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Trough for real estate? Canada's resale housing market may have hit its trough.
The market improved for the third month in a row in October, although prices came precariously close to declining compared to the same time last year, Globe and Mail real estate reporter Steve Ladurantaye reports today.
The average resale price was $337,842, which the Canadian Real Estate Association said today was "up less than a percentage point compared to one year ago," although prices are up slightly from September. Prices peaked in May, when they hit $346,881.
Sales increased by 4.6 per cent over September, CREA said, but were down 21.6 per cent from last October, which was the busiest October on record.
Economists now suggest the market has seen its bottom and, as BMO Nesbitt Burns deputy chief economist Douglas Porter put it, may be having its "Goldilocks moment," not too hot and not too cold.
"The last three months of data suggest that a trough in resale housing activity may have formed earlier than we expected," said Toronto-Dominion Bank senior economist Pascal Gauthier.
"Heading into 2011, sales and prices appear better supported than we last forecast in September ... The stabilization and ensuing uptick in resale housing activity should also help to limit the downside risk to the overall economy. On the flipside, subdued employment and income growth in the quarters ahead should act to cap the housing market's upside in 2011."
Mr. Porter said the market is approaching "something closer to normalcy."
"Sales are still down heavily from the piping hot pace of a year ago, but they are close to average levels since 2000," he said.
"And, prices are up just slightly from a year ago, while the inventory of unsold homes is close to typical. In other words, there's not much here for either the wild-eyed optimists or the ranting pessimists, which is probably a good thing."
Europe back in crisis mode Europe and its single currency are in crisis mode again.
Haunting investors are not only ongoing concerns about Ireland, but angst again over Greece and now Portugal as well.
"Investors are concerned about the possibility that a second sovereign financial crisis in Europe (following Greece) might reverse or even fully erase the market gains in 'risk assets' achieved since late August," economists at UBS Ltd. said today.
"That concern is justified in the event that a worst case scenario of contagion to other euro zone sovereign markets ensues. But it is also a scenario that merits attention, insofar as many of the supportive factors for markets over the past two months are likely to fade."
Those support pillars include the pending conclusion to the third-quarter earnings season, which has generally been strong, and the fact that the markets have already priced in the impact of the Federal Reserve's new quantitative easing program.
Ireland said today it is talking to other European governments but that it's not looking for a bailout from the EU rescue fund. This came amid new reports that Greece's deficit and debt levels could be far greater than projected.
Also playing into market angst is one of the sticking points in Europe's mess: Germany's proposal that investors share any pain of a credit default after 2013.
Greece's Prime Minister George Papandreou railed against this today, telling a meeting in Paris that the German plan is driving up borrowing costs for debt-burdened countries like Ireland and Portugal. And, he warned, "it could break backs. It could force economies towards bankruptcy."
"The biggest concern for markets is the amount of liability that will reside with the private bond holders," said Scotia Capital currency strategist Camilla Sutton.
"On Friday, the tone was softened as we were told that not only would it not impact any bondholders until 2013, but that 'the role of the private sector in the future mechanism could include a range of different possibilities such as a voluntary commitment of institutional investors to maintain exposures, a commitment of private lenders to roll over existing debts or the inclusion of collective action clauses on future bond emissions of euro area member states.' This is a significant outstanding issue and causes uncertainty for the [euro]and investors."
UBS economists said the euro, the single currency shared among the bloc's member, could be the biggest loser as the troubles mount again.
"With year-end approaching, dollar shorts are likely to be scaled back," they said. "Until Ireland's fiscal challenges are resolved, uncertainty should also keep the euro under pressure. Coupled with better U.S. growth data, the euro is likely to fall further."
UBS economists also questioned whether Portugal might be next on the hit parade.
"Little attention has been paid to the price action in Portugal," they said.
"Although the move of spreads has been less extreme than in the case of Ireland, the situation is arguably not much better.
"The measures to be implemented in 2011 seem credible to us and will undoubtedly produce some effects. We are, however, not fully convinced by the 4.6-per-cent budget deficit target, which seems very ambitious to us. The risks stemming from higher debt servicing costs, lower activity but also less efficient than expected measures (as during this year) are real. We think the reduction of the budget could be less pronounced than reported in the government's prognosis."
- EU poised for Irish rescue, opposition says
- Ireland talks bailout, no formal request
- Greece raises projected deficit for 2010
- The slaying of the Celtic Tiger
Does U.S. face 'lost decade' The United States risks a Japan-style "lost decade" of weak growth and high unemployment if it does not attack its huge foreclosure issue, Toronto-Dominion Bank economists warn in a new report.
