Thursday, October 29, 2009

With mortgage rates dropping, it's strategy time

ROB CARRICK
September 15, 2009

It was a little less than a year ago that the global financial crisis began to hit home, which is to say that mortgage rates spiked higher.

Now, the cost of mortgages is coming down. If you're buying a home or renewing a mortgage, it's time to review your options.

Fixed-rate mortgages declined a little last week, but the most dramatic changes can be seen in variable-rate mortgages. For the first time in almost a year, it's possible to get a variable-rate mortgage at the prime rate used by most major financial institutions, which is currently 2.25 per cent.

Pre-crisis, variable-rate mortgages came with discounts that ranged from 0.75 percentage points to as much as 0.9 points off prime. By late last fall, crisis conditions prompted lenders to start charging prime plus a full percentage point or more. Now, some lenders are starting to unwind their crisis-rate premiums.

"Variable-rate mortgages are all over the map right now," said Gary Siegle, regional manager with the mortgage brokerage firm Invis Inc. in Calgary. "We're seeing them right in the area of prime with some lenders."

An example of a variable-rate mortgage at prime: ResMor Trust, a small player that deals through mortgage brokers, is offering four-year variable-rate mortgages at prime in all provinces except Quebec. The catch: You have to have your mortgage approved by Sept. 30 and close the purchase within 45 days.

Can variable-rate mortgages fall back to their pre-crisis lows any time soon?
"Definitely, 100 per cent, no," said Robert McLister, a mortgage broker and author of the Canadian Mortgage Trends blog (canadianmortgagetrends.com). "Could they get a little below prime? Definitely."

Okay, it's strategy time. With prime at 2.25 per cent and fully discounted five-year fixed-rate mortgages going for something in the area of 3.9 to 4.1 per cent, you're got some thinking to do if you're buying a home or renewing a mortgage.

The variable rate looks tempting. Sure, the prime is going to rise in the medium term, but it's expected to stay put until next spring at least. Even when prime does move higher, it will have to increase by roughly 1.75 percentage points to get to where today's five-year mortgages are.

"The risk is obviously that rates go up a lot more," Mr. McLister warned. "Rates went down four percentage points from December, 2007, through April, 2009. They could easily go up four - why not?"

Variable-rate mortgages allow you to lock into a fixed-rate mortgage, so there's no reason why you have to ride interest rates all the way up. Still, you have to recognize that fixed-rate mortgages could be significantly more expensive by the time you decide to lock in.

An academic study of rates between 1950 and 2007 found variable-rate mortgages were the money-saving choice over five-year fixed-rate mortgages 89 per cent of the time. If you're willing to ride rates higher for a while in hopes of longer-term savings on interest costs, then consider a possible approach suggested by Mr. McLister.

Instead of arranging a variable-rate mortgage now, go for a one-year fixed-rate mortgage. Then, when you're renewing in one year's time, you'll move into a variable-rate mortgage that will ideally have a rate that is discounted below prime.

Fully discounted one-year closed mortgages today go for about 2.55 per cent, so you're not paying much of a penalty at all compared with what variable-rate mortgages are pegged at right now.

Another suggestion from Mr. McLister is to consider a three-year mortgage, which offers an attractive blend of low rates and security against interest rate surges. Three-year mortgage typically go for around 3.39 per cent on a fully discounted basis, but he knew of one small lender offering 2.9 per cent through the mortgage broker channel.

The case for going with a five-year fixed rate is that rates are very cheap by historical standards. Rates were a little bit lower last spring, but they're not as high as they were a month or two ago thanks to a pullback in bond yields that has trickled down to fixed-rate mortgages.

Mr. Siegle said over half of his firm's clients are locking into a fixed-rate mortgage right now. "You can't ever time the bottom of the market, but are these good rates that you can be comfortable with? A lot of people are saying, 'yeah, they are.' "

UBS predicts a 'V-shaped' recovery in Canada

Eric Lam, Financial Post

While most economists generally agree Canada will experience some kind of economic recovery in 2010, UBS on Tuesday took the bold step of predicting a sharp and bullish "V-shaped" recovery, one of the first to do so.

