WHAT TO KNOW ABOUT THE BOOM

What you need to know about Canada’s booming housing market
By Christine Dobby
November 15, 2011

With sales of existing homes in Canada rising in October to the highest level since January, the Canadian Real Estate Association boosted its forecast for resale activity for 2011.

The industry group released data on October sales activity as well as a revised forecast for the year on Tuesday.

National sales of existing homes increased 1.2% from the previous month, building on a gain of 2.5% in September. Price gains however cooled to 5.5%, the smallest gains since January.

A total of 397,561 resale units have traded hands so far this year, CREA said, up 1.8% from levels in the first 10 months of 2010.

Here’s what you need to know about the booming Canadian housing market:

Ontario leads the way

Third-quarter sales activity in the province was stronger than forecast, while the rest of the country came in broadly in line with expectations, the CREA said.

It was the strength of activity in Ontario that prompted the CREA to boost its annual forecast for 2011 to 1.4%, up from 0.9%.

The industry group now predicts national sales of 453,300 for the year, compared with 446,915 in 2010.

198,000 of 2011′s residential sales are expected to come from Ontario, with Quebec and British Columbia expected to have sales of 77,000 and 76,600, respectively.

Home prices are still up but showing signs of cooling down

CREA kept its national average home price forecast for the year little changed at $362,700. That’s an annual increase of 7.0% compared with $339,049 in 2010.

Prices are expected to remain flat next year, with the CREA forecasting $362,700 again for 2012.

The industry group pointed to moderating prices in Vancouver in the third quarter compared with the first half of the year, with sales of multi-million dollar properties in that city returning to “more normal levels.”

CREA said the national average price in October rose 5.5% from a year earlier to just under $362,899, the smallest increase since January.

The balance of supply and demand is tight but the market remains on solid footing

October’s monthly rise in sales resulted in a slightly tighter balance of supply and demand, but the national housing market remains “firmly rooted in balanced territory,” the CREA said.

The national sales-to-new listings ratio, a measure of market balance, stood at 53.4% in October, up from 52.8% in September.

Low interest rates continue to bolster the market

CREA also revised its forecast for 2012 upward slightly, predicting a smaller easing than previously expected of 0.5% to 451,200 units.

The uptick is largely due to expectations that Canada’s interest rates will stay low until well into 2012, CREA said.

But domestic and global economic headwinds could put pressure on the sector

“A number of factors will keep Canada’s housing market in check as interest rates remain low,” said Gregory Klump, CREA’s chief economist.

He pointed to tightened mortgage regulations, high household debt and slower economic and job growth as possible headwinds.

However, Mr. Klump noted that persistent news of global economic uncertainty has put only minor dents in consumer confidence to date.

“How confidence evolves depends on how global turmoil plays out over the coming months,” he said.

LOCK IT OR FLOAT IT? THAT IS THE QUESTION.

Is it time to lock in mortgage?
Garry Marr
Financial Post · Aug. 31, 2011

The gap between short-term and long-term rates has shrunk enough that it might be time for anyone renewing a mortgage to consider locking in.

Moves last week by the major banks to reduce the discount on variable-rate mortgages comes as the discounts for long-term mortgages have gotten as steep as they have ever been.

"What seems to be happening is they are focusing their attention on fixed rates. We are starting to see some aggressive competition on four-and five-year products," says Gary Siegle, a mortgage broker and Invis Inc. regional manager in Calgary.

How aggressive? Try as much as 190 basis points. A five-year, fixed-rate mortgage with a posted rate of 5.39% is now being offered for 3.49%.

For whatever reason, the four-year, fixed-rate mortgages are being priced even more aggressively.

Mr. Siegle says he can lock consumers into a four-year, fixed mortgage for as low as 3.09%.

The discounting comes as variable-rate products, linked to prime, have become more expensive. Short-term money has become more expensive in the bond market, forcing banks to reduce discounts.

The banks traditionally move their prime rate with the Bank of Canada rate. With no flexibility there and existing customers getting huge discounts based on old deals, banks are forced to raise rates for new loans as short-term money gets more expensive.

The trend began in April when FirstLine Mortgages, a subsidiary of Canadian Imperial Bank of Commerce known for its low rates, cut its discount on variable rates.

Others banks were slow to follow, hoping to make money on volume. But refinancings have dried up under tougher mortgage rules and sales have slowed, creating the need to tighten profit margins on variable-rate products.

Today, the discount on a variable-rate mortgage is about 55 basis points off the prime rate of 3% - in other words, 2.45%. Compare that to 3.09% on a four-year mortgage and the premium to lock in is not that much.

"This gap is about as narrow as it goes," says CIBC deputy chief economist Benjamin Tal. "It reflects a flat yield curve, which makes it difficult to make money in this business."

Mr. Tal says variable-rate mortgages tend to be more attractive when there are inflation expectations not yet expressed in short-term rates. This time, he says, the bond market is depressed, anticipating recession, and that has shrunk spreads dramatically.

The one thing keeping people in short-term money is the sense that there is no urgency to move because the U.S. Federal Reserve Board has pledged not to raise rates for two years, which also effectively ties the hands of the Bank of Canada.

"We know the five-year rate is attractive, but we also know short-term rates are not raising," Mr. Tal says.

What does that mean on a practical, dollars-and-cents basis?

Let's use the Canadian Real Estate Association's 2011 average sale price forecast of about $360,000 and assume a 20% down payment and a $288,000 mortgage.

At 2.45%, your monthly mortgage payment based on a 25-year amortization would be $1,282.98. At 3.09%, your monthly payment rises to $1,376.28.

But even at the gap, you would pay about an extra $7,000 in interest to lock in over four years.

Ultimately, the $7,000 amounts to an insurance policy. You get payment certainty for four years, but at a price.

If rates climb 200 basis points on your variable-rate mortgage, it could cost you $22,000 more in interest over four years. The reality is that rates wouldn't jump at once and, therefore, increases would likely be gradual.

Moshe Milevsky, the York University finance professor who wrote the oft-quoted study that variable-rate mortgages do better than fixedrate mortgages 88% of the time, said if you start thinking about it like insurance, it comes down to your risk tolerance.

"There are people who pay a lot for protection on their portfolio; there are people who pay a lot for life insurance," Prof. Mr. Milevsky says. "If the premiums are low enough, you might say, 'Sure, I'll pay.' But if you have a tight budget, every basis point counts, and it might not be worth it."

To me, he still has the ultimate answer for the tough decision whether or not to lock in.

"I still don't get why more Canadians don't split their mortgage," Prof. Milevsky says. In other words, locking in half of the mortgage and floating with prime on the other half.

"When is a bank going to come to the realization Canadians hate making this choice?"

He's right. Even with rates this low and the gap between short-term and long-term rates this narrow, it is still a tough call.

Photo By: Accretion

A GOOD BUY IN CALGARY?

Calgary housing among most affordable
By Mario Toneguzzi
Calgary Herald August 23, 2011

Owning a home in Calgary may be expensive for many people but a report suggests housing affordability in the city is among the lowest in the country for major centres.

