Don’t Panic – Lower Interest Rates & Housing Prices Is Good News!

I have constantly told my clients that the Canadian economy is not a mirror image of the economies of other countries around the world, particularly the United States.

While we shouldn’t turn a blind eye to what’s happening around our world, we shouldn’t allow ourselves to become gripped by fear while waiting to see if things are going to get worse.

Pierre Duguay, Bank of Canada’s deputy governor, is warning Canadians not to get spooked by “irrational fear” over the economy and says there’s a risk of overstating the global crisis.

Duguay says Canada should be prepared to hear a string of alarming economic news in the next few months. But that doesn’t mean we should panic.

And he says that justifies a “sense of urgency” in putting the federal government’s stimulus spending to work in the economy quickly.

Our government, reacting to economic woes, indicated they would introduce a stimulus package to help stir up activity across our provinces.

The Conservative government proposed spending $40 billion over two years to stimulate the economy, but no money will start to flow until April at the earliest. What? We need stimulus now!

Finance Minister Jim Flaherty has called for a free hand in spending $3 billion of the stimulus starting April 1, but opposition parties are asking for some oversight.

Duguay says it’s important to get the stimulus moving “so people can see recovery is coming and not have to worry about the future.”

The Bank of Canada has already stepped up to the challenge with their recent rate cut, and fortunately, the major banks quickly responded with their own reductions in interest rates.

As of the date of this story, my clients have access to the lowest rate in Canada! 3.5% for a five year, fixed/closed mortgage! An unbelievable opportunity to take advantage of a great rate before both housing prices and interest rates start to climb again… and they will!

Visit my website at http://www.BlairArmstrong.com or call 416-301-0222 for more information.

Bank Of Canada Running Out Of Rate-cut Ammunition

Carney cuts key interest rate to nearly zero to spur lending, but economist sees limited impact

The man responsible for keeping the economy humming pushed the panic button yesterday, reducing the Bank of Canada’s key interest rate to nearly zero in hopes of getting consumers buying again.

Governor Mark Carney cut the central bank’s trend-setting overnight rate by a half-point to a record low of 0.5 per cent. The move is intended to help revive the struggling economy by encouraging borrowing, spending and investment.

Following the Bank of Canada’s lead, the Royal Bank of Canada, Bank of Montreal, Toronto Dominion Bank, CIBC and the Bank of Nova Scotia cut their prime rates – the borrowing rate charged to their most creditworthy customers – by one-half of a percentage point to 2.5 per cent.

Amid a crippling global economic downturn, the Bank of Canada has made a series of rate cuts since December 2007 in an effort to restart the stalled economy.

Now it has little room for further cuts. Some analysts expect Carney to halve the current rate to .25 per cent, as the United States has done. But going all the way to zero would disrupt short-term lending markets for technical reasons, economists say.

“The tank is getting empty,” said Toronto economic consultant Dale Orr.

The Bank of Canada’s decision came a day after news that Canada’s economy contracted at an annual rate of 3.4 per cent in the last three months of 2008, the worst performance since 1991.

That was the latest in a stream of grim economic news from December, including a record loss of 129,000 jobs, a 47 per cent spike in bankruptcies and a trade deficit of $458 million, the first since 1976.

In a statement yesterday, Carney acknowledged he had been overly optimistic when he predicted in January the Canadian economy would start to recover in mid-2009 and turn in growth of 3.8 per cent next year.

“National accounts data for the fourth quarter of 2008 and other indicators of aggregate demand point to a sharper decline in Canadian economic activity” in the first half of 2009 than the Bank projected in January, Carney said.

“Potential delays in stabilizing the global financial system” and a larger-than-expected erosion of business and consumer confidence could delay a recovery until early 2010, he said.

“I think it’s quite obvious, even though they didn’t put a number on it, that they’ve scaled back their growth forecast for the economy this year, and likely in 2010 as well,” said BMO Capital Markets deputy chief economist Doug Porter.

While economists doubt Carney had little choice but to slash rates further, some question whether this traditional central banker’s tool for expanding the amount of money circulating in the economy is very useful in the current slump.

“If financial institutions are reluctant to lend and consumers and businesses are reluctant to borrow, then lowering interest rates may not do much to stimulate the economy,” said United Steelworkers economist Erin Weir.

Scotiabank CEO Rick Waugh said at his bank’s annual meeting in Halifax that the lower interest rate is “a step forward” for the economy but insisted the No. 1 priority is to stabilize the world financial system.

The central bank said the key overnight rate “can be expected to remain at this level or lower” until there are “clear signs” that the economy is beginning to perform closer to its normal capacity. The next rate-setting is April 21.

But, with its interest-rate ammunition all but spent, the central bank said it will be looking at other measures to ease the credit crunch that caused the Canadian economy to slow so drastically.

