TD Canada Trust thinks that housing starts in Canada are strong

Canadian housing starts strength is timely U.S. focus shifts to "how deep, how long?"

Canadian economic data did not disappoint this week, far from it. For starters, total building permits shot back above 230,000 units in February after trending mostly down since the middle of last year.

Then, housing starts for March closed out the
quarter on a strong note, barely budging from
February's astonishingly high level of around
255,000 units. The level of first quarter housing
starts (246,000 units) ranks close to the highest
ever on record, which dates back to 1977. Even after
adjusting for population growth and trends in
household formation, we judge the current pace of
home construction to be unsustainably high. In
particular, the volatile multiple-unit segment is
vulnerable to a second quarter payback, after
shooting through the roof in the first quarter.
Nonetheless, current momentum has lead us to
increase our 2008 forecast to 221,000 starts, a 3%
decline from 2007. [More in "Canada's Red Hot Real
Estate Markets to Cool", available on our website.]
Fortunately, in the current cycle where the Canadian
economy does its best to weather the U.S. downturn,
strength in construction activity could not have
come at a better time. The construction sector has
certainly done its part in recent months. It has
been a significant direct and indirect contributor
to Canadian economic growth and employment, and
shows, as of yet, little sign of relinquishing that
role.


Even trade lent a hand


Another positive surprise this week was that even
the weakest spot for the Canadian economy in the
current cycle, namely exports, fared much better
than expected in February. On a month-over-month
basis, the volume of exports shot up 3.6% while
import volumes were down 1.9%, which combined imply
that net exports will have lent a significant hand
to growth accounting for February. As a consequence
of unexpected strength in construction and exports,
overall first quarter growth is not looking nearly
as weak as we forecast in March, and will surely be
positive. However, for a multitude of reasons which
still hold – in particular a strong Canadian dollar,
emerging market competition, and mostly, weak U.S.
demand – we still hold firm the view that exports
will remain the weak spot for the Canadian economy
going forward. They will likely continue to exert a
significant drag on Canadian growth in upcoming
months, with February written off as a blip when all
is said and done.


Sombre Frenchmen


On the other side of the Atlantic, the French seem
to be in no mood to kid these days, despite the
usual comic antics to come out of Sarkozy's press
conferences. Between virulent protests - what else
is new? - in Paris over the Olympic torch relay and
the decidedly somber mood from top men at the IMF
(Dominique Strauss-Kahn) and the ECB (Claude
Trichet), "joie de vivre" seems to be in short
supply these days. They are not alone in feeling
bearish of course. The little data for the U.S.
economy that was released this week did little to
change our or central bankers' views on the U.S.
outlook, so allow us to editorialize a bit more than
usual this week.


Concerns over the U.S. economy have shifted in
recent weeks. The focus up to recently seemed to
have been an understandable, but misguided, fixation
on whether or not the U.S. is technically in a
recession. The jury on this, which is the cycle
dating committee of the National Bureau of Economic
Research, doesn't offer its verdict until much later
after events have unfolded. Much confusion arises in
the meantime as the only thing anyone can provide
until then is a forecast, be it theirs or someone
else's. Anyone claiming the U.S. economy is
currently in a recession is providing you with their
forecast, not a statement of fact. By the same
token, anyone claiming the U.S. is not in recession
is offering, you guessed it, their forecast. As time
passes and more data comes in, uncertainty
surrounding the forecast dissipates and the
likelihood of it being correct improves – nothing
more, nothing less. Think of the NBER as the Pope
(insert alternative authoritative religious figure
here as needed) of recessions, but given the huge
lag, we don't advise waiting around for the 'final'
word.


TD Economics' forecast is that the U.S. economy is
indeed currently in the midst of a recession, which
will record two non-consecutive quarters of real GDP
contraction. By itself, the fact the quarterly
contractions are not expected to be consecutive
would make this an atypical recession. But there are
other more substantive issues which would also make
the current recession unlike those past. Overall,
our U.S. forecast stands on the slightly pessimistic
side of consensus, but is not currently quite as
bearish as that of the IMF. The accompanying table
compares the IMF forecast from April to ours from
March.


