Bank Report: "Economny Shifts Gears" September 2006

RBC Royal Bank "Leading indicator points to positive, but slower, growth ahead"
Latest month available: August 2006

Release date: September 20, 2006

Fixed income and currency market reaction
The leading economic indicator rose by 0.2% in August. July's increase was revised up to show a 0.3% increase, (previously reported as 0.2%).

Implications
The rise in the leading indicator confirms that economy continued to exhibit decent momentum in the third quarter with seven of the 10 components recording increases in August.

The biggest decline occurred in the housing index, which fell 2.5% as a result of a decline in housing starts and a levelling off of house sales. The slowing in housing market activity restrained growth in furniture and appliance sales to 0.5%, their slowest increase this year.

Manufacturing new orders rose 0.1%, while the ratio of shipments-to-inventories remained relatively flat. Money supply growth increased while the U.S. Conference Board leading indicator fell 0.1%.

Today's release points to positive, but modestly slower, growth ahead in line with our forecast that real GDP growth will moderate in the second half of the year after increasing at a 2.8% average pace in the first half.

Real GDP... Second-quarter real GDP surprises on downside
Release date: August 31, 2006

Fixed income and currency market reaction
Canadian second-quarter real GDP surprised on the downside, rising at a 2% annualized pace, below market expectations of a 2.3% annualized increase and well below the forecast put forward by the Bank of Canada in their latest Monetary Policy Report Update. First-quarter GDP growth was revised down to a 3.6% annualized pace from 3.8%. On a monthly basis, the Canadian economy remained stable in June. The lower-than-expected second-quarter read will prove negative for the Canadian dollar and positive for bonds.

Implications
While consumer spending slowed slightly in the quarter to 4.2% from the first quarter's 5.1% pace, it continued to support the economy. Expenditures on durable goods decelerated sharply.

Residential investment declined 5.2% after growing at a solid 12.7% in the first quarter due to mild winter weather. Businesses continued to invest in plant and equipment, although the pace of the investment was slower than that registered in the first. A large business inventory investment was also evident in the second quarter.

Exports fell 1.2%, continuing the decline seen in the first quarter as manufacturing output weakened further. Auto exports fell for a second consecutive quarter. Imports rebounded from a weak first quarter as the Canadian dollar appreciated. The strength of business investment accounted for much of the increase as imports of machinery and equipment grew.

Wages and salaries grew by 1.3% in the second quarter, while nominal profits edged ahead 0.4%.

The details of the report are not all bad news as most of the components contributed to growth in the quarter.

The major drag was net trade. However, most of the drag in net trade came from imports, which were largely supported by strong business investment. Hence, the overall picture is not completely one of doom-and-gloom.

The report is consistent with no change in interest rates at next week's Bank of Canada meeting and tilts the risk towards no more hikes for the remainder of the year.

Source: "Financial Markets Monthly", Economics Departnment, RBC Financial Group.
Read this report and more from the Royal Bank of Canada at this link: http://www.rbccm.com/0,,cid-10676_,00.html

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
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Rising rates cool hot housing market across most of the country

Rising rates cool hot housing market
SHIRLEY WON of the Globe and Mail

Canada's buoyant housing market continued to cool off last month as sales fell 6.4 per cent in the wake of rising home prices and higher mortgage rates.

It was the third consecutive month of year-over-year sales declines, although the average home price surged 11.6 per cent to $292,989, according to a report released yesterday by the Canadian Real Estate Association (CREA).

"We have seen some cooling in Central and Atlantic Canada, but the housing market out West has been delivering extremely strong, and quite dramatic, price gains," said Toronto-Dominion Bank economist Craig Alexander.

"Calgary home prices were up 50 per cent in August, and that is unbelievable."

Seasonally adjusted, home sales in Canada's major markets fell to 27,657 units in August, as new listings rose 2.8 per cent to 47,117.

"The average price growth will slow down" as new listings increase, even in the stronger markets, and home sales will continue weakening, Mr. Craig predicted in an interview. "The current 11.6 per cent [price increase] is not sustainable."

