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How bad is your housing market? It's all 'location, location and location' Add to ...

These are stories Report on Business is following Thursday, Nov. 15, 2012.

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Home sales flat
Sales of Canadian homes dipped 0.1 per cent in October from a month earlier, and the trend toward what observers believe will be a soft landing is clear.

But as Toronto-Dominion Bank’s Sonya Gulati puts it, it’s all about “location, location and location.”

Sales have now dropped for seven of the past 10 months, the TD senior economist said today, and compared to a year ago are down 0.8 per cent.

Consider, though, that there were two more working days in October compared to a year earlier, and two less in September.

Robert Kavcic of BMO Nesbitt Burns smoothed the numbers of September and October to find that sales in that period were down 8.1 per cent from a year earlier, which is “a more realistic representation of a housing market that has softened since mortgage rules were tightened again in July.

As The Globe and Mail’s Tara Perkins reports, the latest numbers from the Canadian Real Estate Association show price increases are slowing as well.

The national average price in October was up just 0.02 per cent from a year earlier, though it’s higher when you exclude Vancouver and Toronto.

The market trends can be separated into pre-Flaherty and post-Flaherty. As in, the change after Finance Minister Jim Flaherty’s latest move to cool down the mortgage market in July.

“In the first half of the year, sales and price gains were modest, but positive,” said Ms. Gulati.

“More stringent rules and tighter mortgage underwriting rules have ‘purposely’ knocked the wind out of the housing market sales.”

She did add that such regulations tend to have only a temporary impact, and that the market should rebound somewhat early next year.

“What happens thereafter is less certain,” Ms. Gulati said.

“The low interest rate environment could pull homeowners back onto the market, causing home prices to once again trek upwards.  Alternatively, an absence of pent-up demand may leave the market in a bit of a lull until interest rate hikes resume in late-2013.  Under either scenario, it is safe to say that there is a low probability of out-sized home price gains over the near-term.”

The Canadian housing market, of course, is one of extreme differences. Vancouver is sinking fast, and Toronto is cooling, while other centres, such as Calgary continue to push higher.

“No region will be immune from the macroeconomic trends and regulatory developments,” Ms. Gulati added. “That being said, the impacts to be felt will depend on location, location and location.”

Indeed, BMO’s Mr. Kavcic noted that Vancouver, where sales slumped 27 per cent in the latest three-month period from a year ago, faces “some of Canada’s least favourable market conditions.”

The ratio of sales to new listings in Vancouver, he added, averaged less than 39 per cent in those three months, or almost the lowest since the financial crisis.

In Toronto, of course, we’re seeing a sharp drop-off in the condo market, with overall home sales down 16 per cent over the three markets.

And then there’s the home of the oil patch: In the same three months, sales in Calgary climbed 20 per cent.

“As is typically the case, housing market conditions vary considerably across the country,” said Mr. Kavcic.

“However, with the national supply-demand backdrop quite balanced and price growth ebbing in a well-behaved fashion, it looks at this point like the elusive soft landing is taking shape.”

BP to pay fine, plead guilty
BP PLC has agreed to pay a massive fine and plead guilty to criminal charges in a settlement with U.S. authorities over the 2010 Deepwater Horizon accident in the Gulf of Mexico.

Under today’s deals with the Department of Justice and Securities and Exchange Commission, the energy giant will pay some $4.5-billion (U.S.) in fines and payments over five years and plead guilty to 14 criminal counts

Eleven workers died in the accident, while millions of barrels of oil spilled into the Gulf.

“In eliminating the possibility of any further federal criminal charges against the company based on the accident, BP has taken another significant step forward in removing legal uncertainty and can now focus more fully on defending itself against all remaining civil claims,” BP said in a statement.

Eleven of the charges relate to the deaths, BP said, one to the Clean Water Act and one to the Migratory Bird Treaty Act. The remaining one is obstruction of Congress in connection with statements made.

Euro zone in recession
The euro zone is officially back in recession, but it’s the individual performance among its 17 members that really tells the story.

The broader economy of the monetary union contracted in the third quarter by 0.1 per cent, following on the heels of a 0.2-per-cent contraction in the second quarter. That meets the definition of a recession, with back-to-back losses.

Among the 27 countries of the broader European Union, gross domestic product rose 0.1 per cent.

Today’s readings by Eurostat show the effect of the raging debt crisis on Germany, the region’s powerhouse, whose growth slipped to 0.2 per cent in the quarter. France had a similar reading.

Others, notably Greece, Portugal and Spain, are in the midst of severe slumps. Unemployment is at intolerable levels, leading to widespread unrest.

“Over all, the figures were not as bad as feared, but that’s no reason to cheer as Q4 isn’t likely to be any better and the region still faces a very tough road,” said Benjamin Reitzes of BMO Nesbitt Burns.

Indeed, the European Commission projects growth of 0.5 per cent in the EU next year and no growth in the euro zone, with a jobless rate of 10.9 per cent in the former and 11.8 per cent in the latter.

Greece’s economy is forecast to contract by a further 4.2 per cent, with unemployment near 15 per cent. Spain’s economy is projected to shrink by 1.4 per cent, with a stunning jobless rate near 27 per cent.

