A run down of what's going on in the market and the company.

Wednesday, June 30, 2010

Canada's economy stalls in April

June 30, 2010
By Jeremy Torobin
Globe and Mail Update

GDP unchanged as second quarter gets off to slow start

Canada's economy was unchanged in April after seven straight months of growth, reflecting the more sluggish expansion that policy makers have warned would start in the second quarter, as retail and manufacturing dropped.

The country's gross domestic product on a seasonally adjusted basis unexpectedly stayed at an annualized rate of about $1.2-trillion during the month, Statistics Canada said Wednesday. Retail trade fell 1.7 per cent, mostly erasing the previous month's 1.9-per-cent increase as people bought fewer cars and less clothing, and the factory sector had its first drop since last August, mainly due to a 1.2-per-cent decline in non-durable goods such as pharmaceuticals, printing and food products. Meanwhile, the mining and wholesale industries gained.

Most economists had anticipated a monthly gain of 0.2 per cent, after a reading of 0.6 per cent growth in March, as a stimulus measures and tax incentives that have fuelled domestic spending taper off and mortgages become more expensive. The Bank of Canada's latest forecast for the economy, which policy makers will update on July 20 with their next interest-rate decision, has the first quarter's eye-popping 6.1-per-cent pace of expansion giving way to a 3.8-per-cent annualized rate during the April-through-June period.

``The weaker-than-expected profile for GDP growth raises the chances that the BoC pauses its removal of monetary accommodation at the July meeting,'' said Jonathan Basile, vice-president of economics at Credit Suisse Securities in New York, adding that the result may cause Bank of Canada Governor Mark Carney to lower his second-quarter growth prediction. ``This was not our expectation going into today's report.''

Gross domestic product in April was up 3.3 per cent from a year earlier. At the same time, it is unmistakable that the recovery is settling in at a more sustainable pace. Inflation slowed considerably in May, Statistics Canada reported last week, and job growth was a more average 24,700 in May following an unprecedented gain of almost 109,000 in April.

After becoming the first Group of Seven central banker to tighten monetary policy a few weeks ago, Mr. Carney will probably raise his benchmark interest rate by 25 basis points for a second-straight time next month but then may pause if he doesn't do so in July, most economists say. The European debt crisis and the march to austerity in several economies, plus the stock-market volatility all of that is causing, will loom large in his decisions, Mr. Carney has repeatedly suggested.

``We expect growth resumed in both May and June,'' said Dawn Desjardins of RBC Economics. ``The external environment, however, has the potential to weigh on Canada's economic outlook if developments damage the global economy's momentum and hurt confidence.''

Wednesday, June 23, 2010

The little matter of affordability

Housing-price increases mean future challenges for both owners and renters

Terrence Belford

Toronto — From Friday's Globe and Mail
Published on Thursday, Jun. 03, 2010 10:47AM EDT

Last updated on Thursday, Jun. 03, 2010 10:48AM EDT

Sales of both low- and high-rise newly built homes cooled significantly in April from the near-frenzied pace of the previous month. Why that happened, and whether the pace will pick up again as summer progresses remain matters of speculation.

The only thing that appears certain is that affordability is going to present major challenges for most residents of the Greater Toronto Area. That includes home owners and renters alike.

RealNet Canada reports new high-rise condo sales stood at 1,484 suites in April, off 40 per cent from March numbers. Low-rise new home sales were 1.712 units, off 13 per cent from March.

At the same time, the average new high-rise condo price jumped $5,033 in April from the month before to sit at $425,120. Low-rise new homes meanwhile dipped an average of $1,113 to $489,282.

Resale home sales continued to be brisk during the first two weeks of May. With 4,887 homes changing hands in that period, sales were up 7 per cent from last year. The average selling price was $448,641, up 12 per cent from early May last year.

What caused the big dip in sales of new homes?

George Carras, president of RealNet, suggests sales may be just taking a breather after six bullish months. He also says buyers may be adopting a wait-and-see attitude at this point.

“There is still a good number of new projects coming online in the next couple of months and people may just be waiting to have a look at them before making a buy decision,” he says. “About 40 per cent of April sales were from newly launched projects.