George Vasic, strategist with UBS Securities Canada Inc., said the new prediction raises its outlook for economic growth next year to a healthy 2.9% from 2.4%, already above consensus of 1.8%. UBS had previously forecasted a more tepid "U-shaped" recovery.

"A few months ago people generally were saying it'd be very difficult to have any sort of recovery because credit market conditions would not recover quickly, there would only be a gradual thawing. But what we've seen since then is they've actually turned around quite remarkably," he said. "Sure it's a step from where we were and maybe two steps from where the consensus is, but we think effectively this is what's going to happen."

One of the main factors in Mr. Vasic's outlook is rising government and corporate bond yield curves, which have traditionally been a sign of improving fortunes for GDP growth.

"They're quite compelling. If you look at their correlations to GDP, they're about four quarters ahead," he said. "This isn't about the next quarter or the next month, it says when these things swing around it does assure you of some strong growth over the next year."

Sharp drops in GDP have also historically been followed by strong rebounds over the next year, he said.

Sheryl King, chief economist and strategist with Merrill Lynch Canada, was arguably the first bull out of the gate in July when she forecast a "burst" of 10% growth in the fourth quarter of 2009 and 7.5% in the first quarter of 2010. However, she stopped short of calling for a "V-shaped" recovery.

Other economists are not quite so bullish.
Benjamin Tal, economist with CIBC World Markets, expects only 2% annual growth from Canada. It's enough to outperform the other G7 countries, but not enough to justify a "V-shaped" forecast.

"It's like putting an average student in a class of underachievers," he said.
For Mr. Tal, a "V-shaped" recovery needs to be symmetrical, and he does not see that happening. Rather, he expects the economy to form a "fat U" shape with 2010 as the transition year.

"I just don't buy it. We need to see the labour market stop bleeding, export growth, strengthening in manufacturing," he said. "I think it will be a full year before we get back to potential."

Francis Fong, an economist with TD Economics, dislikes the alphabet-style designations but would characterize the recovery as a cross between a "V" and a "W", driven by consumer and government stimulus spending. TD's growth number, expected this month, will be higher than 1.8% but not at the level of Mr. Vasic's 2.9%, Mr. Fong said.

He also said that Canada's recovery also depends on how the United States performs, and a big part of the recent turnaround in this country has been fuelled by its biggest trading partner's economic stimulus plans.

"The ‘cash-for-clunkers' program was very successful, so there was lots of growth in the quarter. Is that sustainable?" he asked.

He forecasts a "W-shape" for the United States, as stimulus funds get pulled back in 2010.

However, Mr. Vasic argues stimulus will continue for at least the next year as governments on both sides of the border will be loath to switch policy gears.
"Even in turning [stimulus] off it takes time, so you'll have a period of time of good growth. No government is going to pull back stimulus when the unemployment rate is at 9%," he said.

Douglas Porter, deputy chief economist with BMO Capital Markets, has pegged Canada for 2.6% growth and does see signs of a "V-shape" recovery, particularly in the housing sector.

"But that's a factor of how far down the left side went. It depends on how the right-hand side will look," he said. "Even getting back to zero carves out a ‘V-shape.' "

There are a lot variables in a variable rate

Garry Marr, Family Man, Financial Post

He has a landmark study on mortgages, but York University professor Moshe Milevsky says he never anticipated the credit markets of the last year.

The 2001 paper examined the previous 50 years to determine whether consumers benefitted from locking into a fixed-rate mortgage or going with a variable-rate product linked to prime. Consumers did better 88% of the time by going with the variable-rate option. The study has been used by banks to lure consumers into variable rate products. Currently, about 25% of mortgage holders have gone with floating rates.

"I've written seven books and 100 research articles and that's the one I'm known for," says Mr. Milevsky, with a laugh. "I just wish some of these banks would mention the author."

He says the study results still hold true. If you factor in the past nine years, the variable rate probably does better about 96% of the time.

But that doesn't mean if you are looking for a mortgage today you should float, he says. "There is another element of risk to analyze," says Mr. Milevsky.