And with interest rates now expected to remain at a low level, Calgary's affordability will continue to be remain that way, say industry experts.

A report by RBC Economics, released Monday, said Calgary's housing affordability actually deteriorated in the second quarter of this year compared with the previous quarter but affordability in the city is better than the national average for detached bungalows, standard two-storey homes and standard condominiums.

Sano Stante, president of the Calgary Real Estate Board, said prevailing negative economic conditions will restrain any increases in interest rates for awhile.

"Those are increases that we fully expected prior to these events and they've now been abated," said Stante. "That was our biggest risk of deteriorating affordability.

"With an assurance that interest rates are going to stay low for the next 12 months anyway - and there's somewhat of an assurance of that - then it really looks like we're going to lead the nation in affordability especially when we start to get increased employment and in-migration towards the end of this year. That should really lend to a more robust real estate market."

Robert Hogue, senior economist with RBC, said he too expects Calgary's affordability to remain about the same.

"Previous to a few weeks ago we expected higher interest rates would start really putting more and more pressure across the board in Canada including in Calgary on the monthly costs of home ownership," he said. "Now we've pushed everything out to the middle of next year. "

The RBC Housing Affordability Measure, which has been compiled since 1985, shows the proportion of median pre-tax household income that would be required to service the cost of mortgage payments (principal and interest), property taxes and utilities. The higher the measure, the more difficult it is to afford a house. For example, an affordability measure of 50 per cent means that home ownership costs take up 50 per cent of a typical household's pre-tax income.

In the second quarter, Calgary's measures were 37.1 per cent for a detached bungalow, 38.5 per cent for a standard two-storey, and 23.0 per cent for a standard condominium. The measures increased by 0.6 per cent (bungalow), 1.1. per cent (twostorey) and 0.4 per cent (condo).

However, they are lower than a year ago by 3.1 per cent for a bungalow, 2.9 per cent for a two-storey and 1.6 per cent for a condo.

Housing Affordability Q2 2011

Detached bungalow

Legion Avg. price YoY chg. Affordability* Q/Q chg.

Canada $347,600 5.2% 43.3% 1.7%

Alberta $339,500 -2.6% 32.8% 0.7%

Calgary $411,700 -2.0% 37.1% 0.6%

Standard two-storey

Canada $393,100 5.0% 49.3% 1.8%

Alberta $370,300 -1.1% 36.4% 1.3%

Calgary $415,200 -1.6 % 38.5% 1.1%

Standard condominium

Canada $230,000 3.4% 29.2% 0.8%

Alberta $216,200 1.0% 21.3% 0.5%

Calgary $249,000 -1.1% 23.0% 0.4%

*Shows the proportion of median pre-tax household income that would be required to service the cost of mortgage payments (principal and interest), property taxes and utilities. Source: RBC Housing Trends and Affordability report

GROWTH OUTLOOK

The Bank of Canada leaves overnight rate unchanged and 2011 growth outlook revised modestly higher


As was almost universally expected, the Bank of Canada left the overnight rate unchanged at 1.00% for the third meeting in a row and followed a string of three meetings where it opted to raise rates 25 basis points each time from a recessionary trough of 0.25%. Steady policy was largely a reflection of little change in the economic outlook. As expected, growth for 2011 was revised up although by a minimal 0.1 percentage point (pp) to 2.4%. Inflation expectations were characterized as remaining “well-anchored”.

With no move on interest rates expected coming out of this meeting, attention was more focused on the statement issued following the meeting to provide clues as to any eventual shift in policy. What was most widely expected was a likely upward revision to growth in the wake of some aggressive stimulative measures in the US that are expected to boost growth in that economy. In the statement, the Bank of Canada acknowledged that “private domestic demand in the United States has picked up and will be reinforced by recently announced monetary and fiscal stimulus.” In the end, however, the Bank of Canada opted to notch up 2011 growth only 0.1 pp to 2.4% from 2.3% previously. Growth in 2012 was raised to 2.8% from 2.6%.

The release on Wednesday (January 19, 2011) of the Monetary Policy Report (MPR) will provide more details of the revised outlook. Of interest will be the extent that U.S. 2011 growth has been revised up relative to a current forecast of 2.3%. On the surface, the upward revision to Canada implies growth in the US has only been revised to around 2.5%. This amount implies a fairly modest effect from the fiscal and monetary policy stimulus recently introduced. Our current U.S. growth this year is 3.4% with recent consensus numbers indicating expected growth of 3.2% for 2011.

The upward revision to Canadian growth this year and next did not alter the central bank’s view on the output gap closing by the end of 2012. The offset was “a little more excess supply in the near term.” This statement is likely a reference to growth in the second half of 2010 coming in below the Bank’s forecast of 1.6% and 2.6% in third and fourth quarters of 2010, respectively. The actual third-quarter 2010 growth rate was 1.0%, and we are currently monitoring a fourth-quarter gain of 2.3%. Tomorrow’s MPR will provide further clarification of the source of this addition of near-term excess supply.

The stronger U.S. outlook contributed to global growth improving slightly faster than the Bank of Canada had anticipated; however, this also reflected stronger growth in Europe although the central bank cautioned that sovereign and bank balance sheet issues in the region continue to be a source of uncertainty. With respect to emerging markets, it was noted that more restrictive policy measures were being introduced in the region implicitly to counter stronger than desired growth.

The description of the Canadian economy was marginally more upbeat as it acknowledged “the beginning of the expected rebalancing of demand.” This statement referred to the increased role of business investment to support growth near term as fiscal stimulus unwinds and household spending continues to be constrained by overextended balance sheets.

Comments on the currency were limited to a reference to its “persistent strength” that was restraining the recovery in net exports.

As expected, the Bank of Canada opted to hold the overnight rate steady at 1.00%. This result occurred despite an acknowledgement of slightly stronger growth in both the US and globally along with some optimism about the “beginning of the expected rebalancing of demand” in Canada. The Canadian growth outlook was revised up as a consequence although by a minimal 0.1 pp this year and 0.2 pp for 2012. These minimal changes to growth did not alter the expected closing of the output gap by the end of 2012 because of weaker growth in the second half of 2010 and thus provided the strongest justification for unchanged policy. Our view, however, is that growth will likely come in stronger than expected this year. As it becomes more evident in the data, we assume a return to tightening mode by the second quarter of 2011. Low inflation will not prevent further tightening, yet it will keep the pace of tightening gradual with the overnight rate rising to only 2.00% by the end of 2011.

Paul Ferley, Assistant Chief Economist, RBC Economics

BARGAIN BASEMENT MORTGAGE BINS?

Money is on sale!

Ted Rechtshaffen
Special to Globe and Mail Update
Published Friday, Oct. 15, 2010

This month, a client locked in a five-year mortgage at 3.49 per cent.


They could have done the same in 2001, but it would have been about 7 per cent.

In 1982 it would have been 18 per cent.

Even in the low-rate days of 1952, it would have been about 5.5 per cent.

Borrowing costs are lower than any time in modern history. This represents an incredible opportunity for those with the foresight (or fortitude) to take advantage.