SOURCE: TheStar  -  Les Whittington, Ann Perry (Star Reporters)    Photo by Chris Wattie, The Canadian Press

NEWS FLASH! Bank Rate Hits Historic Low!

The Bank of Canada has cut a key short-term interest rate about as low as it can go in what is becoming a frantic effort to spark recovery from a recession it admits it has misjudged in terms of both duration and seriousness.

The central bank did what virtually every private sector economist advised it to do Tuesday morning, slashing the trend-setting overnight rate to 0.5 per cent, uncharted territory.But bank governor Mark Carney, who was criticized for being overly rosy in his outlook for the economy in January, now says that even at such unheard-of lows, the stimulus provided by traditional monetary policy is likely not enough.

And he said the bank now sees recovery coming later than it had projected, possibly in early 2010.

“Given the low level of the target for the overnight rate, the bank is refining the approach it would take to provide additional monetary stimulus, if required, through credit and quantitative easing,” Carney wrote in a statement of his rate decision.

The central banker does not give example of specific measures, but the language implies he is considering buying back government bonds and other forms of credit from chartered banks in order to provide more liquidity in money markets.

Canada’s major banks appeared ready to play ball with Carney: shortly after the announcement, Royal Bank, Bank of Montreal and announced that they would cut their prime rates in step with the central bank.

The reference to non-traditional monetary measures confirms that Carney knows he has exhausted interest rate cuts as a means of stimulating the economy out of a deepening and increasingly stubborn recession.

There is only limited advantage in taking rates to zero – something few economists counsel. As well, the central bank has already slashed the overnight rate from 4.5 per cent 15 months ago to 0.5 per cent with limited impact.

As former Conservative cabinet minister and economist Doug Peters wrote last week: “Interest rates that count, such as interbank lending rates, mortgage lending rates, bank commercial lending rates, are all unusually high, especially considering that inflation is also very close to zero.”

The other surprise is that although Carney said recently he is unlikely to revise his controversial January forecast until the next Monetary Policy Report in late April, he does just that in the brief statement.

“The outlook for the global economy has continued to deteriorate since the bank’s January… update, with weaker-than-expected activity in major economies.”

“National accounts date for the fourth quarter of 2008 and other indicators of aggregate demand point to a sharper decline in Canadian economic activity and a larger output gap through the first half of 2009 than projected in January.”

Carney said potential delays in stabilizing the global financial system, along with low consumer confidence and larger hit on household wealth, “could mean that the output gap will not begin to close until early 2010.”

In January, Carney had forecast the economy to start growing by an annualized two per cent in the third quarter of this year, and to record an average growth of 3.8 per cent next year.

Tuesday’s statement does not officially alter the forecast, but strongly implies that both this year’s 1.2 per cent contraction will be worse and that the recession may last until next year.

On Monday, Statistics Canada reported that Canada’s gross domestic product had retreated by 3.4 per cent – more than the bank’s expectation of a 2.3 per cent fall-back – and economists were for the first time calling Carney’s prediction of a whopping 4.8 per cent contraction during this first quarter of 2009 optimistic.

Carney also forecast that inflation will likely be lower than expected this year.

SOURCE: TheStar, Julian Beltrame, THE CANADIAN PRESS

Better Sales: Toronto Real Estate Sales Hit 2,044 in Mid February

Greater Toronto Realtors reported 2,044 sales through the first 14 days of February, compared to 2,775 sales reported during the same period in 2008.

“While sales have been lower, the housing sector remains one of the pillars of the GTA economy,” said Toronto Real Estate Board President Maureen O’Neill. “Each existing home transaction generates, on average, more than $33,000 in spin-off spending on renovations and other housing-related items. This spin-off spending translates into jobs.”

“The City of Toronto needs to do its part to encourage homeownership by reducing the tax burden on existing and potential home owners,” said TREB President Maureen O’Neill. “To this end, Greater Toronto real estate agents are calling on the City to roll back the municipal land transfer tax. We presented our views to the City’s Budget Committee yesterday.”

The average home price in the GTA was $364,748 compared to $385,735 in mid-month February last year.

“It is interesting to note that while the average price was down, the annual rate of price decline slowed compared to the previous four months,” according to Jason Mercer, the Toronto Real Estate Board’s Senior Manager of Market Analysis. “If this trend continues into the spring, it could point towards average home prices leveling off between $360,000 and $370,000.”

Comment: For the first time in months, February 2009 compared to February 2008 is going to be the true test. This month, we aren’t comparing to previous months where there was abnormally high activity due to buyers who were trying to avoid a new tax. This month,  we’re FINALLY comparing apples to apples… and guess what …we are seeing very little difference.

