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Monday, 08 January 2007 |
Economic forecasts indicate that 2007 will not be a champagne year.
You might want to think twice before you slap down $750 for a bottle of the exquisite Krug Clos du Mesnil champagne (1995) to ring in the new year. There might not be much to celebrate.
The forecasters are nearly unanimous: The Canadian economy will not grow as quickly in 2007 as it did in 2006 or in 2005 and the slowdown might make it difficult for Ottawa to deliver on promises of tax relief.
The writing has been on the wall through most of 2006, most dramatically so in September when the Gross Domestic Product actually declined by 0.3 per cent, dragging growth in the third quarter to an annualized rate of 1.7 per cent, the slowest pace in three years. That's down from 3.8 per cent in the first quarter and two per cent in the second.
The slowing pace was inevitable as the drivers of economic growth shifted into low gear. For example, gross fixed investment -- one of the prerequisites for long-term economic expansion -- grew by 8.0 per cent in 2004, 7.1 per cent in 2005 and 6.3 per cent in 2006, but is expected to grow by only 3.4 per cent in 2007, according to the Organization for Economic Cooperation and Development.
In its semiannual economic outlook, the OECD forecast growth of Canadian GDP of 2.7 per cent in 2007, down from an estimated 3.1 per cent in 2006, largely as a result of the cooling economy in the United States and an accompanying decline in energy and other commodity prices. (For the record, the Bank of Canada forecasts GDP growth of 2.5 per cent in 2007 while the finance ministry agrees with the OECD figure.)
Whatever numbers you choose to believe, the softening of the Canadian economy is clearly becoming more pronounced. The Toronto Dominion Bank expects four quarters of what it calls "below trend" growth. However, the good news is that, while most anticipate weakness, none expects a recession.
The Conference Board of Canada sees a healthy economic future for British Columbia as a preferred retirement haven for baby boomers and looks for average annual GDP growth of 2.3 per cent over the long term.
Meanwhile, mining and construction should keep the province humming in the short term, although not at the frenetic pace of the last few years. The Bank of Montreal expects B.C. will grow at 3.4 per cent a year in the 2008 to 2010 period, a faster clip than any province besides Alberta.
The TD Bank predicts the slowdown of the Canadian economy will be short lived as the U.S. economy recovers through 2007 and the Bank of Canada provides some monetary stimulus in the second half of the year to move things along. A rate cut from the current 4.25 per cent might not only loosen credit but knock a few points from our near-90-cent US dollar to boost exports. Indeed, the Royal Bank of Canada attributes the strong dollar to high energy prices and predicts it will drop to 80.6 cents US by year-end 2007 as commodity prices slip below historic highs.
Housing remains the dark cloud over what would otherwise likely be a benign economic pause. The Royal Bank of Canada noted that in the U.S. sales of existing and new homes were 13 per cent and 20 per cent lower respectively from the peak of recent months and that the correction is likely to continue through 2007. Home sales in Canada have weakened as well, though not as sharply, and the real estate industry is watching anxiously for more fallout. Canada Housing and Mortgage Corp. has forecast a six-per-cent increase in the average resale house price but prices could just as easily drop that much in an overheated market like Vancouver.
Against this economic backdrop, a New Year's toast with Henkel Trocken (about $22.50) rather than the pricier bubbly might be in keeping with the more austere 2007 economists anticipate.
(Source: Vancouver Sun editorial)
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Thursday, 21 December 2006 |
Mortgage rates drop in minor tweeking
Canadian mortgage rates dropped a tenth of a percentage point today -- a minor tweaking that keeps one-year and five-year fixed rates abnormally close to each other.
"There's an inverted yield curve now and many lenders don't want to lend money on a short-term basis," said mortgage broker Kris Budisa, regional manager of Mortgage Alliance. "They're doing whatever they can to get clients to take longer terms of five years or more."
(An inverted yield curve happens when long-term debt instruments have lower yields than short-term instruments, a situation that's considered to forecast an economic downturn.)