Here are five strategies to consider:

1) When borrowing, lock in today’s rates. I know that at most times a variable rate is a better solution than fixed. Today is not "most times." If you are getting a new mortgage, lock it in. Even if it is only for three years, you can get a three-year mortgage today for under 3 per cent. The best three and five-year variable rates today are 2.25 per cent, but the Bank of Canada is almost certain to begin hiking rates again within six months. With such a narrow gap between a variable rate and a fixed rate, it simply isn’t worth the risk.

2) If you own a house, consolidate all your debts against your home. While credit card debt remains as high as 19 per cent in many cases, and other unsecured debts might be in the 5-per-cent to 7-per-cent range, you may have an opportunity to move those debts to your mortgage and gain significant savings. Even having a line of credit at prime + 1 per cent (4 per cent) can be consolidated into a mortgage for real savings. As an example, if your home is worth $500,000, and you have a mortgage balance of less than $400,000 (80 per cent), you will likely be able to consolidate other debts in your mortgage, up to 80 per cent of your home’s appraised value.

3) Start a business. As a business owner, I know that getting capital is not easy. The most common response I heard when I was looking many years ago was “use a line of credit secured by your house.” This might not be right for everyone, but I can assure you that you will not find a lower-cost source of capital (except those interest-free loans from family). In fact, I would look at using a fixed-rate mortgage as opposed to a line of credit if you require a larger amount of funds up front or want to secure the rate.

4) Borrow to invest. While some believe this is gambling, I can assure you that, unlike at the Las Vegas tables, the odds are tilted toward you. If you borrow to invest, the interest cost becomes tax deductible. In today’s market, you could do a five-year mortgage at 3.5 per cent, and if you are in the top tax bracket, this will effectively cost you less than 2 per cent a year. Over the past 60 years, the Toronto Stock Index has averaged annual returns of over 10 per cent. I am not saying you can count on these returns every year, but if your borrowing cost is under 2 per cent, and a dividend portfolio can pay 4 per cent a year just on the dividends, it can be a very powerful wealth-building strategy.

5) Borrow to buy more real estate. Imagine having an $800,000 house in Vancouver or Toronto and having no debt. You decide to buy a beautiful ocean-front property in Florida or California. The new property costs $300,000 – and they want cash. You can take out a mortgage on your Canadian property to possibly make the real estate purchase of a lifetime. If you are considering this, be sure to use a foreign-exchange dealer to save on exchange costs, and look into the tax issues of owning real estate in the United States.

Just for fun, you might want to file away this article and open it up in about five years. You may just wish you took the plunge when money was on sale.

Photo by: Dreamer7112

SALES ON THE RISE

Home sales, prices up in September
Garry Marr, Financial Post · Friday, Oct. 15, 2010

TORONTO — Housing sales rose in September for a second straight month while average prices reversed the falling trend with a 1.9% increase from August, the Canadian Real Estate Association said Friday.

The Ottawa-based group said sales in September climbed 3% from August on a seasonally adjusted basis. It was the highest number of sales since last May.

At the same time prices also showed some growth. The average sale price across the Multiple Listing Service last month was $331,089, on par with where it stood a year ago, and an increase from $324,928 in August.

"Supply and demand are rebalancing, and that's keeping prices steady in many markets," said Georges Pahud, president of CREA.

With demand improving slightly and the supply of homes falling, the number of months of inventory in the market dropped for a second straight month, the group said. New listings remain 15% below the peak reached in April.

CREA said two-thirds of local markets posted sales increases with Winnipeg, Calgary and Montreal standing out. However, compared with last year sales still lag across the country, down 19.8% in September from a year ago.

"Record level sales activity late last year and earlier this year is expected to further stretch year-over-year comparisons in the months ahead," the group said.

CREA said on a seasonally adjusted basis there was 6.6 months of inventory in the market nationally. That's down from 6.9 months in August and 7.2 months in July. The number of months of inventory represents the number of months it would take to sell inventories at the current rate of sales activity.

The interest-rate environment continues to help the housing market. While the prime lending rate has jumped with recent interest rate hikes from the Bank of Canada, effecting variable-rate mortgages, long-term rates continue to fall. Some lenders are now loaning money as low as 3.5% for a five-year, fixed-rate term.

"Mortgage lending rates eased in the third quarter, which helped support sales activity over the past couple of months," said Gregory Klump, chief economist with CREA. "Interest rates are going nowhere fast, so home ownership will remain within reach for many homebuyers."

BANK OF CANADA RATE ANNOUCEMENT

Bank of Canada edges up interest rates

By Andrew Mayeda, 8 Sep 2010

As expected, the Bank of Canada on Wednesday raised its benchmark lending rate by 25 basis points to one per cent.

My colleague Paul Vieira at the Financial Post covered the central bank's interest-rate announcement today.

Paul notes that the bank's accompanying statement was not as hawkish as many economists had been expecting. In the statement, the bank predicts Canada's recovery will be "slightly more gradual" than expected, but solid domestic demand and strong business investment should keep the economy humming, despite fears of a double-dip recession south of the border. Many analysts have been expecting that the bank will take a prolonged pause from raising rates, as the global economic picture clears.

What does this mean politically? The big challenge for the Harper government over the coming months will be managing the economic expectations of the Canadian electorate. As the government winds down its stimulus spending, there is expected to be very few fiscal goodies in the bag for Finance Minister Jim Flaherty to spread around. If the government stays in power through the new year, Flaherty could be in the position of having to table a relatively lean budget that begins to lay out how the government will reduce the deficit--not a process that lends itself easily to big campaign slogans.

EAT, PRAY, DWELL, LOVE

'Flippers' replaced by condo dwellers
Shift to homes to live in instead of simple investment
By Marty Hope, Calgary Herald
June 19, 2010

Calgarians aren't doing it as much as they were a year ago.

Those thinking about buying a condo for investment purposes has declined from just a year ago, says a national survey.

But despite a decline to 40 per cent this year, down from 52 per cent in 2009, Calgarians continue to lead the country in terms of those considering the investment route, says a TD Canada Trust poll.

But the number of flippers in the marketplace -- people buying and reselling in a short period of time -- has dramatically declined, says Christina Hagerty of Re/Max Realty Professionals.

"I am seeing a shift toward people buying a home to live in as opposed to speculators," she says. "People are seeing a long-term value and aren't looking to flip, (which is) what got us in trouble in the first place."

Forty-two per cent of Calgarians polled say lower maintenance with condos versus other styles of homes is the biggest motivating factor for buying a condo.

Affordability is the second strongest driver -- but only at 18 per cent.

"Calgarians continue to see the value in purchasing a condo as an investment strategy," says Chris Wisniewski, associate vice-president of real estate and secured lending for TD Canada Trust.

"Affordability and stable monthly expenses can make condos very attractive for both first-time buyers and investors."

Of the 40 per cent looking at condos as a possible investment opportunity, 41 per cent of that total would consider using the condo as a long-term source of rental income compared to 35 per cent nationally.

While slightly more than one in four Canadians say they plan to eventually move into their rental unit, only 16 per cent of Calgarians have plans to do so.