He's refering to the volatility in the mortgage market for variable-rate products. The variable rate is still tied to prime, but the discounts and premiums being offered are moving up and down wildly.

A year ago, consumers were being offered discounts as much as 90 basis points below prime, meaning those people who took it are now borrowing at 1.35% based on the current prime rate of 2.25%. When credit markets tanked a year ago, variable products were being sold at 100 basis points above prime.

Credit markets have calmed since. Bank of Montreal announced a week ago that its variable rate was down to 2.25%, with no discount or premium.

The Bank of Canada may have pledged to not touch the rate until next June, but consumers getting into variable rate products are facing the risk that the discounts they negotiate today will look pretty ugly in a few months.

Worse yet, the variable products being sold by the banks are generally closed mortgages, so they cannot be paid off immediately without penalty.

An open mortgage can be paid off at any time, but you pay a higher rate for the privilege. At Bank of Montreal, for instance, an open three-year mortgage costs 3.05%, so you are paying an 80-basis point premium.

"It's important to understand what kind of flexibility features you have in your mortgage," says John Turner, director of mortgages with Bank of Montreal.

With such confusion in the marketplace, these days even Prof. Milevsky is leaning somewhat in favour of the five-year closed fixed-rate mortgage. On a discounted basis, some banks are offering rates as low 3.69%.

"At some point, people have to ask themselves if they can afford the fact that eventually these things are going to go up, whether it's in one year, two years or five years," he says.

gmarr@nationalpost.com

Recovery 'picking up,' but Fed stays cautious

Paul Vieira, Financial Post

OTTAWA -- The U.S. Federal Reserve acknowledged Wednesday the economic recovery has "picked up" and financial markets have "improved," but suggested it is in no hurry to pare back stimulus measures.

Among the new details released in the Fed's fixed-date rate announcement was a decision to extend a program, by three months, under which it pledged to acquire up to US$1.45-trillion of mortgage-backed securities and debt.

The mortgage debt program was set to expire on Dec. 31, and to date the Fed had acquired US$810-billion, or just over half, of the amount targeted.

An extension would slow the pace of weekly purchases the Fed executes. Nevertheless, the move suggests the Fed, led by chairman Ben Bernanke, remains committed to the scheme to fuel activity in the battered housing sector, and get the U.S. economy back on its feet.

"It sends a powerful signal that the Fed is not about to withdraw from their support for the economy," said Carlos Leitao, chief economist and strategist at Montreal's Laurentian Bank Securities. "They are not even considering any sort of exit strategies."

The U.S. mortgage debt targeted is a combination of mortgage-backed securities and bonds issued by Fannie Mae and Freddie Mac. The purchases are intended to lower the cost of taking out a mortgage, and, hence, encourage people to enter the housing market. In its statement, the Fed said activity in the housing sector has increased in recent weeks.

"It shows the Fed is very committed to continuing significant purchases to keep mortgage rates as low as possible," Michael Gregory, senior economist at BMO Capital Markets, said.

In stark contrast stands the Bank of Canada, which announced plans to shut down or scale back programs intended to provide capital markets with emergency liquidity to deal with the financial crisis.

"Financial markets have improved to such an extent that the demand for our [liquidity] has been waning," David Longworth, deputy governor at the Bank of Canada, said in a speech Wednesday to a business group in Prince Edward Island.

The removal of trillions in stimuli is among the key tasks that central banks
worldwide face. Central banks must determine the precise moment when the economy can move forward without further stimuli. The risk is moving too early and pushing the economy back into a tailspin, or move too late and allow deadly inflation to be unleashed.

The Fed's efforts to avert a depression has resulted in a ballooning of its balance sheet – from a pre-crisis level of US$929-billion to over the US$2-trillion mark.

In the Fed's statement, released after a two-day meeting of its open market committee, suggested household spending seemed to be "stabilizing." But consumer spending, which is the major driver of the U.S. economy, remains "constrained," the Fed added, due to "ongoing job losses, sluggish income growth, lower housing wealth, and tight credit."

Given these economic conditions, the Fed said it needed to keep the Fed funds rate at virtually zero "for an extended period."