Loud and clear


After slashing their U.S. forecast by a full
percentage point for 2008 and 1.2 percentage points
for 2009, the organization has now come out clearly
on the gloomy side of things. Interestingly, it
would seem hard to remain poised if one lines up
this week's simultaneous alarm bells rung off by the
IMF. First, their latest Economic Outlook has world
growth slowing considerably this year – agreed.
Second, the IMF thinks there's a 1 in 4 chance of a
worldwide recession (less than 3% growth) – again,
we'd agree that the current uncertainty means a
wider range of potential outcomes with
higher-than-usual probability, so we would not
quibble with that figure. According to another IMF
report, we are currently facing the worst financial
crisis since the great depression, with financial
losses forecast at $945 billion. Maybe, but
comparisons to the great depression are off the mark
in both scope and depth. Specific estimates as to
aggregate financial losses vary greatly and depend
on market outcomes. Any such calculation is fraught
with uncertainty, and the IMF's estimate is
certainly as good as any, if not better than most.
Third, food price inflation is causing riots in some
developing countries and threatens to seriously
compromise efforts to fight poverty in many regions
of the developing world. Every one of these concerns
is valid, even if slightly over-hyped by the media
at times.


But without dismissing any of the aforementioned
concerns, dare we remain cautious pessimists while
at the same time putting things in perspective and
say that the world is not coming to an end? Dare we
say that the same financial players in the U.S.
which originated much of the currently toxic
asset-backed securities (ABS) are also the fastest,
certainly with a lot of help from the Federal
Reserve, to adjust their books and clear out the
mess? Dare we remind observers how many times the
American economy has been written off, bound for the
heap of history, only to lead the world economy into
another decade of growth? None of this means the
U.S. economy will fare well in the near term, far
from it. It will at best move sideways until
mid-2009, at worse face a deeper recession. And we
are nowhere near done with alleviating financial
markets stresses worldwide, as credit spreads can
attest. But it might serve as a friendly reminder
that gloom is in part self-fulfilling, and that the
remarkably flexible U.S. economy has consistently
shown an ability to land on its feet. Just something
to keep in mind if your time

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A. Mark Argentino
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TD Canada Trust comments on Canadian and US economy and Rates

HIGHLIGHTS

• U.S. economy grew 0.6% in the first quarter
• U.S. lost 20k jobs in April, less than expected
• Fed cuts a quarter-point; sees risks balanced

As the Oracle of Omaha prepares to meet with shareholders, we are left to sift through this week's plethora of data in order to prophesize what is to come for the U.S. economy. We have dispensed with the crystal balls, have left our dark robes at home, and require no secret handshakes or Gregorian chants in order to attend. Consuming the eye of newt and toe of frog is optional.

A touch of GDP

The U.S. economy maintained its 0.6% pace from the last quarter of 2007 through the first quarter of 2008. On face value, one may say the U.S. economy got no worse. The details, however, were less than convincing. The pace of decline in residential construction accelerated further, and was joined by new contractions in both nonresidential construction and business investment. Were it not for an accumulation of inventories – businesses restocking shelves and producers resupplying inputs – the U.S. economy would have contracted by 0.2%. Increasing business capacity would be completely natural if there was an expectation the economy were about to turn a corner.

However, consumer spending growth slowed from 2.3% to just 1.0%, the slowest quarterly gain in over a decade. Perhaps consumers are waiting for their stimulus checks from the Treasury – the first of which were sent out this week and will continue through mid-July. Consumers are losing about $10bn per month in spending power just from the loss of mortgage wealth alone. The checks will add about $10-12bn per month in spending power – but will only last for the next three to four months. So retailers could be gearing up for a short-term spending spree.

In our chart above, we have broken out U.S. consumer spending between goods and services, as well as between wants (cars, televisions, etc.) and needs (food, energy, bills, etc.). All four categories are outperforming the typical start of a U.S. recession. Goods purchases are falling across the board, but only at about half the pace typically seen at the start of a recession. Even more impressively, service growth is expanding at more than twice its usual pace for wants and eight times the usual pace for needs.

