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

Tuesday, July 20, 2010

Control your debts, central bank tells Canadians

By Rob Carrick
Globe and Mail Update

Bank of Canada's mild pace of rate hikes sends a signal to consumers to take control of their finances. Growing pessimism, rising interest rates.

That's the odd reality today for Canadians trying to make sense of what's happening in the financial world. On one hand, there's a growing sense that global economic growth is slowing. On the other, there's the Bank of Canada's decision to nudge its trendsetting overnight rate higher by one-quarter of a percentage point Tuesday.

The net result is a gift to people with debts. They'll have to pay more in interest on their lines of credit, variable-rate mortgages and floating rate loans, but the increase is mild and the pace of further increases will be muted. It could be a lot worse.

In fact, lots of market watchers thought it would be worse last year when they looked ahead to 2010. They saw all the government stimulus pumped into the economy during the recession producing a significant uptick in inflation, which in turn would send interest rates marching higher.

Now, there's talk of deflation, or falling prices. The Bank of Canada's not outwardly concerned about this, but it did throw a mention into its latest statement on rates about how it expects economic growth to slow next year and in 2012 from the 3.5 per cent growth of 2010. Back in April, the bank expected 3.7 per cent growth this year.

Borrowers would undoubtedly say that no rate increases would be ideal. But keeping rates steady at current levels promotes an unhelpful complacency with borrowers. Rates are still close to the emergency lows they hit in the financial crisis and recession. By increasing rates by a quarter point in June and then another quarter point on Tuesday, the Bank has signalled
people that it's time to get control of their debts.

This seems to be working. The latest research on household debt from CIBC World Markets shows that growth in the use of lines of credit has hit the lowest level since 2007. The housing market is showing a more dramatic slowdown, with sales in June down almost 20 per cent from the same period of 2009.

The Bank of Canada is trying to normalize interest rates these days, and Canadians seem to be on their way to normalizing their use of debt after a binge in the past decade.

That's exactly the right way to play the current economic environment. Get your debts in hand before the economy really turns around and decisively higher rates are needed.

Thursday, July 15, 2010

Which GTA neighbourhood is the best bang for your buck?

July 15, 2010

Tony Wong
Business Reporter

On a sunny weekend, David Ferrari will take a knapsack with some food and a book and bike to the beach in Mississauga’s Lorne Park neighbourhood.

“It really feels great to just sit by the water in this special place,” says Ferrari, a real estate broker. In the 10 years since he set up a popular brokerage in the area, Ferrari has seen Lorne Park become what some people have dubbed the new Oakville.

Bungalows, typically on large lots of at least 70 feet wide, are being torn down for monster homes as buyers discover the tree-lined neighbourhood on Lake Ontario.

Move-up buyers dominated the Greater Toronto Area housing market in the first half of the year, with the suburbs experiencing the greatest price appreciation, according to a study by ReMax Ontario Atlantic Canada released Wednesday.

Lorne Park led in terms of percentage increase for average prices with a 30.2 per cent gain in the first half of this year compared with 2009, according to ReMax. The average price of a detached home in the upscale west-end area is now $880,373 verses $676,289 in 2009.

But the area also has many ultra-high-end homes. One of the most expensive is on the market for $8.9 million. The 10,000-square-foot contemporary home was used as a rental by the Rolling Stones when they were in town for a concert.

“This is one of the nicest areas in the GTA,” says Michael Polzler, executive vice-president of ReMax. “It’s a very desirable neighbourhood of gracious homes that is relatively close to the downtown core.”

Polzler said the “near suburbs” have been the winners over the past six months because buyers want homes within a half-hour drive of downtown. “Toronto is one of the cities with the longest commuting times, so there is a real concern about transportation,” said Polzler.

Last year — during the depths of the financial crisis — was a rare window of opportunity for buyers. In 2008, the average price of a home in Lorne Park was $830,041, before falling 18 per cent in 2009.

Last year, 80 per cent of the districts surveyed by ReMax reported declines in value, which made the returns look especially good during this year’s upswing. “The bounce back, fuelled by unprecedented market conditions including a severe shortage of listing inventory, simply returned average prices to their normal course,” said Polzler.

In second place was the northern suburb of Markham, with a 27.7 per cent jump to $779,168 compared with $610,322 in 2009, followed by the neighbourhoods of Armour Heights and Bathurst Manor, with a 27.5 per cent hike to $561,973.

Mississauga’s Creditview, Erindale areas were in fourth place at $561,973, up 26.5 per cent. Rounding out the top five were Hogg’s Hollow and the Bridle Path, with a 26.2 per cent increase to $1,868,591 compared with $1,480,296.

While prices experienced a major run-up in the first half of the year, most analysts expect the second half to be more tempered.

Last week the Toronto Real Estate board reported a second consecutive monthly drop in sales for the year, with 8,442 homes sold in June, a 23 per cent decrease over 2009.

The average price for June sales in the entire Toronto area was $435,034, up 8 per cent from June of 2009. However, that is below the double-digit increases that had been recorded earlier this year.

Active listings were also up by 28 per cent in June, suggesting there is much more product on the market.

The Toronto condominium market did not experience the same extreme gains, says ReMax. While 85 per cent of detached homes had double-digit price gains, only 61 per cent of condos had similar gains.