Jessy Bilodeau, mobile mortgage specialist in Calgary for TD Canada Trust, says condo prices in Calgary are starting to increase, as has the number of available units for sale.

"The current increase in supply would suggest prices may not rise any further as buyers will have more options to choose from," she says.

Carlimi and Jose Velazquez decided the time was right for them to get out of rental and into homeownership.

For the couple, who are expecting their first child in October, affordability and location were key to their decision to buy their first home.

"We're going to be paying less a month for our townhouse than we've been paying in rent," says Carlimi, adding that they are currently living in the Sasso development in the Beltline region of Calgary.

The couple, who married four years ago, also took advantage of historically low rates.

"Rates were going to start to go up, so we decided it was time to buy," says Carlimi.

The couple moved up its original purchase date because of the expected rate changes.

What they bought was a 1,300-square-foot home in Mosaic Aspen Hills by Heartland Homes.

They expect to take possession of the three-bedroom, 2 1/2-bath townhouse in August.

"We like the layout of the townhouse and also the location, says Carlimi. "We're still close to downtown and to our jobs and we have good access, and this area isn't as expensive as some others around the city."

Both work in the oilpatch -- Carlimi for Saxon Energy and Jose for Husky Energy.

The survey of Calgarians by TD Canada Trust found that they appreciate the affordability of condos.

However, even if they had more money, many wouldn't change their plans to buy a condo -- 61 per cent of those consider purchasing or already own one.

"Additionally, one-third of Calgarians considering a condo purchase would raise their family in one," says the survey.

Hagerty, who specializes in condos, says the majority of condo owners also live in their units -- a total that increased this year compared to 2009,

"We see both men and women purchasing," she says. "I'm representing a lot of couples either married or into shared ownership because of the more stringent banking guidelines."

Hagerty also sees a more balanced condo market, adding that those for sale that are priced right are selling, but those who are "reaching" with their prices are sitting and will likely have to make price corrections.

Figures from the Calgary Real Estate Board show the average selling price of condos listed on the MLS system was $304,662, up from $275,212 a year ago.

For the first five months of this year, the average was sitting at $291,802, up nearly six per cent from 2009.

The TD Canada Trust survey reports that for the fourth year in a row, the majority of Calgarians (82 per cent this year) say they would spend less than $400,000 for a two-bedroom condo.

In terms of condo fees, only six per of respondents would pay more than $400 per month.

Photo: Active Listing (#307, 3600 15A Street SW) MLS# C3433222

GLOBAL CAUTION

Bank of Canada raises policy rate on the strong domestic economy but cautious about global events
RBC ECONOMICS RESEARCH - DAILY ECONOMIC UPDATE – June 1, 2010

The Bank of Canada boosted the overnight rate by 25 bps to 0.50% this morning, hinting that further reductions in amount of stimulus are forthcoming but providing no concrete timetable for additional rate increases. While the domestic economy is performing in line with the Bank's forecast, the external environment remains volatile, with the Bank pointing to tensions in Europe and the continued deleveraging across the global economy as likely to "temper the pace of global growth." "Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments," the Bank said. Additionally, the Bank highlighted that, even with today's rate increase, there remains "considerable monetary stimulus in place.”

The Bank also announced that it is re-establishing its standard operating framework for implementing monetary policy. The 50 bps operating band for the overnight rate was re-established.

The economy posted a solid 6.1% annualized growth rate in the first quarter of 2010 building on an already impressive 4.9% increase in the fourth quarter of 2009. The solid gains during these two quarters provided strong evidence that the stimulative monetary and fiscal measures helped to pull the Canadian economy out of the recent slump. The 0.6% gain in March’s GDP indicated strong momentum late in the first quarter setting up for the strength to be maintained in the second quarter. The surge in payrolls in April also corroborates this view with a smaller, but still positive, report for May expected on Friday, June 4, 2010.

While the global environment presents risks to Canada's economic outlook, the strength in the domestic economy and a core inflation rate that is only marginally below the 2% target took precedence in today's rate decision. Furthermore, the statement indicates that the strength of the domestic economy will see the Bank continue to reduce the amount of stimulus, although the statement did not provide clear guidance about the pace of interest rate increases. So far, the Bank assesses that the effects of external events on Canada's economy have "been limited." On balance, the statement supports our view that the Bank views domestic economic conditions as strong enough that the ultra-low level of interest rates is no longer needed and that the recovery can withstand a gradual rise in interest rates going forward. To that end, we expect that the Bank will raise the policy rate to 1.5% in 2010 and that the tightening will continue in 2011 as the Bank moves the policy rate closer to neutral by the time Canada's output gap is eliminated.

Dawn Desjardins, Assistant Chief Economist, RBC Economics

Photo By: Picture Perfect Pose

POINTING TO A RATE HIKE

Canadian growth best in ten years
Paul Vieira, Financial Post
Published: Monday, May 31, 2010

The Canadian economy posted better-than-expected growth in the first three months of 2010, marking the best quarterly performance in over a decade, Statistics Canada reported Monday -- and all but cementing the likelihood of a Bank of Canada rate hike this week.

Strong domestic demand and a robust manufacturing sector helped the Canadian economy record annualized growth of 6.1% for the first quarter, the strongest three-month showing since 1999. This followed a stellar 2009 fourth-quarter performance, of 4.9% annualized (although revised down from 5%).

The expectation was for a 5.8% expansion for the first quarter. The 6.1% gain in output marks the third straight quarter of positive growth after the recession, which lasted three quarters. Further, the first-quarter result is just over double the growth the U.S. economy produced for the first three months of 2010, of 3%.

"While there are some questions on the sustainability of the rebound, there is simply no question that the early stages of Canada's recovery exceeded even the most optimistic expectations," said Douglas Porter, deputy chief economist at BMO Capital Markets.

Analysts suggest this pace of growth can't last. However, they said the strong handoff from first quarter to second quarter likely means annualized growth of roughly 3.5% to 4% for the three-month period ending June 30.The first-quarter bump was helped by a stronger-than-expect March result, of a gain of 0.6%.

In early trading, the Canadian dollar had gained nearly a cent, to trade in the US95.9¢ range.

The consensus as of late last week was that the Bank of Canada would raise its key benchmark rate on Tuesday, by 25 basis points to 0.50%, given the stronger-than-expected domestic economy. The first-quarter result all but cements that view.

The solid gains over the fourth quarter of 2009 and the start of 2010 "provide strong evidence" and the near-zero interest rates, combined with a dollop of fiscal stimulus, "have helped pull the Canadian economy out of its recent recession," said Paul Ferley, assistant chief economist at Royal Bank of Canada. "With the monthly numbers showing strong momentum late in the first quarter, the Bank of Canada will take reassurance that this strength is likely to be sustained near term. This suggests an environment where the Bank of Canada will continue to withdraw stimulus from the system."

There was a belief the central bank could hike its target rate by 50 basis, but market uncertainty due to developments in Europe might cause the central bank to hold back.