Since spending on consumer services constitutes 40 per cent of the U.S. economy, the question is whether this can be sustained. Well, one-quarter of consumer services (one-tenth of the U.S. economy) is rent (and its equivalent for homeowners). One result of increasing home foreclosures and retrenchment in construction has been falling vacancy rates among rental units. So the worsening housing market has actually provided some support for this component of GDP. However, in the last two recessions, there was a lag of about 12 months between the worst declines in residential construction and initial declines in this rental component. In the 1980s housing crash, the lag was even shorter. Adding to these risks, one-in-ten dollars of consumer services spending is household operations – gas, electric, sewage, phone, etc. – and the generally close relationship between this component and residential construction has never been more strained. Year-over-year declines of over 20% in home construction typically translate into 5% declines in household operations spending, which is now posting 5% y/y gains. With the potential for further foreclosures, and with hefty demands for utilities likely to ease after a bad winter across much of the U.S., the risks for this component lie squarely on the downside.

A dash of jobs

But ultimately, as goes the labour market, so goes the consumer. The U.S. economy shed just 20k jobs in April - one-quarter of the market's expectation – and the unemployment rate fell from 5.1% to 5.0%. The chart across compares the job losses over the last four months with the average in the last three U.S. recessions. At the aggregate, we have been averaging just 65k lost jobs per month, less than the 100k that would be typical. Losses in construction and financial services have been ugly – no surprise given they are at the heart of the current problems. But weaknesses have leaked into the business services, trade (retail and wholesale) and transportation sectors leaving them just as bad as in past recessions. Manufacturing and mining (Other Goods) have seen just half the recessionary level of average monthly job losses, while the pace of job gains in other services (health, education, IT, hospitality, etc.) has been twice the usual pace.

In a typical recession, the total monthly job losses tend to double from this point forward. Moreover, while every sector covered here tends to worsen in the remaining months of the recession, manufacturing and business services tend to be the hardest hit. The ISM manufacturing survey pointed to further weakness to come in this sector, but the weak dollar – by boosting exports – is likely to continue to help mitigate job losses here to some extent. For business services, the losses of temporary workers, which have constituted all of the job losses to date in this sector, tend to be followed by even larger losses in full-time staff as economic weakness continues and may offer a hint of the economy's health as we move forward.

The blind-worm's sting

The Federal Reserve this week cut interest rates an additional quarter point, bringing the fed funds rate to 2.00%. Their statement generally left their descriptions unchanged for the economy (negative) and inflation (uncertain with a touch of hope). They did remove their mention of downside risks, which could imply they feel the level of interest rates is appropriate to balance the desire for moderate economic growth in the future with the risk of stoking inflation. In the near term, we may see the Fed pause to see how the economy reacts to 325bps of interest rate cuts over the last eight months – as well as $100bn in tax rebate checks. However, 325bps in interest rate cuts have translated into less than 75bps in cuts to 30-year mortgage rates and less than 25bps in cuts to rates on new car loans. We fear further economic weakness will warrant more easing, bringing the target rate to 1.25% by year-end. The Fed on Friday announced an expansion of liquidity operations aimed at increasing the pass-through into lower consumer loan rates, but they have yet to find the right mix of ingredients in their cauldron to cure what ails the economy.

The economic environment in the U.S. is as clear as mud. There are no clear precedents for when the financial market problems will dissipate and exactly how they will continue to bleed into the U.S. and global economy. For instance, the Canadian economy contracted for the second time in three months in February, with growing weakness in the trade and transportation sectors. As a testament to the U.S. spill-over effect, the predominant areas of weakness in the Canadian economy remain goods sectors dependant on U.S. demand. The worst still remains contained within the U.S.

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Mark

A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate

Thinking of Selling? Best Mortgage Rates Current Home Prices Search MLS
RE/MAX Realty Specialists Inc.

Providing Full-Time Professional Real Estate Services since 1987
( BUS 905-828-3434
›mark@mississauga4sale.com
8 Website : Mississauga4Sale.com

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Sales moderate in April but prices up

Sales moderate in April but prices up

May 5, 2008 -- April statistics show that 8,762 houses sold in the Greater Toronto Area. "The market continues to experience a supply and demand situation and to-date it remains a sellers market," said TREB President Maureen O'Neill.