Japan suffered through a stagnant economy and deflation after real estate and stock values collapsed in the early 1990s, with troubles running to the early 2000s.
While deflation is not the issue in the United States, there is "one critical lesson" from Japan's troubles that's not getting enough attention, said economists Craig Alexander, Beata Caranci and Martin Schwerdtfeger.
"U.S. policy makers should be concentrating their efforts on resolving the foreclosure situation in America, rather than expecting more monetary easing to do the heavy lifting of jump-starting the slow economic recovery," they said.
"Failure to do so risks a multi-year period of very subdued growth and high unemployment that have Japan-like qualities."
Japanese authorities, in their day, did not address the issues of non-performing loans and insolvent non-bank financial institutions known as jusen companies, mortgage lenders created by the country's banks that were into the riskier areas of the real estate market.
"The vast majority of jusens were liquidated and their loans were absorbed by their parent banks, although with only partial recognition of losses," the economists said.
"... The lesson from Japan's lost decade is that allowing non-performing loans to linger for an extended period on financial institutions balance sheets hinders the functionality of the banking system."
By the end of the second quarter this year, they noted, 4.6 per cent of all U.S. mortgages were in foreclosure and 4.5 per cent were deemed in arrears, though not yet in foreclosure, representing more than 4 million delinquent loans.
"U.S. authorities must grab the foreclosure crisis by the horns, where the ultimate solution appears to lie in radical mortgage reform," they said.
Residential construction to moderate The residential construction industry is expected to continue to soften in the fourth quarter of the year and into 2011, Canada Mortgage and Housing Corp. says in a new forecast.
"High employment levels and low mortgage rates will continue to support demand for new homes in 2011," CMHC chief economist Bob Dugan said in the report released today.
"Nevertheless, housing starts will decrease next year to levels which are more in-line with long-term demographic fundamentals."
CHMC forecast housing starts this year in a range of 176,700 to 194,700, and next year in a range of 148,000 to 202,300.
U.S. retail sales rise The U.S. consumer isn't completely down and out. Retail sales in the United States climbed 1.2 per cent in October, heading into the key holiday shopping season, marking the biggest increase since March, the U.S. Commerce Department said today.
"October's stronger-than-expected retail sales performance is a good start for the fourth quarter, which should see more strength in seasonal sales this year relative to the previous two years' holiday seasons," said Toronto-Dominion Bank economist Martin Schwerdtfeger.
"... In spite of the stronger uptake on goods sales, unless services' spending start to mirror this performance, aggregate consumption will continue to provide a moderate boost to overall economic activity during the fourth quarter."
Ogilvy unveils merger Ogilvy Renault LLP is merging with with British legal giant Norton Rose Group, marking the first time that a Canadian firm has joined forces with a leading global player, The Globe and Mail's Jacquie McNish reports.
The Canadian merger is being unveiled on the same day that Norton announced an alliance with south African law firm Deneys Reitz. The two mergers, which are set to close next summer, will create a legal goliath with 2,500 lawyers and 38 offices around the globe.
Ogilvy Renault has a deep history in Montreal's corporate sector and a decade of expansion in Toronto and Calgary has raised its total number of lawyers to about 450. Its partners include former Prime Minister Brian Mulroney, international arbitrator Yves Fortier and former Ontario Attorney General Michael Bryant.
Potash stock on decline Potash Corp. of Saskatchewan slipped today as BHP Billiton Ltd. walks away from its hostile takeover bid, having been rebuffed by the Canadian government.
BHP said late yesterday it has given up on its attempts to acquire the western resources giant, but took the rare step of spelling out why it believes Ottawa's decision was wrong.
What next for BHP? Having resumed its stock buyback program, analysts believe the Australian miner may now boost its dividend.
Chief executive officer Marius Kloppers faces shareholders at his annual meeting tomorrow. While BHP weathered the global financial crisis well compared to many of its over-leveraged rivals, it has failed to take advantage of the once-in-a-generation opportunities to snap-up top tier mining assets at fire-sale prices, The Globe and Mail's Andy Hoffman reports from Perth, Australia, today.
- BHP withdraws Potash bid
- BHP investors ready to grill executives over Potash
- Streetwise: BHP leaves arbs high and dry
- Read our complete coverage of the Potash Corp. saga
From today's Report on Business
- Softwood lumber battle reignited
- Learning to live - and hold tight - with volatility
- B.C. lumber expediency rotting Canada's fair-play reputation
And, read our Streetwise blog and Your Business section.