Other analysts, meanwhile, picked up on a slight change in Wednesday's Fed statement that indicates the central bank has started thinking about the post-crisis economy. Wednesday's statement indicated the Fed was prepared to use "a wide range of tools" to fuel growth, while the August statement suggested "all available tools" would be employed.

"To us, this is a signal by the Fed that it will continue to gradually reduce the dose of the medicine that it will use on the economy," Millan Mulraine, economics strategist at TD Securities, said of the change in language.

"However, in recognition that the recovery, at least at its initial stages, will be
tenuous at best, they continue to indicate their willingness to maintain their support for the economy, as they nurse it back to health -- though they will reduce the dosage."

Ottawa enjoying home resale boom


July, August numbers beat totals from a year ago

THE OTTAWA CITIZEN - Ottawa has one of the tightest resale home markets in the province and as a result is expected to see more new home starts later this year. Ottawa's resale home market stayed hot through August, and is expected to soon spur an increase in new home construction, analysts say.

The Ottawa Real Estate Board said a total of 1,216 homes sold in Ottawa last month, a three-per-cent rise over the 1,181 homes sold in August 2008.

That followed an extremely strong July in which more than 1,577 resale homes were sold in Ottawa, an 11.5-per-cent jump from July 2008.

The sales momentum is being buoyed by extremely low interest rates and a shortage of properties on the market.

"Listing inventory is still very low," Rick Snell, president of the Ottawa Real Estate Board, said Thursday. "The capital still remains in a seller's market."
Year to date, resale home sales are up 2.6 per cent compared to the same period last year.

The recent boom marks a big turnaround for the Ottawa housing market, which slumped through the first three months of 2009. At the end of March, 2,479 resale homes had been sold in Ottawa, an 8.7-per-cent drop from the first three months of 2008.

For all housing, the average price in August was $315,074, up 12.3 per cent from August 2008. The average residential home sold for $339,406, up 13 per cent, while the average condominium changed hands for $225,167, an increase of 5.1 per cent.

The trend is similar in Gatineau, where so far this year a total of 4,390 homes have been sold. By this time last year, only 4,025 resale homes had been sold in Gatineau. Canada Mortgage and Housing Corporation believes the average price of a home will increase to $192,800 in Gatineau by the end of 2009.

The average price of a resale home in Gatineau in 2008 was $186,212.

The strong market for resale homes in the capital appears to be foreshadowing a national trend. According to CMHC, while selling prices are still depressed through most of Canada, the volume of resale homes sold is picking up.

CMHC said existing home sales have "rebounded strongly since January" and will total 420,700 units in 2009 and 419,400 units next year.
Nationally, the average sales price is expected to be down for the entire year, to $301,400, before rising to $306,300 in 2010.

The strong national housing rebound in the second half of this year is expected to continue into 2010 and will likely push builders to ramp up the number of homes they will begin construction on in the fall.

Housing starts will reach 141,900 this year and increase to 150,300 for 2010, according to CMHC. Ottawa, Hamilton, Kitchener and Thunder Bay are the tightest resale home markets in the province and as a result are expected to see a boom in
new home starts later this year.

"Improving activity on the resale market and lower inventory levels in both the new and existing home markets are expected to prompt builders to increase residential construction," CMHC said.

Bob Dugan, CMHC's chief economist, said economic uncertainty and lower levels of employment tempered new housing construction in the first half of this year.
"In the second half of 2009 and in 2010, we expect housing markets across Canada to strengthen," he said.

No guarantee rates will stay low, Carney warns

Paul Vieira, Financial Post

OTTAWA -- Governments will be required to undertake "concerted" and "sharp" efforts to restore fiscal sustainability once a market-led recovery is assured, Bank of Canada governor Mark Carney said Monday.

This will particularly apply to countries with ageing populations and "unsustainable entitlement programs," he said in a speech to the Victoria Chamber of Commerce.

While Mr. Carney was speaking about the need of governments to get their fiscal houses in order in the post-crisis landscape, the central banker also went to some lengths to reiterate that the central bank's pledge to keep interest rates at 0.25% until the end of June 2010 is "conditional" on meeting inflation targets. He told reporters afterward it would be unwise to assume current rates are "normal."