The GTA market was down 7 per cent from last April's record 9,452 transactions. However, it is showing signs for a healthy 2008 compared to the diminished activity during the first quarter of 2008.

The sales pace however, did not take place evenly throughout the GTA. With 3,467 transactions in the City of Toronto, sales were down 10 per cent from a year ago. The 905 region was down five per cent from April 2007 sales, with 5,295 homes changing hands.

Prices continued to appreciate last month, to a GTA average of $398,687, up eight per cent from last April's $367,968. The average price in the City of Toronto was $446,781, up six per cent from April 2007. The 905 region's average price of $367,196 increased five per cent from a year ago.

"For more than a decade, real estate has served as the economy's engine," said Ms. O'Neill. "It's encouraging to see that consumers are continuing to put their faith in real estate as an excellent longterm investment."

Breaking down the total, 3,398 sales were reported in TREB's 28 West districts and averaged $372,575; 1,531 sales were reported in the 14 Central districts and averaged $539,133; 1,768 sales were reported in the 23 North districts and averaged $429,262; and 2,065 sales were reported in TREB's 21 East districts and averaged $311,350.

See a graph of average prices:
http://www.mississauga4sale.com/TREBprice.htm#graph

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Specializing in Residential & Investment Real Estate

Thinking of Selling? Best Mortgage Rates Current Home Prices Search MLS
RE/MAX Realty Specialists Inc.

Providing Full-Time Professional Real Estate Services since 1987
( BUS 905-828-3434
›mark@mississauga4sale.com
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GTA resale housing market moderate in April, but prices up

GTA resale housing market moderate in April, but prices up

TORONTO, May 5, 2008 -- With 8,762 houses sold in the Greater Toronto Area, April's resale housing activity was down seven per cent from the record 9,452 transactions from the same timeframe a year ago, Toronto Real Estate Board President Maureen O'Neill announced today.

"The market is showing signs for a healthy 2008 compared to the diminished activity we saw in the first quarter of the year," said Ms. O'Neill. "We continue to experience a supply and demand situation and to-date, it remains a sellers market."

Sales activity however, was markedly different in the 416 and 905 regions. With 3,467 transactions in the City of Toronto, sales were down 10 per cent from a year ago. The 905 region was down five per cent from April 2007 sales, with 5,295 homes changing hands.

April's GTA average price was $398,687, up five per cent from the same period a year ago. In the City of Toronto, the average price was $446,781, up six per cent from last April. In the 905 region the average price increased five per cent compared to a year ago, to $367,196.

Several neighbourhoods experienced strong sales in April.

Scarborough East (E08) saw an five per cent overall sales increase compared to April 2007, driven by robust detached home sales.

Caledon (W28) experienced a 15 per cent increase compared to the same timeframe a year ago as a result of strong condominium sales.

Condominium sales also drove Willowdale (C07) to a 32 per cent increase from a year ago.
In Thornhill sales increased eight per cent from last April due to strong detached home sales.

"The number of listings on the Toronto Real Estate Board's Multiple Listing Service has increased to 24,539, up seven per cent from a year ago, which is good for homebuyers, who will find a greater range of options in the market," said Ms. O'Neill. "With prices continuing to appreciate and increased listing inventory there are favourable factors in today's market for consumers."

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Mark

A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate

Thinking of Selling? Best Mortgage Rates Current Home Prices Search MLS
RE/MAX Realty Specialists Inc.

Providing Full-Time Professional Real Estate Services since 1987
( BUS 905-828-3434
›mark@mississauga4sale.com
8 Website : Mississauga4Sale.com

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5 year rates finally dropping, but options are changing

Although the prime rate has been dropping, we have not experienced much change in the current 5 year fixed rates, until now.

There are still many people who are not comfortable with a variable rate mortgage, and feel much more comfortable with a guaranteed rate.

There are mortgage brokers that can now offer a 5 year fixed rate of 5.19%

This new product is what they are calling a 'no frills' mortgage, meaning it does not come with the same prepayment benefits of a regular 5 year fixed product, which the vast majority of home owners don't take advantage of anyway.