Production grew faster in the first quarter of 2010 than in the fourth quarter of 2009, and inventory levels rose after being drawn down in all four quarters of 2009. Residential investment increased for a fourth consecutive quarter, as did consumer spending on goods and services. Export and import volumes both rose for a third consecutive quarter, with growth in imports outpacing growth in exports in the first quarter.

First-quarter strength was broad-based with domestic demand at the top of the list. Consumer spending, up 4.4% annualized, and residential investment, up 23.6%, contributed the most to economic growth. Meanwhile, business investment grew by 0.9% following a 9.8% decline in the previous quarter, led by a 7.6% gain in investment in machinery and equipment. Economists at Toronto-Dominion Bank note that non-residential construction is one component of GDP yet to head down the road of recovery.

The goods-producing component of the economy expanded 2.7% in the first quarter, led by a 4.2% gain by manufacturing. The manufacturing sector was able to post this gain even though the Canadian dollar traded mostly above the US90¢ mark in early 2010.

This is the latest in a string of Canadian economic data that have been consistently surprised to the upside. Job creation is in full swing, with a record 109,000 workers added to payrolls in April; consumers are buying up goods at a healthy pace, tax credits or not; corporate profits are rebounding to pre-recession levels; and inflation is creeping closer to the central bank's preferred 2% target.

The sterling fundamentals prompted the Bank of Canada last month to ditch its conditional commitment to keep its policy rate at a record low 0.25% until July.

Photo By: JoLoLog

ACT NOW TO SAVE!

House prices to hit record this year, but rate of increase to slow, Scotiabank says
Eric Lam, Financial Post
Published: Wednesday, March 24, 2010

Canadian home prices will reach a record high this year, but those expecting the sky-high house price increases of the past decade to continue will be disappointed, a Bank of Nova Scotia real-estate expert said yesterday. "It's time to reset price expectations for the Canadian housing market," Adrienne Warren, senior economist with Scotiabank, said at a real-estate conference in Toronto. "This was an exceptional decade for pricing." Looking at the past 50 years, prices on average rose between 2% and 2.5% each decade. But prices rose an average of 5.2% between 2000 and 2009, she said, which led to the current elevated pricing conditions. As for this year, Ms. Warren still anticipates a strong spring sales market as consumers try to take advantage of rock-bottom interest rates before an expected rate hike by the Bank of Canada in the summer.

MORTGAGE CONFUSION

New mortgage rules leave homebuyers confused
Insured buyers must show 'ability to pay'
James Pasternak, Financial Post
Published: Wednesday, March 17, 2010

Frank and Susan Williams bought a house near Hamilton, Ont., this month, they followed a time-honoured tradition of using leveraged financing.

With mortgage insurance they only had to put down 5% of the $270,000 purchase price. They went with a closed variable rate at 2.25% and amortized the loan over 35 years. The deal was initiated with a mortgage broker, with Bank of Nova Scotia providing the financing.

"It's a three-bedroom bungalow. That was attractive to us. We have a dog and we like to do things in the backyard. We did not have the type of money we thought we'd have to put into a house. We said let's just bite the bullet and get this over with," Ms. Williams says.

And getting it over with was probably a good idea. First, they were in a rent-to-own arrangement and had to exercise their option to buy before August 2010. And second, based on pending federal rules for government-backed insured mortgages that come into effect on April 19, the Williams (not their real name) would probably not have qualified for the variable-rate mortgage. In fact, as recent arrivals from the United States and its housing crisis, their credit history might not have passed any stress test.

"We really came from the United States with nothing. Everything we had disappeared with the housing crisis. In areas that had bad loans all the houses just hit bottom. We were expecting US$250,000 out of our house but we got nothing," Ms. Williams says. They walked away from the whole mess.

But while the Williams might have had good reasons for leveraging to get their dream home -- they are firsttime buyers in Canada -- the new federal rules governing mortgages have been widely misunderstood. In fact, the biggest fear among the young and house-less is fear itself.

"There are a lot of rules that changed. But they weren't communicated very well," says Robert McLister, the editor of Vancouver-based Canadian Mortgage Trends (www.CanadianMortgageTrends.com).

Margo Wynhofen, of Grimsby, Ont.-based Verico One Mortgage Corp. ( www.mymortgageadvisor.ca) and vice-president of the Independent Mortgage Brokers Association of Ontario, says she has had to spend considerable time explaining federal Finance Minister Jim Flaherty's statement of Feb. 16.

"I had a lot of people misunderstand the announcement. So I had a lot of clients call me for clarification. There was an overwhelming sigh of relief," Ms. Wynhofen says.

Under current mortgage-lending rules, buyers with a down payment of less than 20% of the purchase price must purchase mortgage insurance, with the most common source being Canadian Housing and Mortgage Corp. The new rules affect only customers that are required to purchase the insurance.

Under the new rules, all buyers requiring mortgage insurance will have to meet the "ability to pay" for a higher, more expensive five-year fixed-rate mortgage even if they choose a mortgage with a lower interest rate and a shorter term.

"It's not just first-time homebuyers who are affected. It's anyone who wants a variable mortgage rate now who doesn't have one already, they now have to qualify at a higher interest rate. Some of them won't qualify. And that's fine so they'll just take a fixed rate. It's not the end of the world," Ms. Wynhofen says.

Bernice Dunsby, director of home equity financing at the Royal Bank, says the new rules might even help save first-time buyers from themselves.

"We believe the new measures will have a small impact on mortgage growth, if any. First-time buyers should not be any more concerned about these changes. In fact, I believe the changes will actually help first-time homebuyers to ensure that not only can they afford their home today but in the future, especially if interest rates rise," says Ms. Dunsby.

In some cases, the rules might be outdated before they are fully implemented. A growing number of homebuyers are forgoing the conventional mortgage and using alternative financial products. Take the case of London, Ont., accountant and recent homebuyer Phil Parkinson. Three years ago, he bought his first home with a fully secured line of credit offered through Manulife Financial Corp.

The Manulife One product provides up to 80% of the appraised value of your home. It can be used to pay off the balance of your existing mortgage, personal lines of credit and any other outstanding debts you might have.

"These operate on a variable rate. It's just like one big bank account. You can have your money deposited into the account, you can pay your bills. [As you deposit] you can knock your account down and lower your interest calculation. Theoretically, you don't have to pay anything expect the interest," Mr. Parkinson says.

Other highlights of the rules don't directly affect firsttime buyers. For example, the maximum amount Canadians can withdraw in refinancing their mortgages has dropped to 90% from 95% of the value of their homes. rule has created a mini-stampede.

"There is a bit of urgency now to get [a refinancing] done before April 19. People are chronically refinancing. I have clients that refinance every two to three years to take the equity out of their home to pay off credit-card debt. The home has become an ATM machine," Ms. Wynhofen says.

A January 2007 Statistics Canada study of personal debt concluded that "increasing mortgage debt for refinancing purposes or taking out home-equity loans implies that homeowners in both [Canada and the United States] are using their homes as a source of cash to finance their spending rather than as an investment."

And in an effort to contain the risks of real-estate speculation, as of April 19 the minimum down payment for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation rises from 5% to 20%.