At TD Canada Trust, the fixed rate on a one-year closed mortgage fell a tenth of a point to 6.4 per cent while the rate on a five-year term dropped a twentieth of a point to 6.45 per cent. Under normal conditions, the five-year rate would be at least a percentage point higher than the one-year.
The bank's variable-rate mortgage, which moves with the Bank of Canada rate, was unchanged at 5.5 per cent.
Budisa said the five-year fixed-rate mortgage remains the most popular choice by far, even though it's not always the best option for everyone.
"A lot of people don't understand their options so they just keep doing what they've always done, which is to take a five-year term," he said. "But if you look back over the past 80 years, going with a five-year rate is not always the best choice for many clients."
Current mortgage rates generally are less than a percentage point higher than they were a year ago and Budisa doesn't expect they will go a lot higher in the near future, noting banks continue to offer "incredibly good rates" on 10-year mortgages (7.05 per cent at TD Canada Trust).
"That tells you where they think rates are going to be 10 years from now -- modestly increasing but with no huge spikes in store," he said.
VanCity Credit Union chief operating officer Ian Warner said there appeared to be no huge advantage this year for borrowers who chose either a variable or a fixed-rate mortgage. A year ago, a variable-rate mortgage was available for 5.25 per cent but it averaged 5.06 per cent over the year, compared with 5.1 per cent on a fixed-rate mortgage.
Warner said mortgage lending activity has slowed down recently as the housing market takes a breather. But he noted house prices continue to rise, which increases the demand for higher-value mortgages.
"We still expect to do very well next year," he said. "We might write fewer mortgages but there should be a higher dollar value per mortgage."
Warner said mortgages with 30-year and 35-year amortization periods remain popular among many buyers striving to make a home purchase as affordable as possible.
Credit Union Central of B.C. chief economist Helmut Pastrick said stronger economic growth in the second half of 2007 should put upward pressure on long-term mortgage rates next year, with five-year rates being as much as half a percentage point above current levels. He said shorter-term rates will remain in a fairly tight range.
Pastrick expects mortgage rates will remain at levels low enough to support a healthy housing industry, with B.C. housing sales declining by about five per cent next year while housing starts drop by just one per cent.
He said the choice between a variable-rate or fixed-rate mortgage next year will depend on a person's individual circumstance.
"If a person is a new buyer and relatively new to the job market, it probably makes more sense to go for three or five years at a fixed rate," he said.
(prepared by Bruce Constantineau/Vancouver Sun)
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Sunday, 10 December 2006 |
Real estate sales lower, but no "correction" predicted
Real estate sales across the Lower Mainland this year are continuing at a pace about 10-per-cent below last year's record clip, regional real estate boards reported Monday.
And although the number of active listings is also up more than 30 per cent compared with last year, inventories haven't reached levels that would signal a correction, says Tsur Somerville, director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C.
On Monday, the Real Estate Board of Greater Vancouver reported MLS-recorded sales of 2,358 units, about 20-per-cent below the same month a year ago. Active listings in Greater Vancouver totalled 11,308 in November, up 30.6 per cent.
The average price for a Greater Vancouver single-family home was $765,256 in November, a 3.8-per-cent decrease from October.
The Fraser Valley Real Estate Board reported November's sales, at 1,194, declined 26 per cent compared with November a year ago. Valley listings of 7,391 were up 37 per cent compared to last year.
The average Fraser Valley single-family home sold at $487,392 in November, with no change from October.
However, Somerville said new listings declined from October to November, and dropped more than the decline in sales from month to month.
To him, that is a sign sellers aren't flooding the market, and "unless we see this dramatic increase in inventory, there isn't a need to worry about any kind of catastrophe."
Somerville added that the important factor to remember is that the overall framework of the Lower Mainland's real estate market is a strong economy, which is strong for more reasons than a robust residential construction sector.
Somerville said the last two celebratory years where people said, "'Buy real estate, it goes up, we're doing great.' That party's ending. And that's probably a good thing. No, it is a good thing."
Carol Frketich, regional economist for Canada Mortgage and Housing Corp., calculated a rough estimate of existing-home inventory of about 4.8 months, compared with three months a year ago.
Frketich said that suggests there will be more choice for buyers, and less upward pressure on prices.
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