“What is happening is that people flock to new launches for the first 10 days or so and then interest drops markedly.”

But underpinning demand is the crucial matter of affordability. Especially hard-hit are first-time buyers. People selling an existing home they have owned for maybe five years probably have enough cash from that sale to make a down payment greater than 20 per cent of the purchase price.

That means they do not need a CMHC-insured mortgage and are not subject to the rules set in place by the federal government on April 19. They can take advantage of continuing low variable-rate mortgages or negotiate significant discounts on fixed-term mortgages.

Those with less than 20 per cent down, however, must prove they can make payments at whatever the five-year fixed-term interest rate is at the moment.

The Royal Bank of Canada addressed the affordability issue in late May with a cross-country survey. Robert Hogue, senior economist said: “We expect affordability to deteriorate through 2010 and 2011, but this should be limited as more balanced supply-and-demand conditions will take much of the steam out of the housing market.”

Doesn’t sound too bad, right? Now take a look at RBC’s numbers. The bank says anyone owning a detached bungalow in the Toronto area can expect to see 49.1 per cent of their pre-tax income go towards home-ownership costs such as mortgage payments, property taxes and utilities.

The report continues: “With escalating prices, affordability measures are now above the long-term average. This suggests that additional increases in housing costs may price more and more buyers out of the market.”

So, if you cannot buy, you just rent, right? Renters, however, will probably have some very unpleasant surprises in store over the next few years. The Toronto Real Estate Board says that at the end of April, the average rent for a one-bedroom apartment was $1,463 a month, up 2 per cent from April, 2009, and the average rent for a two-bedroom apartment was a hefty $1,909 a month, up 5 per cent from last year.

Since the mid-1980s, condos have supplied almost 98 per cent of the GTA’s stock of new rental units. Investors buy them, then try to rent them for enough money to cover mortgage and monthly maintenance costs.

For the first quarter of this year, those investors have accounted for up to half of all new condo sales in prime locations – in the heart of downtown, along subway lines or in any other area where there is high demand for rental accommodation. In two or three years time, those suites will be built and at the move-in stage.

The prices investors are paying now for suites are significantly higher than those of two and three years ago, which means they will have to charge significantly higher rents.

It is not inconceivable that a one-bedroom-and-den downtown apartment may command $2,000 a month in five years time and a two-bedroom north of $3,000. Nor is it inconceivable to expect total housing expenses to eat up well over 60 per cent of your monthly take-home pay if you want to live in a great central location in the GTA within that five-year time frame.

Wednesday, June 16, 2010

Sub-meter confusion leaves tenants in dark

June 15, 2010

Noor Javed

Melanie Gogan, of 90 Eastdale Tenants' Association, says residents received notices their hydro would be cut off if they didn't reconsent to sub-metering.

KEITH BEATY/TORONTO STAR

After sitting in the dark in her two-bedroom apartment for more than 24 hours, Laurie Brown finally gave in. The mother of two small children says she had no choice but to pay $500 in hydro bills or risk being without power for days, possibly weeks.

Now the Toronto resident is wondering what she will do next month when another bill from third-party energy provider Stratacon shows up again at her door.

The monthly hydro bill at her 100 Sprucewood Court apartment, previously about $40 to $60 a month, had suddenly shot up to nearly $150 a month and she didn’t understand why. She still doesn’t.

“I was told by everyone not to pay, because the bills are illegal,” she said. “But then I ended up in this position where it looks like I am irresponsible,” she said. “It’s hard to know what to do.”

Tens of thousands of Toronto tenants are still experiencing mass confusion over so-called smart sub-meters in individual apartments in the face of an ongoing dispute over who should pay for hydro costs while the province enacts legislation.

In an attempt to clear up the long-standing issue, the Ontario Energy Board, the province’s energy regulator, ruled last August that any sub-meters installed in apartments on or after Nov. 3, 2005 and up until its decision were unauthorized and “any resulting changes to financial arrangements respecting the payment of electricity charges by tenants to be unenforceable.”

In future, the OEB ruled, any use of smart sub-metering systems is only permissible with the express written consent of the tenants.