Like me, fellow realtors are sharing the same setiment… the sky is NOT falling, the market is NOT collapsing. We are currently looking at only a minor 5% price drop… a drop that occurs over the past 12 months, comparing the beginning of February 2008 with the first have of February 2009. That is less than 0.05% per month. Or 0.0001% per day. So what, you say? Consider this… the stock market dropped 30-50% in only 3 months, in comparison.

Read this carefully. IMPORTANT: All the indicators suggest we are pretty much at the bottom now, so if you are thinking of buying, the next few months are going to be the best time. Once consumer confidence returns with the nice weather, everything will stabilize, interests rate will start to climb again, and we might even see prices edge upwards again. Visit my website, www.BlairArmstrong.com … send me a note or call me – let’s talk about finding your next home before the interest rates start to climb along side housing prices! ~Blair

For more information, contact Blair Armstrong at 416-301-0222

SOURCE: Toronto Real Estate Board

Flips are not flops, even in slower market

Their confidence is as intractable as a red wine stain: house flippers and the workers that trim the sector’s edges insist all remains well in Hogtown real estate.

While houses are selling for less than their listed price and are staying on the market longer, sellers like Sam Cohen insist the outlook is good, and house stager Anne Bourne says she is in high demand.

House flipper Sam Cohen, in a newly renovated residence in the Avenue Road and Highway 401 area, says he is able to wait for a buyer to accept the $1.2-million price tag. (Deborah Baic/The Globe and Mail)

“When everything happened in November, everything kind of ground to a halt,” Ms. Bourne said of her Staging Works business.

“In the last couple of months I’ve been getting more calls than ever. I think I’m going to be busier than ever this year.”

Last month, national home resales hit their lowest levels since the mid-1990s, slumping 41 per cent from a year earlier, according to the Canadian Real Estate Association.

Toronto’s house prices dropped 8.2 per cent over the same period: The average house price last month was $343,632, compared to $374,449 in January, 2008.

The slower market is in evidence across the city as For Sale signs linger on front yards, but the realty industry is maintaining its breezy grin. After all, obvious displays of disappointment are often considered as dangerous as a red flag in a bull ring.

But despite the assurances, cracks are appearing in the facade. Ms. Bourne said real estate agents are fighting for listings, with some offering to pay for house staging in a bid to win a listing.

And home owners who have never considered house staging are booking consultations at $200 a session to get advice on how to win over prospective buyers.

“From what I’ve heard from real estate agents, it’s a hard time right now. It’s been really hard to sell these houses,” Ms. Bourne said.

At the top end of the market, Bernod Singh recently slashed the asking price for his luxury home by $6-million, bringing it to a more affordable $10.8-million. But he is still trumpeting a positive tune.

“We’ve priced it for a quick sale,” Mr. Singh said of the 18,000-square-foot Bridle Path home that has been on the market since 2006. “I would love to get the full price, believe me … but I have to be realistic.”

Further down the pricing scale, house flipper Mr. Cohen says it will likely take weeks, instead of days, to sell his rebuilt house in the Avenue Road and Highway 401 area.

Still, he’s able and willing to wait for a buyer willing to accept the $1.2-million price tag.

“I built a house that probably will attract the kind of client that will be willing to pay the price I’m asking for,” said Mr. Cohen, who used to be a financial adviser but now renovates houses full-time.

Mr. Cohen first flipped a house about two years ago, and it sold just days after going on the market. This time, he expects it to take about a month.

“I expect there might be some individuals who might come in to look for a bargain,” he said.

“I hear people come in with ridiculous prices to offer. But again, a house in the right place will sell. Not as fast as previously, but it will sell eventually.”

SOURCE: Globe and Mail, TENILLE BONOGUORE, February 19, 2009

REALTORS® applaud budget initiative to help home buyers

The Chief Executive Officer of the Canadian Real Estate Association (CREA), Pierre Beauchamp, and Jean-Pierre Blackburn, the Minister of National Revenue, today announced how changes to the Home Buyers’ Plan outlined in the federal budget will help stimulate the housing sector and make it easier for first time home buyers to realize their dream of home ownership.

“We would like to thank the federal government for recognizing of the importance of the housing industry in our economy,” said CREA CEO Pierre Beauchamp, during a formal announcement ceremony with National Revenue Minister Jean-Pierre Blackburn. “There were several incentives in the federal budget designed to address the issue of affordability. This may prove to be one of the most important for generating economic activity.”

Introduced in 1992 by a Conservative government and made permanent by a Liberal government in 1994, the Home Buyers’ Plan (HBP) has broad political and consumer support. It now allows first time homebuyers to withdraw up to $25,000 from their RRSP to be used in a down payment on a residential property. From the day the Plan was launched until today, the maximum withdrawal was $20,000.