As for ex-patriot Americans Frank and Susan Williams, they're pretty relieved about their fresh start with a new house.

"It's very different to get a mortgage here. It's a lot less hassle than in the United States," Ms. Williams says.

And because the Williams are not particularly worried about the new mortgage rules, they are already thinking about their next purchase.

"We might be able to buy a little place that's larger when we can leverage this up a bit -- maybe get something cheaper than this with more room,' Ms. Williams says.

Photo by: Dom Dada

2 MONTHS OF A CHILL

Home resales cool for second straight month
Reuters
Published: Monday, March 15, 2010

TORONTO -- Sales of existing homes in Canada dipped for a second straight month in February, but remained high on a year-over-year basis, as the market may be moving into more balanced conditions, data showed on Monday.

The Canadian Real Estate Association (CREA) said a total of 42,799 homes changed hands last month, down 1.5% from January, as a large gain in sales in Toronto were offset by declines in Vancouver and other British Columbia housing markets.

The real estate group said the Winter Olympics, which were held in the host city of Vancouver and nearby areas, may have played a factor in lower sales in the province last month.

Unit sales in British Columbia were down 13.3% in February from January, compared with a 3.3% advance in Ontario.

Across Canada, sales rose 44% from the same month last year, a smaller gain in national activity from the previous three months. This was in line with economists' views that year-over-year comparisons are likely to shrink in coming months because the recovery of the housing market started in February 2009.

"Housing markets are becoming more balanced," said Gregory Klump," CREA's chief economist.

After a relatively short spell of low consumer confidence during the global financial crisis, Canadian homebuyers were quickly back in the market and have made the housing sector one of the cornerstones of the domestic economic recovery. The pace of the rebound has encouraged debate about a housing bubble.

But with rising supply -- new listings rose for a fifth straight month, up 2.4% -- it could take the steam out of the housing markets as the year goes on, said Mr. Klump.

Ultralow interest rates could further prompt home resales this spring before the arrival of new mortgage rules in April and changes to provincial sales tax regimes in British Columbia and Ontario, before cooling in the second half of the year.

"We should see the Canadian housing market move slowly back into a balanced-market position as higher mortgage rates and prices begin to temper demand," said Millan Mulraine, economics strategist at TD Securities.

CREA said the national average home price in February rose 18.2% from a year earlier to $335,655 (US$329,074)

Photo By: cjhart10

WHEN WILL YOU SAVE?

Low interest rates to power Calgary housing market
By Mario Toneguzzi
Calgary Herald
March 3, 2010

Low mortgage rates will continue to fuel activity this year in the local housing market.

A forecast by Canada Mortgage and Housing Corp. released on Tuesday said sales in both the new home and resale housing markets are expected to increase this year and next year in Calgary and for Alberta.

As well, average MLS sale prices will climb over the next two years.

"Calgary housing markets will benefit from a stronger economic outlook and historically low mortgage rates," said Richard Cho, senior market analyst in Calgary for the CMHC.

"We are expecting to see more activity this year compared to 2009. This momentum is expected to carry through into 2011 as the economy strengthens."

In releasing its 2010 housing market outlook report, CMHC said the Calgary census metropolitan area will see total housing starts rise by 20.3 per cent this year to 7,600 units, followed by a 21.1 per cent hike in 2011 to 9,200 units.

MLS sales in the Calgary area are expected to climb by 10.9 per cent to 27,600 this year and another 3.3 per cent in 2011 to 28,500.

The average MLS sales price in the Calgary region is forecast to jump by 5.5 per cent this year to $407,000 and by another 3.9 per cent next year to $423,000.

Low interest rates continue to drive Canadian housing markets, something that could continue for much of 2010, said Dan Sumner, economist with ATB Financial in Calgary.

"Although interest rates are certainly going to go up eventually, they are rising from a very low level and will probably not be back to neutral levels until 2011," he said.

"However, with home prices near the top edge of some affordability metrics, there could be little room for significant price increases in the near term."

The government of Canada announced recently a number of measures to support the stability in the housing market, said Cho.

"These changes for government-backed mortgage insurance will moderate housing activity," he added. "Changing the qualifying mortgage rate will help ensure homebuyers have a cushion to protect against the risk of increased payments when their mortgage is up for renewal. Some prospective buyers may postpone their purchase while they save for a larger down payment, while others may consider purchasing a less expensive home."

Housing Market Outlook

2010 Y/Y change 2011 Y/Y

Alberta housing starts 24,500 20.7% 29,900 22%

Calgary housing starts 7,600 20.3% 9,200 21.1%

Alberta MLS sales 64,000 10.8% 66,500 3.9%

Calgary MLS sales 27,600 10.9% 28,500 3.3%

Alberta MLS avg. price $358,500 5.1% $372,500 3.9%

Calgary MLS avg. price $407,000 5.5% $423,000 3.9%

Source: Canada Mortgage and Housing Corp.

Photo By: Nikkinoguer

TAX TIME SHOULD MEAN MONEY IN YOUR POCKET

How your mortgage can lower your tax bill
You can deduct mortgage interest without getting in trouble with the taxman
James Pasternak, Financial Post
Published: Monday, February 22, 2010

When Toronto resident Celia Bernath files her annual income tax return, she includes a long list of deductions from her home-office income. After all, as a chartered accountant, she knows that travel, bank, postage, courier, utility and other charges and expenses are fair game for the micro-entrepreneur. But the item that sometimes has the most impact is deducting a proportion of her residential mortgage interest.

"The mortgage-interest deduction - like other deductions - is based on the square footage of my office divided by the total square footage of the house. Keeping track of all your household expenses is very important," says Ms. Bernath, who has about 15 corporate and 100 personal clients.

Ms. Bernath is one of the more than 700,000 home-based business owners who might be eligible to deduct a portion of their mortgage interest on their principal residence as an expense.

Generally speaking, in Canada, interest on residential mortgages is not tax deductible.

However, Ms. Bernath can do so because there is a direct link between the borrowed money and earning income.

"The long and short of it is if you want to be able to deduct interest on your mortgage, the loan has to be incurred for business purposes," says Yens Pederson, a partner with the Regina law firm of Balfour Moss LLP.

Canadians like to talk about mortgage-interest deductibility because the mortgage on a principal residence is the biggest debt Canadians have. They also like to talk about it because tax laws in the United States have provisions for residential mortgage-interest deductibility. Far fewer realize that Americans must pay a capital gains tax when they sell their home.

But beyond the fairly straightforward deductions of mortgage interest, the political machinations and bookkeeping shenanigans have made the mortgage-interest debate a colourful one in Canada.

Many say that the promise of mortgage-interest deductibility put the Conservatives in power and made Joe Clark prime minister in 1979. The Clark government was gone within nine months and the legislation was never enacted.

In 2003, the Conservative Party of Ontario announced that if re-elected it would pass legislation allowing homeowners to deduct $5,000 of their mortgage-interest payments from their taxable income, resulting in up to $500 in savings for homeowners. The party was defeated in the next provincial election.