This makes it a perfect product for first time home buyers with limited opportunities to make lump sum payments during the first 5 years, or anyone just looking for a simple low interest fixed rate.

While there is 0% lump sum prepayment benefits, this product does allow for a 10% increase in the regular payment amount per anniversary year.

Borrowers can also take advantage of the same accelerated bi-weekly or weekly payments to pay down their mortgage sooner.

You may wish to consider taking this mortgage. If interested, email me and I will put you in contact with lenders that offer this product.

Thanks
Mark

MLS ® sales set to set record for 2007

MLS® sales set to establish a new record for 2007

Existing home sales as measured by the Multiple Listing service (MLS®), are expected to increase during 2007 by 7.6 per cent to approximately 519,722 units, surpassing the previous record level of 483,344 set in 2005.

In 2008, MLS® sales are expected to decrease by 3.9 per cent to 499,650 units reflecting moderating demand due to rising mortgage carrying costs.

Despite this forecasted decline, MLS® sales in 2008 will be at their second highest level on record. During 2009, continuing moderation is expected with growth falling by 2.3 per cent to 488,300 units.

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Mark

A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate

Thinking of Selling? Best Mortgage Rates Current Home Prices Search MLS
RE/MAX Realty Specialists Inc.

Providing Full-Time Professional Real Estate Services since 1987
( BUS 905-828-3434
›mark@mississauga4sale.com
8 Website : Mississauga4Sale.com

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CMHC is bullish on Vacancy Rates across Canada

CMHC comments on the rental market in Canada

The vacancy rate across the major centres in Canada was unchanged at 2.6 per cent in 2007. Over the last year, demand remained relatively strong given a solid employment growth, particularly for the younger age groups. Overall net migration was high last year which fuelled demand for rental housing. However, construction of new condo and rental units helped keep the vacancy rate stable.

For next year, the expected slowdown in employment will moderate the demand for rental units. Moreover, the increasing number of condominium units offered for rent on the secondary market will put upward pressure on vacancy rates.

The average vacancy rate for Canada's 34 metropolitan areas is forecast to rise to 2.8 per cent next year. However, the direction and magnitude of the change in vacancy rates will vary from centre to centre. The outlook for vacancy rates for some key rental markets across Canada is summarized below.

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A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate

Thinking of Selling? Best Mortgage Rates Current Home Prices Search MLS
RE/MAX Realty Specialists Inc.

Providing Full-Time Professional Real Estate Services since 1987
( BUS 905-828-3434
›mark@mississauga4sale.com
8 Website : Mississauga4Sale.com

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Was the Governor of the Bank of Canada asleep at the wheel?

There was an article in the Toronto Star yesterday that quoted the Governor of the Bank of Canada as saying:

"OTTAWA Confronting an economic crunch created by the sub-prime-mortgage meltdown in the United States, Bank of Canada Governor Mark Carney says he's worried about the increasing popularity of the 40-year mortgage in Canada."

You may Read the full article here

What did he expect? Did he think that people would not extend themselves to the maximum and take the 40 year mortgage when offered to them? Give me a break! I wrote about how bad the 40 year mortgage is for our real estate market and a sign of bad things to come back March of this year, at this post: http://www.mississauga4sale.com/blog/2008/03/negative-consequences-of-40-year.html

40 year mortgages were announced in April of 2007 http://www.mississauga4sale.com/blog/2007/04/wow-didnt-anyone-notice-this.html

The point is that we better be careful that our economy doesn't go the way of the us with their sub-prime meltdown. We many not go as deep or become as bad as the US, but these 40 year and longer term mortgages only prey on the people that probably should not be purchasing real estate or at least save a little more before they buy.

Again, home ownership is a right, but you have to use some common sense before you buy your real estate.

Anyone agree or disagree with me?

Thanks,

Mark

PS: To get you really going, read this article about the 50 year mortgage in Canada!: http://www.mississauga4sale.com/blog/2008/03/have-you-heard-of-new-50-year-mortgage.html

Here is the full article, for those that can't browse the web at work!

OTTAWA–Confronting an economic crunch created by the subprime-mortgage meltdown in the United States, Bank of Canada Governor Mark Carney says he's worried about the increasing popularity of the 40-year mortgage in Canada.