This meant the HBP has not kept pace with inflation or home prices and as a result, the Plan did not have the same impact and relevance it did 16 years ago. In 1992, $20,000 represented 13.3 per cent of the average house price, versus about 6.5 per cent today.

“That is important because the size of the down payment a home buyer can make is one of the most important factors in determining affordability,” said Beauchamp. “A plan that helps home buyers increase the down payment can mean lower financing costs, and that is a major factor to home affordability.”

The Home Buyers’ Plan helps Canadians buy their first home and save for retirement at the same time. Since home ownership is the cornerstone of retirement for the vast majority of Canadians, they should not have to choose one or the other. The Home Buyers’ Plan accomplishes that, by allowing Canadians to save for retirement and providing the option to use those RRSP resources at a later date to buy a home.

Research conducted for CREA by the Altus Group also shows that each residential real estate transaction in Canada generates $32,200 in ancillary consumer spending. The study also reported that 94,700 full time direct jobs were generated annually by that ancillary or spin-off activity. The study is posted on the www.crea.ca website.

In 2007, the last year statistics are available for, 52,380 Canadians used the Home Buyers’ Plan. Those transactions generated $1.7 billion in ancillary economic spending. “That economic activity was generated by a plan that did not cost taxpayers a penny,” Beauchamp added, “which is why government action now to adjust the plan to keep it relevant is important for the overall Canadian economy.”

About CREA The Canadian Real Estate Association represents more than 96,000 REALTORS® and 100 local real estate Boards and Associations. To demonstrate the commitment REALTORS® have to improving Quality of Life in their communities, CREA supports growth that encourages economic vitality, provides housing opportunities, respects the environment and builds communities with good schools and safe neighbourhoods.

Source: CREA 02/02/09

Bank Of Canada Sticks To Forecast

Mark Carney, governor of the Bank of Canada, stuck to his forecast yesterday that unprecedented monetary and fiscal stimulus will lead to a solid rebound in the Canadian economy next year, prompting one economist to speculate the bank may trim interest rates only 25 basis points at its next announcement in March or even hold steady before raising rates late in the year.

Mr. Carney, who was before MPs on the House of Commons finance committee, spoke confidently of the central bank’s economic outlook, which expects a deep economic decline this quarter before the economy roars back to life late in 2009 and posts growth of 3.8% in 2010 — well above the outlook of most private-sector economists.

As it happened, economists at the University of Toronto’s Rotman School of Management issued a forecast late on Monday that is in line with the central bank’s forecast — meagre growth beginning in the third quarter, building toward output of 3.7% in 2010.

“We don’t do optimism, we don’t do pessimism. We do realism at the Bank of Canada,” Mr. Carney said in response to a question about his optimistic outlook. “We don’t do spin.”

In his opening statement, he said Canada’s central bank had cut rates “deeper and sooner” than most other global peers. “With the strains in our financial system considerably less than elsewhere, monetary conditions have eased significantly in Canada since the start of the crisis.”

The benchmark lending rate stands at 1% after the Bank of Canada cut rates by 350 basis points since December, 2007.

Mr. Carney added that Canada is in the “unprecedented” situation of having negative real interest rates — or interest rates lower than core inflation rates — as it deals with this global financial downturn. “In time, this will have a powerful impact on economic activity and inflation.”

One analyst said those comments suggest the widely anticipated 50-basis-point cut in March may no longer be in the cards.

“This strongly suggests that the bank’s sense of easing urgency is waning,” Michael Gregory, senior economist at BMO Capital Markets, said in a note. “We look for any future rate cuts to be the quarter-point variety and wouldn’t be surprised if they skipped” a rate cut at the March 3 decision date.

In an interview, Mr. Gregory said Mr. Carney’s testimony revealed the central bank’s computer models indicated growth would be much stronger, but that was pared back for the official forecast.

“To me, Carney is saying they have done a lot, and the conditions are ripe for the economy to take off once financial markets globally right themselves a little bit,” he said.

Further, Mr. Gregory said there is a chance the bank could begin raising rates late this year should the forecast, as envisaged, come to pass. Growth in the third and fourth quarters, in the central bank’s scenario, is set to climb 2% and 3.5%, respectively.

Not everyone shares this view. TD Securities said in a note it still believes the bank “will likely” deliver a 50-basis-point cut on March 3. Derek Holt, vice-president of economics at Scotia Capital, said he’s anticipating a half-percentage-point drop.

“It doesn’t matter what the bank thinks about growth in 2010,” Mr. Holt said. “The more important thing is that the bank continues to say inflation will not to be an issue until 2011.”

The bank’s benchmark lending rate is set to ensure inflation hits a preferred target of 2%.

Mr. Carney told MPs the bank will continue to monitor developments to judge whether or not further monetary stimulus will be required.

SOURCE: Paul Vieira,  Financial Post  Published: Wednesday, February 11, 2009