Between these political attempts to liberalize mortgage-interest deductibility, the federal government moved to restrict tax avoidance strategies. In 1988, Parliament enacted the general anti-avoidance rule (GARR) to curb so-called "abusive" tax avoidance.

Under its most common allowances and interpretations, mortgage-interest deductions can still work as an effective strategy for reducing taxes. In addition to the case of a home business, one can deduct mortgage interest when investing in a residential rental property.

"If you are purchasing a property and you take a mortgage to purchase that property and then you rent out that property, then you are getting rental income from it," said Todd Trowbridge, a partner of Toronto-based accounting firm Trowbridge Professional Corp. "That interest would be deductible. There always has to be an earning income use of the funds."

Take the case of Toronto resident Howard Frank who invested just more than $400,000 in a 2,400-square-foot residential rental building with three units in May 2007. Mr. Frank took out a $300,000 mortgage, paying 5% interest. So in addition to a wide range of other deductible expenses such as property tax, maintenance, any utilities, insurance, administrative and legal fees, Mr. Frank deducts $15,000 in interest payments against the $33,600 in rental income.

A similar mortgage-interest deduction opportunity exists when one is renting out a room in one's principal residence or is earning income from a vacation property for all or part of the year. In both cases, the arrangement must be a legitimate commercial agreement.

"If you rented [the vacation property] out below value to family it would probably be offside. If you rented it out to third parties at a reasonable rate [the Canadian Revenue Agency might] look to see whether there was any commercial reality. At the very least you could deduct it off the rental income for the portion of time it was actually rented," says Mr. Trowbridge.

Some deduct mortgage interest through "the Smith manoeuvre" as promoted by Victoria, B.C.-based former financial strategist Fraser Smith. In its simplest terms, the homeowner pays down the mortgage as quickly as possible, creating small amounts of equity each month.

The equity is simultaneously filled with a line of credit to be used for investment purposes. The interest on the growing investment loan is deductible.

"Instead of giving it to the bank for making mortgage payments we can then invest it in ourselves and build our investment portfolio," says Mr. Smith, 71, who has sold 53,000 copies of his book Is Your Mortgage Tax Deductible?

"You deduct the interest on the investment loan. In the end, if you started with a $300,000 mortgage, you will end up with a $300,000 investment loan. So you'll be deducting the interest on the $300,000 for the rest of your life."

One way to deduct mortgage interest without actually paying the interest is through a reverse mortgage. The reverse mortgage allows a homeowner to tap into the equity of his or her home without having to pay interest or principal on the loan. The loan is satisfied on the death of the home owner or the selling of the home. Therefore, when the proceeds are invested, the homeowner can deduct interest charges against investment income, without actually paying the interest.

"CHIP Home Income Plan interest expenses may be used as a deduction to offset, in part or entirely, income tax liability generated by investments - as long as those investments were purchased with CHIP proceeds," says Arthur Krzycki, director or marketing and public relations at reverse mortgage specialist HomEquity Bank.

Mr. Krzycki says that if one invests a $100,000 reverse mortgage at current rates, the interest expense will be about $3,750. If one has an investment that earns a 3.75% return in the same time period, the two amounts will offset. So, the 3.75% investment income appears to be "tax free" for cashflow purposes, while the interest expense is added to the outstanding balance of the reverse mortgage.

An even more creative application of mortgage-interest deductibility came in the late 1980s. John Singleton, a partner in a law firm, tested current mortgage-interest deductibility rules by withdrawing $300,000 from his partnership capital account to purchase a house. Mr. Singleton then mortgaged the house by borrowing $298,750 from the bank and depositing the money into his partnership account, along with $1,250 of his own money.

When the time came to do his tax return, Mr. Singleton deducted $3,688 of interest on his 1988 tax return and $27,415 on his 1989 return. Mr. Singleton argued the borrowed funds, not the withdrawn funds, were used for investment purposes.

The deduction was originally challenged by Revenue Canada, as the taxman was then called, and after the case wound its way through the courts Mr. Singleton finally won the day.

"The court effectively looks at the direct use - the form of the transaction - and does not consider economic substance," says Daniel Sandler of Toronto-based law firm Couzin Taylor LLP. "So, by the same token, if a taxpayer cannot demonstrate that the direct use of the borrowed money was an income-earning purpose, the interest will not likely be deductible."

By January 2009, the Supreme Court of Canada sent a signal that it was open to creative applications of mortgage-interest deductibility, but not financial shenanigans. The case in question dates back to 1994, when the Lipsons, a husband-and-wife team, entered into an agreement to buy a home. Ms. Lipson borrowed $562,500 from a bank to buy shares from Mr. Lipson in a family investment company. The couple then obtained a mortgage from a bank for $562,500, using the funds to repay the share loan in full. In his 1994, 1995 and 1996 tax returns, Mr. Lipson deducted the interest on the mortgage loan and reported the taxable dividends on the shares as income where it was applicable.

"In essence, the majority of the court allowed the interest expense, but in the hands of Mrs. Lipson not Mr. Lipson. According to the majority, the interest-expense rule was not the rule that was abused in the case; it was the attribution rule," says Mr. Sandler.

Recently, a more liberal interpretation of mortgage-interest deductibility has emerged. In November, 2009, the Tax Court of Canada ruled in the case Henkels vs. The Queen, that expenses deducted from rental income in a private residence do not have to be directly tied to the square footage used by the tenant. The Henkels rented 700 square feet of space to a tenant, which is only 35% of the square footage of their home, but deducted 50% of the acceptable household expenses because the tenant had access to the entire house.

"This case reinforces the position that you could measure expense deductibility on a reasonable basis other than square footage," says Marc Weisman, a tax lawyer at the Toronto-based firm of Torkin Manes LLP.

As for Mrs. Bernath, she takes the more cautious approach, sticking with existing standards. "[The ruling] does allow you the opportunity to deduct more," she says. "It is good to be aggressive but being too aggressive gets you a nasty invitation from CRA."

"Yes," says Mrs. Bernath, "walk on the grey line [but] ensure that your expenses can be justified."

TIME TO SELL!

Remax warns not enough homes for buyersJulie Fortier, Canwest News Service
Published: Wednesday, February 24, 2010
OTTAWA - With new mortgage rules, a new harmonized sales tax in some provinces and the possibility of higher interest rates all set to kick in this summer, Canadian home buyers are on a tear and it is only going to get busier leading up to this summer, according to the Re/Max Market Trends Report 2010 released Wednesday.

The report, which examined real estate trends in 16 markets across the country, found that unusually strong activity in January -- traditionally one of the quietest months of the year -- has led to a sharp decline in active listings in 81% of markets surveyed. Too many buyers and not enough homes will probably be the main problem in coming months, according to the report.

Markets experiencing the tightest inventory levels include Toronto (-41 per cent), Kitchener-Waterloo (-33 per cent), Ottawa (-30 per cent), Victoria (-30 per cent) and Greater Vancouver (-27 per cent), which also had some of the highest year-over-year sales gains.