Yet landlords continue to argue tenants who signed consent forms prior to the ruling need to pay the costs, while tenants argue the OEB ruling makes their contract null and void. Some tenants say they were never given proper information when they first agreed to pay for their hydro. Others say they are still not given information to make an informed decision; still others are being back-billed for past month’s bills or pressured by their landlords to consent.

In the past week, the Federation of Metro Tenants’ Associations has received more than 60 calls from tenants claiming Stratacon threatened to shut off their hydro, said Geordie Dent, who runs the federation’s tenant hotline.

Residents in one building, at 90 Eastdale Ave., received a disconnection warning notice from Stratacon two weeks ago for failing to pay outstanding bills they say were never received.

“When I moved in three years ago, I had no choice but to sign a paper that said I would pay for my hydro,” said Melanie Gogan, head of the local tenants’ association. “But after the August OEB ruling, I never got a bill from Stratacon.”

“Then all of a sudden . . . we got a disconnection notice within 48 hours, and a threat of having to pay for all the previous months of hydro, if we didn’t reconsent to the sub-metering,” she said. “It feels like a lot of bullying.”

Once the OEB was notified, Stratacon issued an apology notice to residents.

John McDonald, president and CEO of the Consumers’ Water Heater Income Fund — which owns Stratacon — admits the situation has been confusing for all parties.

“When the ruling came out, we were given advice that at this point, you probably shouldn’t bill for the hydro, so they weren’t billed,” said McDonald. He acknowledged many buildings are currently going through renewal of hydro contracts.

Stratacon says it supports the idea that tenants have all information to make an informed decision. In some instances however, that hasn’t been the case. The OEB said tenants must be provided with an energy audit of the apartment, the administrative charge on bills, and specific amount of rent reduction and how it was calculated.

Brown says she wasn’t given accurate information when she moved into the building in April 2008. At the time, she signed a lease agreeing to pay her hydro after being told it would cost about $40 a month; the alternative was a higher rent of $75 per month.

She signed a reconsent form in November 2009, three months after the OEB ruling, but says she wasn’t given details of her hydro costs. She was recently surprised to see hydro bills of up to $150 a month, even though her appliances are new and she doesn’t have a washer, dryer or dishwasher. She stopped paying the bills, but when Stratacon cut off her power on June 3, she paid up.

Many are hoping provincial legislation due out in January will bring clarity to the issue. In the meantime, advocates and tenants say the OEB should enforce the current ruling. Landlords and sub-metering companies could face penalties of between $1,000 and $20,000 per day if found in violation.

An OEB spokesperson said the agency always advises the consumer “to pay their bill, and then resolve any disputes afterwards.”

That is exactly the outcome Stratacon is hoping for, says Gogan, of the tenants’ association at 90 Eastdale Ave. “Once you put people in such a vulnerable situation, they have no choice but to pay. If you twist their arm far enough, of course they will consent.”

Home sales sputter in May

Prices dip as the threat of higher mortgage rates disrupts ‘the normal seasonal pattern’

Steve Ladurantaye Real Estate Reporter

Globe and Mail Update
Published on Wednesday, Jun. 16, 2010 9:00AM EDT

Last updated on Wednesday, Jun. 16, 2010 9:57AM EDT

Housing sales slipped in May, as Canada's resale housing market sputtered after more than 18 months of solid gains.

The Canadian Real Estate Association said sales pulled back 9.5 per cent in May compared to April. The average resale price fell 1.27 per cent, to $340,566 from the record $344,968 reached in May. Still, prices are 8.2 per cent higher than they were last May.

After hitting recessionary lows in late 2008, the market had been on a sharp upward climb. CREA said the pullback in sales was “a departure from the normal seasonal pattern,” and attributed the fall to tighter mortgage regulations and the threat of higher mortgage rates.

With the average sale price sitting at record highs, many have also been priced out of the market, especially in the markets that saw the sharpest declines in sales – Ottawa, Toronto and Vancouver.

“May was the first full month in which sales activity was affected by these changes,” said CREA president Georges Pahud.

TD Bank senior economist Pascal Gauthier said prices are likely to fall 7 per cent from current levels by the end of the year.