"It is an expectation, not a promise," Mr. Carney said in his remarks.

In recent weeks, analysts have debated whether the bank may move before that June 2010 deadline to raise rates given the strength in the economic rebound; or whether it may extend its pledge to keep a lid on growth in the Canadian currency, which it identifies as a risk to growth.

His speech touched on familiar ground, such as the risk of the rising loonie, but also attempted to set the landscape for the "hand off" from government-led growth to the private-sector-led expansion. His remarks suggested that stimuli - whether through government spending or low interest rates - should be kept in place "until the recovery is assured."

When that recovery is assured, certain countries have much work to do to clean up their public finances, Mr. Carney indicated. He did not cite specific countries in his remarks, but jurisdictions that fall under this category could include the United States and western Europe.

"Once the recovery is assured, concerted efforts will be necessary in most economies to restore fiscal sustainability," he said, adding it would be "particularly sharp" for some countries. "The fiscal cost of arresting the downfall will need to be first
contained and then repaid over many years."

In Canada, the federal government has set out a framework under which it would remain in a deficit position until at least the 2014-15 fiscal year. But, the Conservative government said it would be able to reduce the amount of red ink in the coming years through cost controls and better growth.

More difficult decisions await legislators in Washington, which is recording shortfalls in the trillion-dollar range. Analysts warn of the need for U.S. legislators to cut spending and raise taxes, which could further keep U.S. consumers timid and undermine global growth.

Without aggressive efforts to keep the U.S. debt in check, bond investors will demand fatter yields that, in turn, could drive up inflation and weaken the U.S. currency.

But some governments are indicating they are prepared to take the steps Mr. Carney is calling for. Alistair Darling, Britain's finance minister, said Monday the country will make annual budget deficit reduction a legal commitment in order to bind future governments to getting the national debt down.

"Policy makers will have to act deftly to maintain stimulus long enough for private demand to take up the burden of growth, but not too long to undermine confidence in and the sustainability of that growth," Mr. Carney said. "The aftermath of the crisis will make considerable demands on structural policies in all countries, including Canada."

Among the structural changes in Canada would be the need for businesses to rely more on emerging markets as a source of demand as open access to the U.S. market becomes "less valuable," Mr. Carney said.

Afterward, he told reporters the U.S. economy would not be as "dominant" because that economy is going through a multiyear adjustment.

Housing market, led by west, shows better-than-expected performance

Financial Post Published: Friday, August 28, 2009

Canada's housing market will perform better than expected in 2009, the Canadian Real Estate Association (CREA) said yesterday. The realtor group revised its previous forecast that sales would fall 14.7%. It now says resale market activity will total 432,600 units, a decline of only 0.4%, compared with 2008. It cited stronger-than-expected second-quarter sales for its revised outlook. The group also raised its outlook for prices, saying that average home prices in 2009 will rise 1.5% to $309,500, compared with its previous forecast of a 0.3% decline. B. C., which experienced a 33% decline in sales in 2008, will recover to post a 5.2% gain-- to 72,500 units -- in 2009, CREA forecast. The Alberta market, which fell 21% in 2008, will now post sales this year of 55,000 units, a decline of only 2.5%. CREA however reduced its sales outlook for 2010 to a gain of 5.3%, or 455,400 units.

CMHC expects housing market to rebound strongly this year and next

Financial Post Published: Friday, September 04, 2009

Canada's housing market will rebound strongly in the second half of this year and into 2010, the federal housing agency said yesterday. Housing starts will reach 141,900 this year and increase to 150,300 for 2010, said Canada Mortgage and Housing Corp. "Improving activity on the resale market and lower inventory levels in both the new and existing home markets are expected to prompt builders to increase residential construction," CMHC said. Bob Dugan, CMHC's chief economist, said, "Economic uncertainty and lower levels of employment tempered new housing construction in the first half of this year. In the second half of 2009 and in 2010, we expect housing markets across Canada to strengthen."

