Canada’s housing market set for soft landing: Scotiabank

Melissa Leong – Canada’s cooling housing market has made a soft landing with steady sales and pricing through the fall, providing further evidence of an expected gradual decrease rather than a U.S.-style housing market crash, according to a report released Tuesday.
“Canada’s national housing market is shifting toward a more sustainable path, though significant differences in regional conditions continue,” Adrienne Warren, Scotiabank’s senior economist, said in the report entitled Global Real Estate Trends.
Housing demand is expected to be soft which could lower sales and home prices, especially in buyers’ markets such as Vancouver or where there is over supply such as the condominium market in Toronto, it added.
“However, with the Canadian economy continuing to post healthy job growth, and sellers proving responsive to the underlying shift in market conditions, a sharp decline in prices nationally is unlikely.”
Despite an “orderly slowdown,” there are still risks, Ms. Warren cautioned.
“There’s a lot of uncertainty out there in terms of the global economic outlook, whether it’s the U.S. fiscal cliff or the eurozone problems, that can have a significant impact on the Canadian economy and Canadian hiring in 2013,” she said in an interview.
As well, even a soft landing has serious implications for the Canadian economy.
“A lot of activity in recent years, especially Canada’s relative outperformance to other economies, is attributable to the strength of the housing market. It’s generated jobs, a lot of retail spending. We see broad housing investment being a drag on the overall economy.”
Nationally, sales in October were down about 10% from strong spring levels, but only slightly below the average pace of the past decade. Home sales in Alberta and Saskatchewan have increased this year, supported by stronger economic and labour market performance; in contrast in B.C., which faces the greatest housing affordability challenges, sales have dropped about 10% this year, the report said.
Housing starts in 2013 are forecast to drop to around 180,000 units, down from an estimated 215,000 units this year.
Canada’s housing market has been slowing since the spring after years of red-hot growth that sparked debate about a bubble. The market boomed as historically-low interest rates fuelled purchases, driving up prices and adding to household debt. The high and rising home prices combined with the tightening of mortgage insurance rules in recent years have made houses less affordably, notably for first-time buyers.
Meanwhile globally, the report revealed that despite falling housing prices in the advanced and emerging nations that Scotiabank track, there are signs of stabilization in the U.S., the U.K. Australia and China. In the U.S., real home prices rose 5% year-over-year in the third quarter, though average prices remain about 30% lower than their 2005 peak.
Canadians are contributing to the recovery south of the border: in the 12 months to March 2012, foreign purchases of U.S. homes jumped 24%, representing almost 5% of all transactions and Canadians made up 24% of all international buyers.

CIBC report confirms FirstLine revenue slide

CIBC’s annual report is now pegging a dollar figure to the closure of FirstLine, the move appearing to cost the bank $20 million in revenue for fiscal 2012.

That number is in the finest of print in its annual report, released this week.

“Other was down $20 million or 5 per cent, primarily due to lower revenue relating to FirstLine mortgages,” reads the report, referencing the reclassification of revenue from FirstLine into the “other” category.

The revenue slide is likely the result of two factors – the declining number of deals brokers sent FirstLine during its final days and CIBC’s decision to shutdown the broker lender just before the final quarter.

The report doesn’t specifically itemize originations for the year nor offer CIBC projections for just how much of FirstLine renewals it expects to convert to CIBC branded mortgages.

That switch is very much part of the plan, with the report reiterating the bank’s desire to bring those clients into the CIBC branch family for cross-selling opportunities.

“We exited the FirstLine mortgage broker channel and are renewing FirstLine clients into CIBC branded mortgages where we have the opportunity to cross-sell and deepen client relationships,” states the report.

Brokers are now focused on stymieing those plans, if renewal through CIBC isn’t best for the client, one industry veteran told MortgageBrokerNews.ca.

Traders to look to Bank of Canada rate announcement

TORONTO — The Bank of Canada is expected to announce this week that it is  leaving interest rates unchanged and continue to give the impression that it’s  in no rush to move them off ultra-low levels.

No surprises are expected Tuesday with economists confident the central bank  will continue to keep its key interest rate unchanged at one per cent. And the  bank will likely leave the language in the announcement largely unchanged,  indicating that a hike in rates is still far away amid worsening economic  conditions around the globe.

Doug Porter, deputy chief economist at BMO Capital Markets, doesn’t see the  bank hiking rates until at least a year from now and adds that the risk is the  bank may take even longer to hike rates.

“It’s very difficult to see the bank raising rates before then. Growth is  struggling to hit two per cent, inflation is struggling to stay above one per  cent, the currency remains doggedly above parity, there’s no obvious reason for  the bank to be raising rates in that environment for quite some time.”

The latest indication of weakness came on Friday when Statistics Canada  reported there was no growth in gross domestic product during September  following a 0.1 per cent dip during August.

That translated into third-quarter economic growth of 0.6 per cent on an  annualized basis, versus expectations of 0.8 per cent growth as exports  registered their worst decline in three years.

There will likely be another reading of weak growth Friday when the agency  releases the November employment report.

“I think we will be fortunate to see any job growth in November,” said  Porter.

“We are seeing moderate job growth, just enough to keep the unemployment  rate flat over the last year and I think that could be the story going into the  next 12 months … that we get just enough job growth to keep unemployment from  rising but I think at this stage of the cycle we would do very well to do better  than that.”

U.S. jobs data also comes out Friday and expectations are fairly muted,  largely because of the impact of superstorm Sandy in the northeast.

“We’re looking for a gain of just a bit more than 100,000 in overall  employment, which is a bit of a step back from what we saw in October,” said  Porter, who thinks job gains would be in the neighbourhood of 200,000 had it not  been for Sandy.

The storm affected 24 states, with the most severe damage in New York and  New Jersey as business was severely curtailed.

On a more positive note, the December number will look quite good because  November figures could be adjusted upward.

Meanwhile, it’s the fear of worsening economies that is expected to produce  another volatile week on stock markets as traders look for some progress in  avoiding a serious budget impasse in the U.S. that could result in steep tax  increases and significant spending cuts at the start of 2013.

This is the fiscal cliff scenario and the worry is that those cuts and hikes  would shock the U.S. economy back into recession.

The TSX and the Dow Jones ended last week essentially flat with markets  whipsawed between positive and negative territory during the sessions, often  depending on the latest take on fiscal cliff talks offered by a prominent  Republican or Democrat.

But the market has avoided going into selloff mode as traders believe that  the two sides will come together on an agreement that would at least be a  framework for arriving at a complete deal later in the winter.

“We are confident they will work out a deal, (but) the history of this kind  of negotiation has been taken right up until late in the 11th hour,” observed  Porter.

“Unfortunately, I think that that will mean a bit of drama for financial  markets before we’re through all that.”

President Barack Obama is insisting on higher taxes for the top two per cent  of earners.

Republicans have said they are open to new tax revenue but not higher  rates.

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