“The housing market is cooling its jets in response to a number of factors where, on balance, headwinds are becoming stronger than tailwinds,” he wrote. “Erosions in existing home affordability over the previous quarters, mostly due to prices outpacing incomes, are naturally taking a bite out of current sales. While interest rates should continue to rise modestly, affordability should stabilize in the coming quarters as incomes rise and prices come off their peak levels.”

The number of new listings also decreased month-over-month, as fewer Canadians decided to try their luck at making a sale. The 4 per cent decline is the first in eight months, and a signal that the hot market has cooled significantly. Homeowners hoping to cash in on the hot market raced to put their houses up for sale in recent months, but as the market cools less will be tempted.

At the end of May there were 6.1 months of inventory on the market, the highest level since April, 2009. They are still 20 per cent higher than the low reached in August, 2009.

As prices fall, CREA economist Gregory Klump said sales may begin to increase again.

“The number of months of inventory may rise further in response to easing sales activity and a further rise in the number of active listings,” Mr. Klump said. “However, the number of newly listed homes will ultimately retreat in response to a more competitive sales and pricing environment in a number of local markets. The outlook for the Canadian economy, employment, and mortgage market trends remain upbeat, so supply and demand will remain balanced on a national basis. Canada will avoid a U.S.-style home price correction.”

Thursday, June 3, 2010

The little matter of affordability

Terrence Belford

Published on Thursday, Jun. 03, 2010 10:47AM EDT
Last updated on Thursday, Jun. 03, 2010 10:48AM EDT

Sales of both low- and high-rise newly built homes cooled significantly in April from the near-frenzied pace of the previous month. Why that happened, and whether the pace will pick up again as summer progresses remain matters of speculation.

The only thing that appears certain is that affordability is going to present major challenges for most residents of the Greater Toronto Area. That includes home owners and renters alike.

RealNet Canada reports new high-rise condo sales stood at 1,484 suites in April, off 40 per cent from March numbers. Low-rise new home sales were 1.712 units, off 13 per cent from March.

At the same time, the average new high-rise condo price jumped $5,033 in April from the month before to sit at $425,120. Low-rise new homes meanwhile dipped an average of $1,113 to $489,282.

Resale home sales continued to be brisk during the first two weeks of May. With 4,887 homes changing hands in that period, sales were up 7 per cent from last year. The average selling price was $448,641, up 12 per cent from early May last year.

What caused the big dip in sales of new homes?

George Carras, president of RealNet, suggests sales may be just taking a breather after six bullish months. He also says buyers may be adopting a wait-and-see attitude at this point.

“There is still a good number of new projects coming online in the next couple of months and people may just be waiting to have a look at them before making a buy decision,” he says. “About 40 per cent of April sales were from newly launched projects.

“What is happening is that people flock to new launches for the first 10 days or so and then interest drops markedly.”

But underpinning demand is the crucial matter of affordability. Especially hard-hit are first-time buyers. People selling an existing home they have owned for maybe five years probably have enough cash from that sale to make a down payment greater than 20 per cent of the purchase price.

That means they do not need a CMHC-insured mortgage and are not subject to the rules set in place by the federal government on April 19. They can take advantage of continuing low variable-rate mortgages or negotiate significant discounts on fixed-term mortgages.

Those with less than 20 per cent down, however, must prove they can make payments at whatever the five-year fixed-term interest rate is at the moment.

The Royal Bank of Canada addressed the affordability issue in late May with a cross-country survey. Robert Hogue, senior economist said: “We expect affordability to deteriorate through 2010 and 2011, but this should be limited as more balanced supply-and-demand conditions will take much of the steam out of the housing market.”

Doesn’t sound too bad, right? Now take a look at RBC’s numbers. The bank says anyone owning a detached bungalow in the Toronto area can expect to see 49.1 per cent of their pre-tax income go towards home-ownership costs such as mortgage payments, property taxes and utilities.

The report continues: “With escalating prices, affordability measures are now above the long-term average. This suggests that additional increases in housing costs may price more and more buyers out of the market.”