Calgary, whose economy is driven by the booming oil patch, saw a 9.8-per-cent drop in home sales in August, while new listings jumped 29 per cent to 4,271. "More properties are coming onto the market, and this is why we think that home price growth will slow," he said.

Edmonton marched to a different beat last month with sales rising 7.5 per cent as the average home price jumped 38 per cent.

In Toronto, home sales fell 6.7 per cent in August as the average price rose 4.6 per cent. In Vancouver, sales fell 18.6 per cent while the average price rose 18.3 per cent.

But the Canadian housing market is not poised to head in the same direction as the deteriorating U.S. housing market that has been fuelled by speculators, Mr. Craig said. "I don't think there are the same sort of risks of a major housing correction."

CREA economist Gregory Klump expects the housing market to continue to slow for the rest of this year and in 2007, while prices keep rising -- albeit at a slower pace.

"We are on a path that is trending towards more normal levels" since monthly sales peaked in August, 2005, Mr. Klump said. That's when 29,550 homes were sold. (A normal level of housing activity is defined as monthly sales of 18,000 to 22,000 units.)

The market continues to be affected by rising interest rates and higher mortgage-carrying costs resulting from increased home prices, Mr. Klump said.

On a year-to-date basis, home sales are still up 1.4 per cent from a year ago because of strong activity at the beginning of the year.


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

US Housing Market may have overheated

U.S. housing market overheating
ROMA LUCIW

Globe and Mail Update

Most of the U.S. housing market is now showing signs of overheating, with more than two-thirds of the country's biggest cities experiencing steamy, if not outright frothy conditions, according to Merrill Lynch & Co.

In a June, 2005, report titled Mega Metro Bubbles, Merrill said half of the 52 major urban centres in the U.S. were showing signs of overheating. More than a year later, conditions have deteriorated further and that number has jumped to 70 per cent.

Evidence of a slowdown is piling up. Sales of existing homes dropped 11 per cent from a year ago in July, while new home sales have tumbled 20 per cent. At the same time, inventory levels of new and existing unsold homes have grown by almost 40 per cent.

''This suggests that several regional markets could experience material price corrections,” said the updated report.

The team of economists said Monday it expects home price increases will slow to 5 per cent in 2006, and then prices will actually decrease by 5 per cent in 2007. The bearish stance on the housing market led Merrill to cut its outlook for U.S. economic growth to a ”sub-par” 1.8 per cent in 2007 from close to 3.5 per cent this year.

”The findings suggest that many real estate markets face downside risk, which could put more pressure on home builders as well as have negative implications on consumer discretionary equities,” the Merrill report said.

As has been the case for four years, Miami took the top spot as the most overvalued city, with prices rising 25 per cent from a year ago.

Housing prices south of the border have been rocketing higher since the U.S. central bank started to cut rates in 2001. In addition to record-low interest rates, the housing boom has been fuelled by a proliferation of accessible ”buy now, pay later” mortgage products.

However, rising interest rates, higher house prices and surging costs for heating homes have triggered a severe drop in the U.S. housing market.

Craig Alexander, a Toronto-Dominion Bank economist who has been tracking Canada's residential real estate market, said Monday the U.S. housing-led slowdown has become a reality.

”Real estate activity has come down quickly and the economic fallout will be felt over the next several quarters,” he said. The housing correction has become the dominant topic of conversation, fuelling talk about a possible U.S. recession.

Mr. Alexander says he does not foresee an outright recession but rather a mid-business cycle slowdown, with economic growth slumping to 2 per cent before recovering.

”For Canada, the timing of the U.S. slowdown is rather unfortunate,” he said. ”Exporters are still struggling to adjust to the higher value of the loonie, and now they will have to cope with weaker demand in their largest market.”

Canadian demand will remain strong, although it will be hurt by the indirect effects of a slowing U.S. economy, including modest job growth, Mr. Alexander said. Canada's housing market will also cool, although ”nothing like” the experience south of the border.

There is clear evidence that the rise in Canadian housing prices is being supported by economic fundamentals, not speculation, TD said. "Real estate markets have responded to strong demand growth, which has reflected the lowest unemployment rate in 30 years, strong personal income gains in the last three years, and attractive borrowing costs."