Canada a tale of two economies: as export sector staggers, domestic activity booms

BY JULIAN BELTRAME OTTAWA

Two reports Thursday reinforced recent trends that show a strong domestic Canadian economy propped up by floor-low interest rates and a recovering housing market, and a weak manufacturing sector hammered by the sky-high dollar and a squeeze on exports.

“What it’s telling us is that low interest rates are working in Canada,” said CIBC chief economist Avery Shenfeld. “We’ve had a number of disappointments on the export front. Where Canada is showing vigour, it’s on the domestic front in response to low interest rates.”

The most recent evidence is the outsized growth in house sales during the third quarter — given the still-weak overall economy.

The Canadian Real Estate Association reported that in real terms, sales of existing homes in the country have never been stronger than in the just-completed third quarter. The association said more than 135,000 units were sold in the July-to-September period — 18 per cent higher than the corresponding period last year before the recession hit.

Meanwhile, Statistics Canada figures released early Thursday showed factory shipments fell 2.1 per cent in August as the activity from the U.S. cash-for-clunkers program, which had artificially spurred auto sales in the United States, subsided.

As well, there are few signs of recovery ahead for the battered manufacturing sector as new orders have practically stagnated and unfilled orders fell 4.2 per cent.

“The fact remains that Canada’s manufacturing sector remains under duress,” said TD Bank economist Grant Bishop, noting the new challenge of a dollar that many expect to regain parity with the U.S. greenback by year’s end.

A perhaps even bigger barrier to a recovery in Canada’s export sector, which accounts for about one-third of the economy, is that consumer demand in the U.S. for what Canada has to sell — cars, parts, lumber and consumer items — isn’t about to pick up any time soon.

A new Conference Board of Canada forecast of the U.S. economy estimated that consumer spending will remain in the dumps throughout 2010, rising only about one per cent from already abysmal levels.

The problem faced by the Bank of Canada is that hinting it may raise rates sooner than next summer, when its conditional pledge to keep the policy rate at 0.25 per cent runs out, will only add fuel to the loonie’s flight and further harm exports and manufacturers. Suggesting that rates will remain as low as they are for a long time feeds into a housing asset bubble and risks inflation.

“The decisive rebound (in home sales) puts the Bank of Canada in a quandary — while the hot housing market cries out for rate hikes, the runaway loonie screams ‘No!’ ” is the way Doug Porter, deputy chief economist with BMO Capital Markets, puts it.

The big banks recently raised mortgage rates by up to a third of a point on many loans, a move that could slow down demand in some markets. However, mortgage rates are still extremely low by historic standards. The Canadian Press

BoC focus on consumers worries analysts

Paul Vieira, Financial Post
OTTAWA -- Mark Carney, the governor of the Bank of Canada, said Thursday consumers would be at the "heart" of an economic recovery that continues to pick up steam, leaving analysts worrying a new wave of spending will only drive consumers deeper into debt.

Improved financial conditions and consumer confidence, coupled with indications that labour market conditions "may have" ceased deteriorating, has led the Bank of Canada to believe consumer spending will account for a larger share of total economic growth in the years ahead, according the central bank's quarterly economic outlook, released Thursday.

Consumer spending will offset some of the losses in the export-oriented sector, which is expected to contract 1% next year due to the strength of the Canadian dollar.

"The conundrum for the central bank is the longer they keep interest rates low, the more likely it is that it will create [a debt] problem," said Andrew Pyle, wealth advisor and markets commentator with ScotiaMcLeod.

The central bank upgraded growth projections for the second half of 2009, seeing expansion of 2% for the third quarter and 3.3% for the fourth quarter.

The bank previously expectated 1.3% and 3% in the third and fourth quarters, respectively. Then, the economy is set to expand 3% next year and 3.3% in 2011.
In 2010, consumer spending is set to contribute half of the growth in final domestic demand, which includes consumer purchases, housing, public spending and business investment. By 2011 it will climb to three-quarters.

This reliance on consumers has analysts wondering whether Canadians might find themselves caught in a debt trap, especially given the current low cost of borrowing -- as led by the Bank of Canada's record-low 0.25% policy rate.

Laurentian Bank Securities has noted that household credit as a share of GDP (currently at 90%) and the household debt-to-GDP ratio (at 140%) are "quite elevated" and kept creeping up during the recession.