"We have concerns with the increased prevalence of very high loan to value mortgage products," he told members of Parliament on the House of Commons finance committee yesterday.

"They add to momentum in the housing market and, if everyone has a 40-year amortization mortgage, then you just have higher housing prices."

More than half of first-time buyers are said to be choosing to stretch their mortgage payments over 30 to 40 years, rather than the usual 25, for a better house than the buyers could otherwise afford.

Carney stressed, nevertheless, that Canada is not facing the same risks set in motion by subprime mortgages south of the border.

"The structure of our housing finance is entirely different than that of the United States," he said, adding that the creation and bust of a housing-price balloon based on risky mortgages is not possible to the same extent in Canada. Although housing prices have risen aggressively in Canada, Carney said, the country still has the lowest housing affordability among 20 industrialized nations checked by the International Monetary Fund, alongside Austria. Carney also said the Bank of Canada is being forced to cut its trend-setting rates more than it might otherwise because commercial banks are reluctant to pass on the savings to borrowers.

Despite sharp decreases in the central bank's trend-setting overnight rate, the interest rates charged by banks on some loans, particularly five-year fixed-rate mortgages, have not declined accordingly.

Carney said the turmoil in credit markets means commercial lenders are paying more to borrow money themselves and feel they need to recover some of those costs from customers.

"In calibrating monetary policy, we are taking that into account," Carney told MPs.

The issue, which the governor flagged as very important, tends to weaken the ability of the central bank to use interest rates to boost economic growth.

Reacting last week to the struggling Canadian economy, Carney lowered the overnight rate to 3 per cent from 3.5 per cent. It was the second time in two months he has chopped the rate half a percentage point. And Carney has said more stimulus from the central bank may be needed as Canada is dragged down by the sputtering United States economy.

Asked about the loss of jobs in automaking and other manufacturing industries, Carney said a "very difficult" adjustment is going on in Canada.

He said 360,000, or 16 per cent, of Canada's manufacturing jobs have disappeared in the past five years. Over the same period, however, the economy has created 1.8 million jobs in the service sector and non-manufacturing goods-producing industries.

"The nature of manufacturing is changing," Carney observed, noting that people can hope the outcome will be more valuable jobs if they must be fewer.

500th post on Mississauga Homes for Sale Blog

I just noticed today that my previous post yesterday May 1st was my 500th post! I never realized I was so verbose, even though my family tells me so!

Have a great day
Mark

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Mark

A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate

Thinking of Selling? Best Mortgage Rates Current Home Prices Search MLS
RE/MAX Realty Specialists Inc.

Providing Full-Time Professional Real Estate Services since 1987
( BUS 905-828-3434
›mark@mississauga4sale.com
8 Website : Mississauga4Sale.com

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CMHC reports that House price gains will remain strong in 2008

House price gains will remain strong in 2008

The average MLS® house price is expected to grow by 10.6 per cent for 2007, to about $306,000 as strong sales in Western Canada continue to
put pressure on prices. In 2008, existing home markets will become more balanced and price pressures will begin to ease.

The average MLS® price will increase by 5.2 per cent to about $322,000 in 2008.

Looking ahead to 2009, the average MLS® price is forecast to increase by 3.8 per cent to approximately $335,000.

It is expected that inflationary pressures will remain stable within the Canadian economy. Inflation was up 2.4 per cent in 2007. For 2008
inflation is forecast to be 2.3 per cent.

Canada's core inflation rate for 2007 increased just 1.7 per cent. Mortgage Rates Mortgage rates increased by about 100 basis points between the start and

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Mark

A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate

Thinking of Selling? Best Mortgage Rates Current Home Prices Search MLS
RE/MAX Realty Specialists Inc.

Providing Full-Time Professional Real Estate Services since 1987
( BUS 905-828-3434
›mark@mississauga4sale.com
8 Website : Mississauga4Sale.com

• Thinking of selling in the next 3 to 6 months? Would you like a Complimentary & Quick Over-The-Net Home Evaluation ?
• On-Line Real Estate Newsletter sign up
• See seasonal housing patterns