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Canada's housing market at 'tipping point' Add to ...

These are stories Report on Business is following Tuesday, July 10, 2012.

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Housing at turning point
Canada's housing market is now at a "tipping point," with some cities still showing strong growth and others cooling down, Royal LePage says.

The study released today by the brokerage backs up anecdotal evidence from across the country, suggesting an inevitable slowdown for the housing boom.

It also comes amid fears of overheating in some regions, notably Toronto and Vancouver, and moves by the federal government to slow the fevered pace of borrowing among Canadians who have embraced record low interest rates.

"We have had three years of solid house price appreciation in almost all regions of the country," chief executive officer Phil Soper said in the report.

"Confidence in Canada's real estate market is sound, but home prices cannot grow faster than salaries and the underlying economy indefinitely," he added.

"Some regions have reached or perhaps even exceeded the current upper level of price resistance as buyers have embraced an era of historically low mortgage rates."

Average home prices rose in the second quarter of the year at an annual pace of between 3.3 per cent and 5.5 per cent, Royal LePage said, projecting an overall increase by the end of this year of 3.2 per cent compared to 2011.

The average price of a typical two-story house rose 4.7 per cent to $408,423 in the quarter, bungalows 5.5 per cent to $376,311, and condos 3.3 per cent to $245,825, according to the study.

Toronto, St. John's, Winnipeg, Saskatoon, Halifax and Regina, showed strong gains, and that's expected to continue in Toronto and Winnipeg for now.

New mortgage rules that came into effect Monday are expected to hit first-time buyers in particular, Royal LePage said, noting that group accounts for up to half of the market.

"The most recent set of mortgage changes, the fourth in four years, is also the most aggressive," Mr. Soper said. "The cumulative impact of these new regulations has created a significantly higher hurdle for young buyers seeking their first home and comes at a time when the market was slowing of its own accord."

Mr. Soper described the timing of Finance Minister Jim Flaherty's latest move as "unfortunate."

Toronto-Dominion Bank also sees the housing boom likely ending next year, with "more pronounced declines" in British Columbia and Ontario, according to a study released yesterday.

"The expected housing pause will reflect stricter regulations on mortgages and lending and what we expect to be a gradual rise in interest rates," said economists Derek Burleton and Jacques Marcil.

Separately today, Canada Mortgage and Housing Corp. said construction starts across the country climbed in June, largely because of condo development in Quebec and British Columbia.

Housing starts rose to an annual rate of 222,700 from 217,400 in May, the agency said. The moving average, which shows the trend, was at 218,500.

"The monthly increase posted in June was mainly attributable to multiple urban starts in Quebec and British Columbia," said CMHC's deputy chief economist, Mathieu Laberge. "The rate of starts, however, remains close to the six-month average. CMHC still expects the pace of housing starts to moderate as the year progresses."

The CMHC report suggests that home construction will play a role in overall economic growth in the second quarter, said Emanuella Enenajor of CIBC World Markets, and "the current low rate environment is continuing to support already elevated housing construction activity, namely in the condo/multi-family segment."

But observers don't see it lasting at that pace.

"The condo boom extended into June it seems," said senior economist Krishen Rangasamy of National Bank Financial.

"So much so that residential construction is likely to contribute to GDP in Q2 (overall housing starts are up 56 per cent annualized in that quarter, roughly four times the pace seen in Q1). That said, we seriously doubt that builders will be able to maintain the tempo. The new mortgage rules that came into effect in July will bite into demand as will the slower moving economy, offsetting the benefits of low interest rates. Expect a moderation in residential construction in the second half of 2012."

PFG Canadian clients believed to be safe
Canadians who have money in trading accounts with PFG Canada, the Canadian arm of brokerage Peregrine Financial Group where $200-million has gone missing, are expected to get their money back, Streetwise columnists Tim Kiladze and Boyd Erman report today.

Although nothing can be said for certain because negotiations are still under way and an investigation into the firm is just starting, a senior employee in the Canadian operation said “there’s a 95-per-cent-plus probability that Canadian clients will remain whole” – industry slang for getting their money back.

The employee requested anonymity because final details are still being hashed out.

RIM on the defensive
Senior management at Research In Motion Ltd. faced fierce criticism at its annual general meeting in Waterloo, Ont., today, amid declining sales and an uncertain future with a delay of its new smartphone platform, The Globe and Mail's Iain Marlow and Omar El Akkad report.

Barbara Stymiest, RIM’s new chair of the board, began the meeting by stressing that she knows some shareholders are frustrated with the smartphone maker’s troubles but that the board has faith in the revamped management team.

Long-term unemployment to scar youth
Long-term jobless levels could scar young workers for the rest of their lives and contribute to higher levels of structural unemployment,  the Organization for Economic Co-operation and Development warns today.

Across OECD countries, the percentage of employed youth relative to older age groups has continued to deteriorate since 2008, as more of the available work went to workers aged 55 or older, according to the study, The Globe and Mail's Ora Morison reports.

Average unemployment for those aged 15 to 24 across OECD countries stood at 16.1 per cent in April, 2012, a little more than two times the rate for workers of all ages. In Canada, the latest figures from Statistics Canada show youth unemployment is almost 15 per cent, compared with 7.2 per cent for the general population.

The result has been longer periods of joblessness for young people who are at a critical phase in their work life.

China trade growth eases
Here's how Capital Economics describes China's trade numbers today: "Three points leap out from China’s June trade data. Exports to the U.S. have taken a sudden turn for the worse. Commodity imports have slumped. And the trade surplus has returned to the level it was at before the global financial crisis."

China's trade surplus climbed in June to $31.7-billion (U.S.) from $18.7-billion a month earlier. The pace of increase in exports eased to 11.3 per cent from 15.3 per cent, but markets were troubled by the rapid fall in growth of imports, to 6.3 per cent from 12.7 per cent.

That puts import levels back to where they were late last year, noted Mark Williams and Qinwei Wang of Capital Economics.

"Overall, today’s data were downbeat," the economists said.

"If June’s new lending turns out to be substantial ... then we might conclude that stimulus is now working, and the weak import figures are essentially old news. However, given that the People’s Bank felt it necessary to cut rates again last week, it seems likely that lending remains relatively weak. Today’s figures only add to the gloom."

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