At a media conference, Mr. Carney said the bank believes, all told, savers will outstrip borrowers, as incomes begin to grow on better job market conditions. He told reporters households should plan their financial affairs "prudently" on the anticipation that interest rates will eventually return to a more normal level.

That might be easier said than done, said Stewart Hall, an economist at HSBC Securities Canada. He said history and markets demonstrate consumers respond to cheap prices, whether it is for gas or for financing.

"The Bank of Canada [seems] to have removed themselves from the dynamic of cheap money ... and instead fallen back on the view that, at best, we are simply seeing pent-up demand and at worst ... that lenders and borrowers will self regulate and act in a prudent way," Mr. Hall said. "The heart wants what the heart wants and many a purchase, houses included, prove emotional rather than prudent."

Mr. Carney said the housing market dynamic has "raised some concerns" at the central bank, although it anticipates housing growth to slow down in early 2010 as pent-up demand for real estate is met, affordability declines and the federal home-renovation tax credit expires.

The strengthening dollar, the bank said, is driven in large part by the weakness in the U.S. currency. This, however, may be one of the consequences of unwinding global imbalances, as Americans will need to increase its exports and savings to generate wealth.

A hot real estate market getting hotter

Garry Marr, Financial Post

The statistics may not say it yet but Toronto real estate sales representative Kate Watson can already feel the ground shifting.

A new set of data from the Ottawa-based Canadian Real Estate Association (CREA) shows the market tighter than ever with the lack of supply in new listings conspiring to make a hot market even hotter.

CREA said Thursday the average sale price of a house in Canada reached $331,602 last month, a 13.6% increase from a year ago. There just isn't enough new product coming to market to meet demand. Last month, there was 80,816 new listings across the country, compared to 97,657 a year ago.

The supply problem is happening in almost every major Canadian city. Toronto new listings were down 25.3% last month from a year ago. Calgary was off 26.1%.

The number of months of inventory in the market -- which is based on the number of months it would take to sell current inventories based on current sales activity -- was 4.9 months in September. That figure was down slightly from August and way off the peak of 12.8 months reached in January.

CREA expects the situation to ease in the coming months as sellers realize the type of prices they can get if they list. Ms. Watson, who works for Wright Real Estate Brokers Ltd., says the situation is already resolving itself.

"It was bit of as logjam but it is already starting to clear," she says. "You had a lot people waiting to list until after Thanksgiving because nobody wants to put their property for sale before a holiday."

The Canadian market has had a remarkable turnaround from a winter that was the worst Ms. Watson can remember in her six years on the job which have mostly witnessed a rising market. September sales across the country were up 1.5% from August. The latest bump in sales puts the market 63% above January low.

The same things continue to drive the housing market. "Low interest rates, rebounding consumer confidence and improving overall sense of economic security continue to draw homebuyers," said Dale Ripplinger, president of CREA.

CREA's chief economist Gregory Klump said the 1.5% increase in sales while impressive shows the market is beginning to cool to some degree. "Monthly sales activity remained on a strong upward trajectory throughout the third quarter in British Columbia while showing signs it may be topping out in other provinces. On balance, this suggest the sales activity may be starting to plateau after having climbed rapidly earlier this year," he said.

The total dollar figure for all sales in the third quarter reached $41-billion, the highest level on record for the period. British Columbia and Ontario reached new
highs for dollar volume. Canada's largest cities are driving the housing market.

Vancouver sales in the third quarter were up 34% from second. Toronto sales rose 11% during same period while Calgary climbed 19%.

Nationally, average national sales price in the third quarter was $327,736, an 11% increase from a year ago. Sellers sitting on the sidelines are expected to move in the coming months.

"Headline average price increases over the rest of the year are expected to prompt sellers to return to the market," said Mr. Klump. "An increase in new listings will help keep a lid on price increases."

Scotiabank economist Adrienne Warren says she's not too concerned about any sort of bubble building in the housing market. "I don't think so. This is just the strength of demand and a lack of listings," she said. "As the economy stabilizes, people will feel more confident to list their homes."