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TD predicts trouble for B.C. real estate, Toronto condos Add to ...

These are stories Report on Business is following Wednesday, Jan. 4, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Vancouver, Toronto face troubles? British Columbia and Ontario could both face some real estate troubles over the next two years, though economists don't foresee a bust in Canada's housing market.

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British Columbia is forecast to have it worse, said senior economist Jacques Marcil, and will likely see "a signifcant correction" this year. Indeed, he said in a report today, the Vancouver market likely peaked last year.

The report, which examined the country's provincial economies, projects home resales in British Columbia will sink 3.7 per cent this year, while prices decline 3.5 per cent.

"The correction will extend into 2013, as unit resales fall a further 5 per cent while prices slip 4.4 per cent," he said.

Just today, the Real Estate Board of Greater Vancouver reported that sales last year rose 5.9 per cent from 2010, though were 9.2 per cent below 2009 levels. The market is slowing. Sales in December alone were down12.7 per cent from the same month a year earlier. Prices were up by 7.6 per cent, though were down 1.5 per cent from their peak in June of last year.

Mr. Marcil also expects Ontario's housing market to "exert a drag" on its growth over the next few years, notably where Toronto condominiums are concerned.

"In addition to the growing pipeline of supply, the knock-on effects of financial market volatility to buyer confidence will likely result in a cooling down in condominium sales in the region in 2012 and 2013.

In Canada overall, the housing market is losing steam. While a bust is not expected, valuations still remain a concern, senior economist Sal Guatieri of BMO Nesbitt Burns said in a separate report.

"If you listen closely you can hear the sound of air seeping out of Canada's housing balloon," Mr. Guatieri said. "(Unlike a bubble, a balloon can deflate slowly.) Outside of Toronto and Saskatchewan, home sales have moderated since new mortgage rules were introduced in March (for the third time in four years). Markets are balanced in over half the country, but sellers still rule in Toronto, Saskatchewan and Manitoba. Prices have pulled back moderately from spring highs, led by once white-hot Vancouver."

He projected "modest gains" in overall Canadian home sales this year, steady prices, a dip in housing starts and a moderation in mortgage growth from its pace of almost 8 per cent.

Whither U.S. housing slump? Is the end of the long U.S. housing bust finally in sight?

Some analysts suggest the lengthy decline in house prices - it has been five years now - could end this year though they're not projecting marked increases.

"Tough credit conditions and rising foreclosures will prevent significant and sustained price gains until 2014," said Paul Dales, senior U.S. economist at Capital Economics in London.

"We now think that prices are close to finding a floor," he added in a report today. "The key difference between this year and last is that banks are a little bit more willing to lend. For example, towards the end of last year lenders were willing to extend a loan worth 80 per cent of the home purchase price up from nearer 70 per cent in 2010."

At the current pace of sales, Mr. Dales said, it would take seven months to sell all the unsold stock in the pipeline. And when you exclude the 2010 "distortion" of a temporary tax credit, it's the first time in five years that that measure of the demand and supply balance is close to its long-term average.

Still, it won't be a rapid rise, and much still depends on how the euro crisis plays out.

"The loosening of credit criteria has so far been modest," Mr. Dales wrote. "And by reducing the ability of households to extract a down payment from their home, the previous fall in prices has shut out up to half of all mortgage borrowers from the mortgage market. Moreover, given how many people were burnt during the crash, it will take many years to rekindle America's love affair with home ownership."

He also projected a further 3 million foreclosures.

Pipeline backers reveal themselves A series of corporate backers of the $6.6-billion Northern Gateway pipeline have revealed themselves in filings with the National Energy Board, The Globe and Mail's Nathan VanderKlippe reports.

Cenovus Energy Inc. , MEG Energy Corp. , Nexen Inc. , Suncor Energy Marketing Inc. , and Total E&P Canada all support the project.

Of those, Cenovus and MEG identified themselves as funding participants – part of a group of companies that have together spent $100-million toward pre-construction work on Gateway, which would transport Alberta oil to the West Coast for export to Asia and California. The rest have signed precedent agreements, a first step toward committing volumes of crude oil to the tip.

Yahoo names new CEO Yahoo Inc. today named its replacement for Carol Bartz, appointing Scott Thompson as chief executive officer of the media company.

Mr. Thomson has been president of PayPal, and, according to Yahoo, has a "proven record of building on a solid foundation of existing assets and resources to reignite innovation and drive growth."

Reigniting innovation, as the company put it, is key to Yahoo's future. Mr. Thomson will continue a strategic review that the company said today could include investments or asset sales."

ISP hikes prices TekSavvy Solutions Inc. has become the first independent Internet service provider to raise consumer prices following a recent regulatory decision on usage-based billing, The Globe and Mail's Rita Trichur reports.

Warning customers that 2012 would be another challenging year for the industry, the Chatham, Ont.-based company said rates for most of its existing residential Internet service products would increase by between $3 and $4 on Feb. 2.

TekSavvy’s top executive laid the blame squarely on the telecom regulator.

UniCredit in discounted rights issue As Streetwise columnist Boyd Erman writes, a massively discounted rights issue by Italy's UniCredit today shows just how punishing raising fresh funds will be for Europe's banks.

The bank offered billions in shares today at a huge discount to its stock price to raise badly needed capital.

As Mr. Erman notes, it's not surprising, then, that troubled banks in the euro zone would try to sell assets rather than raise new capital.

Euro inflation dips Inflation in the euro zone eased in December, giving a bit more breathing room to the European Central Bank.

Today's so-called flash estimate from Eurostat pegged the inflation rate at 2.8 per cent, down from 3 per cent in November.

The new chief of the ECB, Mario Draghi, has already cut interest rates, undoing the rate hikes of his predecessor, and some observers believe he may cut deeper still as the 17-member monetary union heads toward another recession.

The ECB's key rate now stands at 1 per cent, and its policy-setting panel meets again next week, but the central bank is not as free and clear as a dip in inflation might suggest.

"The disinflationary nature of a weak economy is likely to be somewhat offset by a depreciating [euro] loose monetary policy and oil prices, which remain stubbornly high, leaving inflationary pressures stronger than they otherwise would be and to some degree tying the hands of the ECB," said senior currency strategist Camilla Sutton of Scotia Capital.

Business Ticker

In Economy Lab It's true that the downside of foreign investment is the loss of local control over decision making, David Campbell writes, but there's no evidence foreign investment is a bad thing for the Canadian economy.

In International Business Cities across China are raising their minimum wages despite the prospect of slower economic growth this year, a move that owners of smaller businesses warn could result in widespread closures given the sharp fall in demand from western economies. Enid Tsui of The Financial Times reports.

In Globe Careers Canadian workplaces lead developed countries in giving employees access to technology and allowing workplace flexibility, but are far behind what’s happening in developing countries, according to a new survey. Wallace Immen reports.

From today's Report on Business

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