The gradual cooling in the Canadian housing market will not threaten the domestic economy, which will continue to grow at a solid pace. TD forecasts Canadian economic growth of between 2 and 2.5 per cent in the fourth-quarter.

Mr. Alexander said the U.S. Federal Reserve is likely to cut rates by 100 basis points in the first half of 2007, while the Bank of Canada is expected to be less aggressive and slower to ease, with quarter point rate cuts in March and April of next year.

TD forecast that the weaker U.S. housing picture will lead to a 25 per cent drop in base metals in the next four quarters, while crude oil will fall to $50 (U.S.) next year before rebounding. Meanwhile, the Canadian dollar will likely trade a range between 87 and 90 cents in 2007. This Article from the Globe and Mail

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

What is an Accredited Buyer Representative?

What is a Buyer Representative?

A real estate buyer's representative represents the buyer who is purchasing property in a real estate transaction. Research by the National Association of REALTORS has shown that when a buyer's representative is used, the prospective buyer found a home one week faster and examined three more properties than consumers who did not use a buyer's representative.

The buyer's representative works for, and owes fiduciary responsibilities to, the real estate buyer and has buyer's best interests in mind throughout the entire real estate process. A buyer's representative will:

- Evaluate the specific needs and wants of the buyer and locate properties that fit those specifications.

- Assist the buyer in determining the amount that they can afford (pre-qualify), and show properties in that price range and locale.

- Assist in viewing properties -- accompany the buyer on the showings, or preview the properties on behalf of the buyer to insure that the identified specifications are met.

- Research the selected properties to identify any problems or issues to help the buyer make an informed decision prior to making an offer to purchase the property.

- Advise the buyer on structuring an appropriate offer to purchase the selected property.

- Present the offer to the seller's agent and the seller on the buyer's behalf.

- Negotiate on behalf of the buyer to help obtain the identified property -- keeping the buyer's best interests in mind.

- Assist in securing appropriate financing for the selected property.

- Provide a list of potential qualified vendors (e.g. movers, attorneys, carpenters, etc.) if these services are needed.

- Most importantly, fully-represent the buyer throughout the real estate transaction.

The Buyer Representation Agreement

It is important for the buyer to discuss the buyer's representative's compensation in the initial interview. In many cases it is recommended that the buyer and the buyer's representative agree to the terms of compensation prior to viewing properties, and sign a written agreement based on those terms. The agreement should spell out the responsibilities of both parties throughout the real estate process.

In some states, legislation has been enacted to protect the buyer to the point that, absent a written agreement, the buyer's representative represents the buyer throughout the real estate transaction. Consult your REALTOR for complete details when you begin the purchase process.

Why you should use an Accredited Buyer's Representative (ABR)

Why should you look for the ABR designation before looking for a home? These three letters after a REALTOR's name tell you that you will be working with buyer representative who is committed to your best interests. The ABR Designation is awarded by REBAC to those REALTORS who have met the specific educational and experiential criteria needed to provide the high level quality service required by REBAC (Real Estate BUYER'S AGENT Council).

About the Real Estate BUYER'S AGENT Council (REBAC)

The Real Estate BUYER'S AGENT Council, REBAC, was founded in 1988 to promote superior buyer representation skills and services. An affiliate of the National Association of REALTORS since 1996, REBAC's membership now numbers well over 40,000 and is the worlds largest organization of real estate professionals concentrating on buyer representation. Members who meet all course and professional experiential requirements are awarded the ABR (Accredited Buyers Representative) and/or ABRMsm (Accredited Buyers Representative Manager) designation(s). Both are the only designations of their type recognized by NAR.

The ABR designation is geared towards agents who wish to enhance their buyer representation skills, and provides proof to prospective buyer-clients of their proficiency at servicing the special needs of buyers.

The Accredited Buyer Representative (ABR®) designation is the benchmark of excellence in buyer representation. This coveted designation is awarded to real estate practitioners by the Real Estate BUYER'S AGENT Council (REBAC) of the National Association of REALTORS® who meet the specified educational and practical experience criteria.

