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The Week

Is Canada’s housing market cooling or crashing? Add to ...

These are stories Report on Business followed this week.

Follow Michael Babad and the Globe’s top business stories on Twitter.

Whither the housing market
I can’t keep up with whether Canada’s housing market is simply cooling or crashing, which was all the buzz this week.

Like many observers, I believe the market is cooling, correcting in an orderly fashion, helped along by policy makers in the government and Bank of Canada. But some don’t see it that way, and continue to fret about a bust.

Just to give a range here, Toronto-Dominion Bank economists believe prices are overvalued by 10 per cent, while Capital Economics projects a plunge of up to 25 per cent.

There’s no question the market is coming back to earth, notably in Vancouver and due at least in part to new mortgage restrictions from the government that went into effect in July. As The Globe and Mail's Tara Perkins reported, sales across the country fell 5.8 per cent in August from July, according to the latest reading by the Canadian Real Estate Association this week.

“Our view remains that Canadian housing markets are in the early days of cooling off from all-time record highs across virtually every variable in the household sector, including the home ownership rate, renovation spending, inflation-adjusted consumer spending, house prices, and leverage,” said economists Derek Holt and Dov Zigler of Bank of Nova Scotia.

“Canadians have driven a decade-long party and have reached saturation levels for ownership and spending measures. A cooling global economy may also be attracting relatively lighter capital flows from abroad into regional housing markets, primarily in Toronto and Vancouver.”

All bets would be off, of course, amid any financial shock and spike in unemployment, particularly given the record debt burden among Canadian consumers. That’s what Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty have been warning about for some time now.

Many observers expect an orderly retreat.

“All told, the message here is not to warn of an impending crash in Canada’s housing market. Rather, we could be entering a period where a multiyear soft patch in Canadian housing by a bounce-back in the U.S. market,” said Robert Kavcic of BMO Nesbitt Burns.

Capital Economics, on the other hand, has something of a Doomsday approach, saying this week that “the stalwart household sector now looks to be on the ropes, as sinking home sales and tighter credit conditions signal the beginning of what could be a very severe housing correction.”

Prices will soon follow the sharp decline in sales in a slowdown that will hurt consumer spending and a loss of up to 115,000 construction jobs, among other things, according to its forecast.

The Fitch Ratings agency, in turn, sees this week’s sales number as evidence “that risks of near-term overheating in the Canadian housing market may be subsiding.” It noted, though, that the “full extent and pace of the housing correction remains unclear.”

Central banks in higher gear
Central bankers moved into higher gear this week as the Bank of Japan unveiled plans to pump an extra ¥10-trillion ($124-billion) into its asset-buying program, citing economic weakness and global uncertainty.

The move by Japan’s central bank followed similar action a week earlier by chairman Ben Bernanke and his colleagues at the Federal Reserve, who announced new stimulus in the form of an asset-buying plan known as QE3, its third round of quantitative easing.

And a week before that, European Central Bank chief Mario Draghi said the ECB would buy up bonds of stressed governments, such as those in Spain and Italy, to help drive down borrowing costs.

Japan is trying to juice its economy, in part by holding its currency in check.

“Japan has had an easy monetary policy for years with no discernible improvement in the country’s economic outlook,” said senior analyst Michael Hewson of CMC Markets in London.

“The Bank of Japan’s actions were inevitable once the Fed acted last week given the pressure their exporters are under. Even though they have only done an extra ¥10-trillion they do have scope to do much more, given the pledges by Bernanke and Draghi to do unlimited buying.”

One left in auto talks
Ford Motor Co. and General Motors Co. have bought themselves four years of labour peace, leaving only Chrysler Group LLC to strike a deal with the Canadian Auto Workers union.

On Monday, Ford struck a pact with the CAW that formed the centrepiece in pattern bargaining, with a four-year pay freeze and cuts in wages and benefits for new hires.

Then late Thursday, GM met the Ford deal, agreeing also to pump $675-million into its Canadian operations and extending the life of a doomed car assembly plant in Oshawa, Ont., by a year.

The union said it wants job commitments from Chrysler as well.

Six things
1. We’ve all heard about keeping money under the mattress, but Walter Samasko Jr. was something else. Mr. Samasko died in May, according to the Las Vegas Sun, but, having been a recluse, his body was not noticed until June. Nor was the $7-million (U.S.) in gold bars and coins hidden in his home and garage.

2. Sequel to The Avengers? Marvel and DC Comics are suing the owner of Jerusalem’s Kippa Man shop, accusing the store of selling yarmulkes bearing the images of Spiderman and Batman, The Jerusalem Post reports.

3. The European Commission said in a memo Friday that the troika working with Greece is taking a “brief pause” from talks aimed at reaching a deal on economic reform tied to bailout cash. In this case, “brief pause” means a week. As opposed to the “brief pause” by Greece on getting its act in gear.

4. The B.C. Egg Marketing Board wants to stop cross-border shopping where eggs are concerned, launching a campaign called Eggonomics to offer consumers “sober new data about the impact of heading south of the border to purchase eggs, a staple on most grocery lists.”

5. Headline of the week: “U.K. Pig Group Says World Shortage of Pork, Bacon ‘Unavoidable’”

6. Tweet of the week, from @ReformedBroker: “iPhone 5 / Honey Boo Boo 2012”

Required reading this week
Canada’s oil patch is quietly sending large new volumes of oil on rail cars, even as it fights to overcome mounting opposition to plans for new pipelines to the U.S. Gulf Coast and Canada’s West Coast, Nathan VanderKlippe reports.

B.C. lumber producers are gearing up for what they hope are the early stages of a sustained housing revival in the United States, and hoping the momentum will carry into 2013, Brent Jang writes.

When it comes to housing, Canadians are paying more for less, Tara Perkins writes. That’s due in part to the shifting structure of the Toronto and Vancouver markets, where more households are now living in high-rise buildings.

Governments are investing heavily in public transportation despite pressure to crunch their budgets in the age of austerity. And few companies are cashing in on the trend more than Bombardier Inc., Eric Reguly reports.

A number of foreign companies are flocking to Canada’s oil patch in search of acquisitions and investments as Ottawa weighs the $15.1-billion takeover of energy company Nexen Inc. by China’s CNOOC Ltd., Jacquie McNish and Carrie Tait report.

What to watch for next week
The highlight will be Research In Motion Ltd.’s second-quarter results on Thursday, amid expectations of another ugly report.

“With an aging BB7 portfolio and intensifying competition at the lower end of the market, we believe RIM’s fundamentals likely continued to deteriorate in 2Q,” said analyst Steven Li of Raymond James.

On the economic front, Statistics Canada reports Friday on the kick-off to the third quarter, with third-quarter gross domestic product for July. It’s expected to be basically flat, possibly showing growth of 0.1 per cent.

“The third quarter of the year is off to a mediocre start, with the industry real GDP forecast to remain flat from June to July,” said economists at Toronto-Dominion Bank.

“Several sectors of the economy are expected to show weakness in this report, including housing related sectors such as sales activity and construction, and manufacturing.”

Follow on Twitter: @michaelbabad

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