Financial Post – Mark Carney’s Comments

OTTAWA – “Consumer demand is going to be at the heart of this recovery,” Carney said at a news conference in Ottawa on Thursday following the release of the bank’s quarterly monetary policy report.

Carney foresees consumer spending expanding considerably, helping to lift the economy from the depths of the recession in the second half of this year and fuelling growth of three and 3.3 per cent in 2010 and 2011, respectively.  The housing market has been a central facet of this domestic recovery, as record low borrowing costs have driven a strong resale market. Carney acknowledged that dynamic has “raised some concerns” at the central bank, although he resisted attempts to label it a possible bubble.

Resales of Canadian Homes up 18 Percent in Third Quarter

The Canadian Real Estate Association says sales of existing homes during the third quarter were among the strongest on record.  National home resales through the Multiple Listing Service owned by Canada’s realtors totalled 135,182 in the third quarter of 2009, up 18 per cent from a year earlier and the most of any third quarter on record.

It was also the biggest year-over-year gain since early 2002 – another sign that the Canadian housing market is quickly returning to health. The seasonally adjusted number was 127,941 homes resold, up 12 per cent from the second quarter and 48 per cent higher than the fourth quarter of 2008.

Association president Dale Ripplinger attributed the strong quarter to low interest rates and improved consumer confidence, which bought more buyers into the market.

Consumer Confidence in Canada is on the Rise

The Conference Board says consumer confidence in Canada is on the rise, increasing for the seventh straight month in September. The monthly survey finds confidence rising in many of the key indicators, including sentiments among Canadians about their finances, job prospects and about their ability to make big purchases.

The index rose 2.5 points to 90.9 out of 100, the seventh consecutive monthly bump, something that has not happened since 2002.

Canada Aug new home prices up less than expected

New house prices in Canada were higher for a second straight month in August, though not by as much as expected, showing a small sign of fragility among recently robust housing market indicators.

Statistics Canada said on Tuesday that prices for new homes rose 0.1 percent from July, just shy of the 0.2 percent climb expected by analysts surveyed by Reuters. The report on new home pricing is a small blip among other data portraying a recovery in the housing market, helped by rock-bottom interest rates and confidence-boosting signs of an economic rebound. Canada’s housing market has slumped during the recession but did not undergo a U.S.-style crash.

2.5% Bank Rate by 2011: Economist

The rate is now at 0.25 per cent and the central bank has said it will likely stay there until the spring of 2010. Helmut Pastrick, chief economist with Central 1, told CBC News the recovery remains on track, with only occasional data suggesting a setback.

He looked at gains in U.S. housing, manufacturing and government stimulus and predicted the next report on U.S. Gross Domestic Product will show the American economy started growing again this fall, perhaps by as much as four per cent, for the first time in more than a year.

“The general direction of the North American economy is on an improving trend,” Pastrick said. “We can certainly expect industrial production in the U.S. and in Canada to continue to increase in September and October.

Housing Starts Fall But Beat Forecasts

Canadian housing starts fell 4.6 percent in September from August but came in ahead of expectations, increasing optimism that the economy is pulling out of recession.

Canada Mortgage and Housing Corp (CMHC) said on Thursday that housing starts fell in September to a seasonally adjusted annualized rate of 150,100 from an upwardly revised 157,300 in August. The original August figure was 150,400. The number of starts in September topped the consensus forecast of analysts for 148,000 starts.

“In a broader sense, Canadian homebuilding activity is clearly beyond the worst depths of this past spring and in trend recovery mode,” Scotia Capital economists Derek Holt and Karen Cordes said in a note.

TD Economic Report – Real Estate Comes Roaring Back

The performance of Canada’s real estate markets during the economic downturn has been remarkable. In the second half of 2008, there was a dramatic pullback in sales that led to a retreat in prices. However, the weakness proved surprisingly short lived. By the Spring of 2009, there were already signs that activity was coming back to life. This is particularly impressive, as it coincided with a deep economic contraction – accompanied by significant job losses, rising unemployment and weaker personal income growth.

The Bank of Canada’s unprecedented easing of monetary policy in response to the financial crisis set the stage for record low mortgage rates, which when combined with falling home prices, fuelled a sharp improvement in home affordability. Once people realized that the economic downturn was going to be ‘just’ a severe recession, and not a repeat of the 1930s, individuals who felt that their job was secure jumped back into the real estate market to take advantage of mortgage rates that were perceived as ‘too good to last’. At the same time, the Canadian banking system weathered the financial turmoil quite well, with the result that mortgages were accessible to the pool of buyers entering the market. The surge in sales far outpaced listings, supporting a rebound in prices. The Canadian Real Estate Association (CREA) estimate of national homes sales was up 18.5% year-over-year in August and national average home prices had increased 11.3% year-over-year.