So, if you cannot buy, you just rent, right? Renters, however, will probably have some very unpleasant surprises in store over the next few years. The Toronto Real Estate Board says that at the end of April, the average rent for a one-bedroom apartment was $1,463 a month, up 2 per cent from April, 2009, and the average rent for a two-bedroom apartment was a hefty $1,909 a month, up 5 per cent from last year.

Since the mid-1980s, condos have supplied almost 98 per cent of the GTA’s stock of new rental units. Investors buy them, then try to rent them for enough money to cover mortgage and monthly maintenance costs.

For the first quarter of this year, those investors have accounted for up to half of all new condo sales in prime locations – in the heart of downtown, along subway lines or in any other area where there is high demand for rental accommodation. In two or three years time, those suites will be built and at the move-in stage.

The prices investors are paying now for suites are significantly higher than those of two and three years ago, which means they will have to charge significantly higher rents.

It is not inconceivable that a one-bedroom-and-den downtown apartment may command $2,000 a month in five years time and a two-bedroom north of $3,000. Nor is it inconceivable to expect total housing expenses to eat up well over 60 per cent of your monthly take-home pay if you want to live in a great central location in the GTA within that five-year time frame.

Tuesday, June 1, 2010

Bank of Canada hikes interest rates

Carney becomes first central banker among G7 to raise benchmark from emergency low

Jeremy Torobin

Ottawa — Globe and Mail Update
Published on Tuesday, Jun. 01, 2010 9:04AM EDT

Last updated on Tuesday, Jun. 01, 2010 9:15AM EDT

The Bank of Canada raised its benchmark interest rate for the first time since 2007, saying inflation is unfolding as expected and that spillover from the European debt crisis has been limited, while stressing there remains “considerable uncertainty” about an “increasing uneven” global recovery.

With his much anticipated decision to lift the central bank’s overnight rate by one-quarter of a percentage point to 0.5 per cent after more than a year at a record low level, Governor Mark Carney has become the first central banker in the Group of Seven to tighten since the financial crisis and recession began in 2008.

In a statement on the move, however, Mr. Carney and his rate-setting panel sought to emphasize that investors should not necessarily interpret the increase as the first in an uninterrupted series.

``This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending and the uneven global recovery,’’ the central bank said Tuesday. ``Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.’’

The central bank’s statement touched on themes that will no doubt be front-and-centre at the Group of 20 leaders’ meeting in Toronto at the end of June, where Canadian officials have said they will be pushing for continued efforts to smooth out the global imbalances that exacerbated the slump that much of the world is still clawing out of.

``The required rebalancing of global growth has not yet materialized,’’ the bank said, contrasting ``strong momentum’’ in emerging markets with recoveries in economies such as the United States and Japan that remains ``heavily dependent’’ on low interest rates and government spending.

``In general, broad forces of household, bank, and sovereign deleveraging will add to the variability, and temper the pace, of global growth,’’ policy makers said.

While flagging the possibility of ``renewed weakness’’ in Europe, where drastic spending cuts and higher borrowing costs will be the likely result of continent-wide debt problems, so far the effects of the crisis on Canada have been ``limited to a modest fall in commodity prices’’ and somewhat tighter financial conditions, the bank said.

The Canadian economy, which on Monday posted a whopping 6.1-per-cent annualized growth rate for the first quarter – the fastest in more than a decade – is ``unfolding largely as expected,’’ the bank said, led mostly by a hot housing market, higher incomes and a labour-market recovery that have helped fuel consumer spending.

Still, the central bank suggested that household spending and the economy will slow in the coming months as consumers deal with higher borrowing costs and try to limit or reduce their debt loads and as government stimulus spending fades. As a result, an ``anticipated pickup in business investment will be important for a more balanced recovery,’’ the bank said.

Inflation, which the central bank has been watching closely for months, has been in line with policy makers’ projections to exceed 2 per cent this year and reflects a combination of strong domestic demand, slowing wage increases and ``excess supply’’ leftover from the recession.

The central bank also said it is making a technical, yet significant, change to re-establish ``normal functioning’’ of the overnight market, whereby its benchmark will return to halfway between the rate it pays to chartered banks to hold deposits and the amount that it charges private-sector lenders for loans.