Why Canada's housing sector didn't collapse

I wanted to pass on this email by Merix Financial. 

I was sent this by Bryan Guertin of Mortagage Intelligence. 

Bryan has been serving clients of the Halton Region for almost 40 years. 

Bryan can be reached @ 905-842-4320.

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The strong Canadian dollar has pushed up the bond market which caused the fixed rate to move up 35 basis points.

The Bank Of Canada is trying to slow down the rise of the Canadian dollar, they would normally drop prime rate to do this, but they are already at the bottom.

The Bank said they were not moving prime until the 2nd quarter of 2010 to allow our economy to recover, but the bank economists say it will probably be another year before the rate moves as the USA recovery will be long & slow & our economy is too tied to theirs.

Therefore, the variable is the way to go.

Below is a good article compliments of Merix Financial.

I hope you enjoy and feel free to contact me at 905-407-7381 or brad.stevenett@century21.ca.

Brad Stevenett

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Why Canada's housing sector didn't collapse

….for each dollar lost in housing wealth, consumer spending pulls back up to 15 cents. 

                                   ·           TSX +33.63(Reuters) as further weakness in the U.S. dollar boosted commodity prices. 

                                   ·           DOW +96.28

                                   ·           Dollar +.83c to 97.15 rising on firm commodity prices and ahead of the Bank of Canada's interest rate announcement on Tuesday

                                   ·            Oil  +$1.08 to $79.61US per barrel.  

                                   ·          Gold +$6.60 to $1,057.30USD per ounce   

                                   ·          Canadian 5 yr bond yields +.03bps to 2.81. The spread, based on the new MERIX 5 yr rate published of 4.34% is 1.53 

http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us

       The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield  is something to watch.  If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise. Ideally lenders are looking for a spread between 1.35 and 1.55

 

 

Why Canada's housing sector didn't collapse

Globe and Mail Update Published on Monday, Oct. 19, 2009

 

While it's tempting to think of a “housing correction” as a continent-wide phenomenon, National Bank Financial says the Canadian and U.S. markets couldn't be more different.

“The two have absolutely nothing in common,” senior economist Marc Pinsonneault wrote in an economic update Monday. “In Canada, the correction got under way much later and lasted nowhere as long.”

Mr. Pinsonneault said “prudent lending practices” in Canada prevented the housing market from falling as hard as its American counterpart, and pointed out that Canada's crisis was a side-effect of its recession rather than its cause.

Here are four ways the markets have differed:

Duration of slowdown

The Canadian market began to slide in October, 2008, while the American slump has lasted 2 1/2 years.

“People wishing to sell their homes either cut their asking price or quite simply took their property off the market,” he said of the Canadian market. “Lower interest rates, lower home prices and renewed consumer confidence led to a quick recovery in sales, so much so that as early as last May, these had surpassed pre-recession levels.

Price declines

According to Teranet, Canadian home prices fell 8.9 per cent from their August, 2008, highs to their recessionary lows eight months later. In the U.S., the S&P/Case Shiller index shows prices slid 33 per cent in 33 months.

Delinquency rates

Canadian banks have seen delinquency rates climb to 0.4 per cent, compared to the 0.65 per cent high reached in 1992. The number is far greater in the U.S., at 3.67 per cent.

Consumer spending

When home prices are under pressure, consumers tend to reel in the spending.

“According to Statistics Canada, from the end of Q3 2008 to mid-2009, the value of household real estate wealth sagged only 1.1 per cent,” he said. “The impact of this impoverishment on consumer spending has been negligible.”

In the U.S., the value of household real estate wealth dropped 18.2 per cent. The Federal Reserve estimates that for each dollar lost in housing wealth, consumer spending pulls back up to 15 cents.

Steve Ladurantaye

 

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Brad Stevenett

Brad Stevenett

Sales Representative
CENTURY 21 Miller Real Estate Ltd., Brokerage*
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