There are, of course, questions about how the European Central Bank might act. For now, there's nothing new from central bank chief Mario Draghi and his colleagues.

"Will the ECB therefore loosen the monetary policy strings further?" said Derek Holt and Dov Zigler of Bank of Nova Scotia.

"While further accommodation might be warranted, there are a number of impediments, including: a) euro zone CPI is still running fairly high, having come in at 2.5 per cent year-over-year in October after revisions were made yesterday, and b) ECB president Draghi has fairly consistently articulated the view that the transmission mechanism from conventional monetary policy to the real economy is currently broken as a result of the European financial crisis distorting medium-term interest rates, and therefore rate cuts would be fairly ineffectual."

Manufacturing hit
Canadian manufacturers suffered a hit in September when you exclude the aerospace industry, which chalked up a massive gain in sales.

Over all, manufacturing shipments climbed 0.4 per cent to almost $50-billion, Statistics Canada said today, but that masks certain weaknesses.

Sales actually declined by 0.7 per cent when the aerospace and related parts industry, traditionally volatile in its numbers, are removed from the measure.

Indeed, shipments climbed in just eight of 21 industries measured, the federal agency said. Big-ticket items rose 1.1 per cent, and non-durable goods sales fell 0.4 per cent.  Adding to that, the previous month's gains were sliced to 0.9 per cent from 1.5 per cent.

The aerospace industry chalked up a gain of 43 per cent for the best showing since May.

In the key auto industry, sales slipped 3.6 per cent, though, Statistics Canada noted, shipments have climbed for 12 of the past 15 months and are now more than 18 per cent above the levels of a year ago.

For the third quarter, noted assistant chief economist Dawn Desjardins of Royal Bank of Canada, over all manufacturing sales rose at an annual pace of 1.7 per cent, well below the 10-per-cent rate in the second quarter.

"The slowing in activity is consistent with other indicators that showed the economy geared down in the quarter," she said.

"Having said that, even the modest rise in manufacturing activity in September when combined with anticipated gains in mining, oil and gas and agriculture output are consistent with our forecast that overall GDP expanded at a 0.3-per-cent pace in the month. While this will not be enough to save the economy from recording a weak reading in the third quarter overall, it will provide a solid hand-off for the final quarter of the year."

Yen sinks
The yen slipped today as the man expected to be the next prime minister ratcheted up the pressure on the Bank of Japan.

As The Globe and Mail’s Barrie McKenna reports, Prime Minister Yoshihiko Noda plans to dissolve the lower house of parliament tomorrow as the country heads toward a Dec. 16 election.

Shinzo Abe, the challenger who is ahead in the polls, according to Bloomberg, called today for further stimulus measures from the central bank, and a target for inflation of 3 per cent.

Japan has been struggling with deflation and the hit to its exporters from a strong currency, and its economy contracted in the latest quarter, raising the possibility of another recession.

The Bank of Japan has been under intense pressure to do more, and Mr. Abe promises to add to that forcefully.

“The biggest economic problem is prolonged deflation and a strong yen,” Mr. Abe, who heads the Liberal Democratic Party, said today, according to Bloomberg. “Markets will only start to react once unlimited monetary easing is conducted.”

It’s not clear how much further the Bank of Japan can go, though Mr. Abe has some ideas.

“Once again [the yen] is under pressure,” said senior currency strategist Elsa Lignos of RBC Europe.

“Shinzo Abe, LDP challenger, former PM and likeliest man to be future PM, has been voicing his thoughts on the BoJ again, this time saying wants the BoJ to consider interest rates at or below zero to encourage lending,” she said in a research note.

“We think the probability of negative interest rates in Japan is very low while unconventional easing struggles to weaken [the yen] for long.”

China names new leaders
If Canadians doing business in China were hoping for new and dramatic changes from the new, all-powerful Standing Committee of the Politburo, they are likely to be disappointed, at least for now, Carolynne Wheeler writes from Beijing.

The new seven-member team unveiled in the Great Hall of the People today is a largely conservative force led by new Communist Party Secretary and president-in-waiting Xi Jinping, and premier-in-waiting Li Keqiang, for whom economic reform will be a cautious and careful process.

Canadians lean more toward TFSAs
Canadians are leaning more toward a Tax-Free Savings Account, but many still appear uneducated several years after its introduction.

A survey released today by Bank of Montreal shows less than 50 per cent of savers are putting in the maximum of $5,000 a year, though 57 per cent say they will go to the max within the next five years.

What’s troubling is the apparent lack of knowledge four years on.

“The findings suggest it’s still a fairly new concept for some,” said BMO vice-president David Heatherly.

He was referring to the fact that 60 per cent of those polled claim to be “knowledgeable” about the savings vehicle, but only 44 per cent knew the contribution limit and 37 per cent didn’t know what TFSAs can hold, such as stocks and bonds.

Among BMO’s findings:

The percentage of savers who plan to open a TFSA increased to 29 per cent in this year’s survey from 21 per cent last year.

Cash is the most common component, followed by mutual funds and guaranteed investment certificates. Trailing are stocks, bonds and exchange traded funds.

The poll was done for BMO last month by Pollara among 1,000 savers.

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