Read more about buyer representatives at realtor.org http://www.realtor.org/realtororg.nsf/pages/whatbuyerrep
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 is the most active condo market in North America 2ndQ 2006

Toronto most active condo market in North America

Toronto was the most active, and probably the largest condominium market in North America in the second quarter of 2006, according to a report published by Urbanation, an independent analysis company that has been doing in-depth studies of the Toronto condo market since 1981. The Urbanation report says the new condominium market now represents 39 per cent of total new home sales in the Toronto CMA.

The Urbanation report says there were 255 new condominium projects representing more than 53,000 units in the Toronto CMA in the second quarter of this year. However more than 77 per cent of the units were already sold and more than 28,000 were under construction in the quarter.

In the first six months of 2006, more than 8,300 buyers visited sales centres throughout the city and found what they were looking for -- the right product, for the right price, in the right location. This is similar to the sales performance in the first half of 2005, which ended up being a record year for new condominium apartment sales with more than 16,000 sold across the Toronto CMA.

Urbanation says developers must pre-sell 65 – 70 per cent of the units from floor plans before a project can proceed. The company’s report indicates that in the second quarter of this year, unsold units represented 23 per cent of total new condominium units on the market. In contrast, when the condominium market crashed in the late 1980s, unsold units represented nearly 50 per cent of the total inventory in active projects.

Urbanation also says today's condominium buyers are savvy, well-educated consumers who are taking the time to shop around and compare projects to find the best value for their money. This means that prices have remained both competitive and affordable as the condominium market is largely driven by "real" buyers looking for real homes to move into. By contrast, in the 1980s the demand for new condominiums was driven largely by speculators and investors. This resulted in a sharp increase in both sales activity and prices over a very short period of time and created an unsustainable market bubble.

There are investors buying new condominiums in 2006, Urbanation says, but they represent less than one-quarter of total new condominium buyers in the Toronto CMA. “Due to increasing construction costs, we have seen higher prices for new condominium projects over the past six to nine months, and increasing mortgage rates, so statistically speaking, the number of people who can afford to purchase a new home has decreased. The good news so far is that our data does not show any early warning signs of a significant market downturn as sales have remained strong, suggesting that overall affordability remains high and consumers are still finding excellent value for their money.”

However, Urbanation says continued rising construction costs and mortgage rates over the long term may increase the chances of a "soft landing" for the condominium market in future, but not a crash similar to what occurred in the 1980s.


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

BMO suggests that Students need a credit card and should choose wisely

Back to School: Choose your first credit card wisely

(NC)—If you're one of the many Canadians attending college or university this fall, be prepared to face a lot of choices throughout your academic year, one of which is likely to be selecting your first credit card. It may seem daunting at first, but the trick is to keep it simple.

"It's just a matter of understanding your own needs and finding the card that comes closest to meeting them," says Mike Kitchen, vice president, BMO Bank of Montreal Mosaik MasterCard. "Consider what you will be using your card for, how you plan on managing your finances and if you want to earn rewards for things such as travel, merchandise or entertainment."

According to a recent BMO Mosaik MasterCard Student Survey, 72 per cent of post-secondary students with a credit card will carry a balance, so for many of these cardholders, a low interest rate credit card will minimize their monthly costs. Students should be sure to identify cards that have a low annual interest rate, not just a low introductory rate.

The same survey shows that one in three students applied for a credit card because it was needed to make travel reservations. "Students who need to fly between home and school may want to consider a travel rewards credit card, like our Mosaik MasterCard," Kitchen suggests.

"When you're at school you need to do your homework – this applies to choosing and using a credit card too. If you invest the time to answer basic questions about what you want from a credit card, and understand your own responsibilities, you'll get a much better sense of how well a particular card meets your personal needs," says Kitchen.

- News Canada

Mark's comments:
I believe that a post secondary student should obtain at least one or two credit cards, for the reasons above, plus you want to start building your credit history as soon as you can to assist with obtaining credit in your early to mid 20's The longer that your credit history is on file, the better credit risk you will appear to have.

All the best!

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