General Real Estate Stats

Average MLS Resale Value

City	August 2008	August 2009
Halifax	$222,180	$231,203
Saint John, NB	$158,669	$166,117
Montreal	$263,165	$276,243
Ottawa	$282,792	$312,176
Toronto	$364,880	$387,899
Hamilton/Burlington	$283,974	$291,374
Winnipeg	$190,979	$207,389
Saskatoon	$279,366	$281,871
Calgary	$390,091	$388,725
Edmonton	$329,207	$318,321
Vancouver	$557,114	$608,032
Victoria	$452,205	$481,279

Source: Canadian Real Estate Association

Total New Housing Starts (Seasonable Adjusted and Annualized)

Province	July 2009	July 2008	August 2009	August 2008
Newfoundland/Labrador	2,900	1,800	2,400	3,100
PEI	600	400	1,000	700
Nova Scotia	3,300	3,400	4,200	3,300
New Brunswick	3,800	3,200	3,700	3,800
Quebec	46,200	43,900	47,300	43,300
Ontario	39,100	59,200	44,200	89,800
Manitoba	4,000	3,400	5,000	5,400
Saskatchewan	3,600	4,700	5,100	5,300
Alberta	17,600	29,000	18,400	22,900
British Columbia	13,100	37,300	19,200	33,500
Canada	134,200	186,500	150,500	211,100

The Globe and Mail – Sales and Price Surge Due to Consumer Confidence and Low Mortgage Rates

Sales of existing homes in August grew by a brisk 18.5 per cent from a year ago, data released by the Canadian Real Estate Association (CREA) showed yesterday. The average price climbed 11.3 per cent from a year earlier.  On a monthly basis, however, there was a slight drop in sales from July to August, at a fraction of 1 per cent.

Still, with unemployment up to 8.7 per cent, and the spectre of deflation existing, how can housing sales enjoy such a boost?

“We’re really double dipping here,” said Benjamin Tal, a senior economist with CIBC World Markets Inc. “Not only are we enjoying the healthiest financial sector globally, therefore a financial sector that is able and willing to offer credit, also consumers are able to accept this credit … it’s all about consumer confidence.”

Without that confidence, Mr. Tal said, buyers would not be poised to take advantage of record-low interest rates, which have driven the recovery.  “If I don’t have confidence that I will have my job tomorrow, you can offer me a 0-per-cent mortgage and I will not take it,” he said. “If you know your job will be there, you jump on it. That’s what’s happening. People know this will not last forever.”

Pent-up demand from the sales slump last fall may explain some of the gains, said Bank of Nova Scotia economist Derek Holt, but low mortgage rates are the dominant factor.

Commercial Real Estate Recovery Near, Say Execs

The Globe recently interviewed four of the biggest commercial real estate executives in Canada.

They had this to say about commercial financing:

Pierre Bergevin, Pres. & CEO, Cushman & Wakefield

• “I think what we consider normal is between 18 to 24 months away.”
• Lenders are still financing, but rates are 60 to 80 basis points higher than spring 2008.
• Financing is typically being capped at 65% LTV
• A replacement to commercial mortgage-backed securities must be found to add liquidity to the commercial market

Mark Rose, Chairman & CEO, Avison Young

• “Normal” is 12-18 months away
• The bellwether will be rising employment figures
• New forms of mortgage-backed securities will arise to fill the gap in commercial financing.
• Lenders will soon get comfortable with LTVs over 60-65%
• “All it will take is just one lender to jump in to get the ball rolling. Someone will see a competitive edge in making 70% financing available and everyone else will start to follow. Then it will go to 75% and then 80%.”
• “I doubt if we will ever get back to the days of 100% financing no matter how overheated the market gets.”

Stefan Ciotlos, Pres., CB Richard Ellis

• “My view is that recovery will start for real in the second quarter of 2010.”

David Bowden, Pres., Colliers International Canada

• “We have bottomed out but I think we are a year to 18 months away from real recovery.”
• Private lenders are “leading the way” and “seeing great opportunities in Canadian real estate…I am certain their success will encourage traditional lenders and investors to follow.”

Source: Canadian Mortgage Trends