The highest year-over-year sales gains were reported in Greater Vancouver (152 per cent), Kelowna (121 per cent), Greater Toronto (87 per cent), Victoria (69 per cent), Hamilton-Burlington (58 per cent), London-St. Thomas (55 per cent) and Calgary (47 per cent), the report said.

Western Canada dominated the list of centres with the greatest increases in price, with Victoria home prices jumping 25.5 per cent in January compared with the same month a year before. Kelowna jumped 22 per cent and Greater Vancouver rose 19.5 per cent. St. John's saw an increase of 23 per cent and Toronto rose 19 per cent.

"While home ownership is still within reach in many major centres, levels are slipping. There is a growing sense, on both sides of the fence, that the time to act is now," Elton Ash, regional executive vice-president at Re/Max of Western Canada said in a release.

With the Harmonized Sales Tax, which will add more tax to home buying in two of the biggest and most squeezed markets - Ontario and B.C. - set to start July 1, and the Bank of Canada's record-low interest rates expected to rise around the same time, that pace of growth could slow dramatically in the second half of 2010. Last week, Finance Minister Jim Flaherty also said starting April 19 all borrowers must meet standards for a five-year fixed-rate mortgage, even if the buyer wants a variable rate mortgage, among other mortgage rule changes.

"There have never been so many motivating factors in play at once," Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada said in a release. "We're in for a heated spring market that will, in all probability, spill over into the summer months, as the window of opportunity draws to a close. The supply of homes listed for sale has been drastically reduced, housing values are once again on the upswing, and banks and governments are moving in unison toward stricter lending policies."


Active listings by market for January:

Market/ 2009/ 2010/ percentage change

St. John's/ 951/ 999/ 5%

Halifax-Dartmouth/ 3311/ 2695/ -19%

Hamilton-Burlington (xx)/ 1028/ 1261/ 17%

Ottawa/ 3988/ 2840/ -30%

Kitchener-Waterloo/ 1323/ 884/ -33%

London-St. Thomas/ 2538/ 2071/ -18%*

Greater Toronto/ 20450/ 12052/ -41%

Winnipeg/ 2222/ 1938/ -13%

Regina/ 456/ 381/ -16%

Saskatoon/ 1156/ 729/ -37%

Calgary/ 9225/ 6838/ -26% (xxx)

Edmonton/ 6573/ 4864/ -26%

Kelowna/ 4648/ 4120/ -11%

Victoria/ 2930/ 2061/ -30%

Greater Vancouver/ 13996/ 10218/ -27%

* - detached homes

xx - Freehold homes

xxx - Total MLS

Source: RE/MAX

RESALE NUMBERS

Canadian resale housing market up 58% from year-ago levels
By Mario Toneguzzi
Calgary Herald
February 17, 2010

CALGARY - National activity in the resale housing market declined in January from the previous month but was up 58 per cent from year-ago levels, when national home sales activity reached the lowest level in a decade.

In releasing its January MLS data on Wednesday, the Canadian Real Estate Association said the average price of all homes sold through the MLS systems of Canadian real estate boards last month was $328,537, which was up 19.6 per cent from a year ago.

"In January 2009, the average residential sale price fell to the lowest level in almost three years," said the association which represents more than 96,000 realtors working through more than 100 real estate boards and associations.

"Year-over-year average price gains are being stretched by weakness one year ago, and are expected to shrink beginning next month."

In Calgary, MLS sales in January increased by 52.5 per cent from last year to 1,466 units for an average sale price of $397,518, up by 5.8 per cent. New listings fell by 6.7 per cent to 3,919 units and dollar volume jumped by 61.4 per cent to $582.8 million.

MLS sales in Alberta were up by 34.6 per cent from a year ago to 2,934 units. The average sale price increased by 6.4 per cent to $343,264. New listings dropped by 2.4 per cent to 8,162 units and the total dollar volume for the month of January was up by 43.2 per cent from a year ago to just over $1 billion.

Nationally, new listings were up by 3.4 per cent to 64,561 units and the total dollar volume increased by 89.3 per cent to $8.4 billion.

"January results suggest that the national resale housing market may be past the recent peak," said Gregory Klump, CREA's chief economist. "One car doesn't make a parade, so a few more months of results showing a cooling trend will be required before talk of a Canadian housing bubble begins to fade.

"It could take until the second half of the year before a cooling trend becomes evident, since home buying activity may continue to be accelerated in the first half of 2010 by expected interest rate increases and by the introductioni of the HST in Ontario and British Columbia on Canada Day."

HOUSING STARTS SHY

Housing starts show rebound
Figure still shy of level seen in 2008
By Dan Healing, Calgary Herald
February 9, 2010

The home building industry in Calgary staged a strong rebound in January from last year's 18-year depths, but failed to recoup all the ground lost since the same month in 2008.

According to Canada Mortgage and Housing Corp., total housing starts in the city reached 514 units last month, more than double the 243 in January 2009 but 28 per cent lower than the 711 units started in January 2008.

Richard Cho, CMHC's senior market analyst for the city, said the general direction for new housing is stable.

"Housing activity is encouraging in January. It's a good start to the year," he said.

"We're still seeing a fair number of singles being started, if not the same level of activity we saw in the latter part of 2009. The momentum is still being carried over to this year."

He said fewer incentives are expected to be available for buyers this year due to the stronger market, but higher interest rates expected at midyear will tend to prevent the market from growing beyond a sustainable level.

Todd Hirsch, senior economist for ATB Financial, agreed 2010 will be stable, noting a cold January also likely slowed housing start statistics.

"It's coming off a bit of a surge we saw in fall of last year . . . (but) there's no sign that housing starts are collapsing at all," he said. "They're up from where they were a year ago, so that's positive, and overall I think we'll have a balanced year of housing starts."

He said there will be fewer construction jobs on commercial projects this year, but more in home building and institutional and infrastructure projects.

Both single-detached and multi-family housing starts were up in January, with builders starting work on 413 homes, versus 204 units a year earlier, and 101 multifamily units breaking ground, up from 39 units in the previous year.

Cho said there were no apartment units started, reflecting the oversupply of inventory in Calgary. He predicted the trend this year will be toward medium-density housing.

The peak January for single-family starts came during the overheated economy of 2006, when 838 houses contributed to 1,086 housing starts.

The more volatile multifamily sector posted its biggest January in 1978, when 1,718 units were started.

Provincially, housing starts in Alberta's seven largest centres totalled 1,271 units in January, up 52 per cent from January 2009.

Nationally, the seasonally adjusted annual rate of housing starts reached 186,300 units in January, up from an annual rate of 176,100 units in December.

According to final figures, housing starts for 2009 totalled 149,081 units, with activity improving as the year progressed.

In the Prairie region, the seasonally adjusted annual rate of urban starts decreased by 4.8 per cent in January from the previous month.

Also on Monday, the Canadian Real Estate Association revised its forecast for MLS home sales in 2010.

It forecasts national sales activity will reach 527,300 units in 2010, up 13.3 per cent from 2009. This would represent an annual record -- 1.2 per cent above the previous peak in 2007.

Sales in Alberta are forecast to be 63,050, up 9.1 per cent from 2009.