OPTIMISM RETURNING TO HOUSING MARKET, RBC SURVEY FINDS

Optimism returning to housing market, RBC survey finds

VIRGINIA GALT

Globe and Mail Update

March 4, 2009 at 9:39 AM EST

Confidence appears to be seeping back into the housing market, with a majority of Canadians saying it's a good time to buy, according to the Royal Bank of Canada's annual homeownership survey.

Although this optimism is not reflected in the most recent sales statistics - the volume of sales in the Toronto area, for instance, was down 47 per cent year-over-year in January - the Royal Bank predicts that lower prices will lure a growing percentage of Canadians back into the housing market in the next two years.

A survey of 2,026 Canadian consumers, conducted in the second week of January, found that 65 per cent of respondents believe it is a buyers' market now and 27 per cent say they intend to buy a home this year or next. "Additionally, almost half indicate it makes sense to buy a home now versus waiting until next year."

Young adults and renters are most likely to spark an upsurge in home sales, the Royal Bank said in releasing its survey results.

 "In the under-35 group, 48 per cent said they plan to buy, which is up sharply from 36 per cent last year. Renters also appear to be saying they are tired of paying someone else's mortgage payment, with 38 per cent planning to become homeowners in the next two years."

Karen Leggett, the Royal Bank's head of home equity financing, said low mortgage rates "and favourable housing prices are influencing home purchase intentions this year and may be the reason why more Canadians are poised to purchase over the next two years."

Ms. Leggett said the poll, conducted for the Royal Bank by Ipsos Reid, found that the vast majority of Canadians believe that the purchase of a home is a good investment. "The current economic environment does not appear to have dampened Canadians' overall confidence in the housing market," she said.

Other forecasts are less upbeat.

Canada Mortgage and Housing Corp. projects that, in spite of falling prices, the volume of existing home sales is expected to drop by 14.6 per cent in 2009, and then rise by 9.3 per cent in 2010.

Average home prices are forecast to fall 5.2 per cent to $287,900 in 2009. Next year, prices are expected to remain flat, according to the federal housing agency's forecast.

  

  

What's next on Canadian rates

Andrew Willis, March 4, 2009 at 8:59 AM EST

It's just 24 hours since the last Bank of Canada rate cut, but why not take a moment to consider where the central bank may go next on monetary policy.

Channeling the thoughts of fixed income investors, TD Waterhouse pointed out Wednesday that BAX/OIS sentiment is currently putting a 48 per cent probability on another round of cuts, but 25 basis points, when the Bank of Canada next meets on April 21. Such a move would leave the benchmark rate at 0.25 per cent.

The Canadian dollar touched a fresh 3-month low on Tuesday, TD Waterhouse noted, on expectations that the central bank will end matching the U.S. Federal Reserve's interest rate policy, with a target range on rates of zero to 0.25 per cent. However, with rates this low, the challenge to the Bank of Canada and U.S. policymakers is deploying non-traditional stimulus to kick start the economy and avoid deflation.

While Canada's big banks matched the central bank's cut on Tuesday, lowering prime to 2.5 per cent, the full extent of these unprecedented reductions in short-term rates won't be passed on to consumers.

Banks fund many of their consumer loans, such as five-year mortgages, with longer term funding, such as five-year GICs or five year bond issues. The cost of this funding remains relatively high, and that's reflected in the mortgages rates posted in any branch.

 

Central bank changes tack on credit crisis

With interest rates cut to a record low Tuesday and inflation nowhere in sight, Bank of Canada looks to boosting money supply

 

KEVIN CARMICHAEL

From Wednesday's Globe and Mail

March 4, 2009 at 3:25 AM EST

OTTAWA - Bank of Canada Governor Mark Carney is rearming to fight a recession that is proving tougher than the central bank anticipated.

Mr. Carney cut the benchmark mark lending rate by half a percentage point yesterday, dropping the target for overnight loans to 0.5 per cent, the lowest ever.

By taking borrowing costs so close to zero, Mr. Carney effectively fired his last round of conventional monetary stimulus, forcing him to consider taking a more aggressive approach to easing credit markets.

The Bank of Canada said in the statement explaining its interest rate decision that it is "refining the approach it would take to provide additional monetary stimulus, if required, through credit and quantitative easing."

Such a strategy amounts to creating money, a radical thought for an institution that has spent much of its modern history trying to earn its credentials as a committed inflation fighter.

But inflation isn't a threat at the moment.

The Bank of Canada said yesterday that consumer price decreases are accelerating even though the bank has dropped the overnight target a remarkable four percentage points since December, 2007.

Canada's gross domestic product contracted at an annual rate of 3.4 per cent in the fourth quarter, marking the biggest collapse since 1991 and one that was worse than the central bank had predicted in January.

"The central bank is doing the right thing; they have to be aggressive," said Barry Schwartz, vice-president of Toronto-based Baskin Financial Services Inc., which has about $275-million under management. "People are freaking out. No one is spending money, so the government has to do it."

The Bank of Canada didn't provide details of what a quantitative easing or credit easing strategy would look like, saying those will come in the central bank's next quarterly monetary report on April 23.

Pierre Duguay, a deputy governor at the Bank of Canada, could elaborate on the central bank's plans tomorrow in testimony at the House of Commons finance committee, which is studying credit conditions. More details also could come when David Longworth, another deputy governor, speaks to the Financial Markets Association of Canada in Toronto on March 12.

Generally, quantitative easing would see the central bank expand its reserves to buy a wide range of assets, while credit easing describes an effort to target specific markets.

Other central banks already are deploying these strategies.

The U.S. Federal Reserve is running several programs that swap cash for illiquid assets, such as securities backed by mortgages and student loans, and is considering buying government debt to lower market lending rates.

News reports out of London yesterday suggested British Prime Minister Gordon Brown's government is poised to give the Bank of England permission to print money. The Bank of Japan is buying corporate bonds.

"One way for the monetary authority to show its long-run confidence is to buy some of these assets," said John Helliwell, an economics professor at the University of British Columbia and former adviser at the Bank of Canada. "That will drive down the price of those assets, and hopefully people will go out and buy some more."

The Bank of Canada hasn't ruled out cutting the overnight target all the way to zero, saying the rate "can be expected to remain at this level or lower at least until there are clear signs that excess supply in the economy is being taken up."

That means rock-bottom borrowing costs for at least a year, said Sébastien Lavoie, an economist at Laurentian Bank of Canada in Montreal.

In the statement, the central bank said the effects of its previous interest rate cuts will start to show up in the second half of the year.

At the same time, policy makers conceded that a rebound is contingent on calmer global markets and an end to the U.S. recession. "The Bank of Canada is going to keep the overnight rate at a very low level for a very long period," said Mr. Lavoie, a former Bank of Canada economist.

Blog Archives

Tags