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BMO on housing market: ‘Bubble fatigue? Try buyer fatigue’

These are stories Report on Business is following Wednesday, March 6, 2013.

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Housing won't rebound quickly: BMO
Projections for Canada's housing market are all over the map. But where Bank of Montreal's concerned, residential real estate probably isn't going to bounce back any time soon.

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The market has been cooling markedly since Canada introduced new mortgage restrictions in July, and some observers believe it will soon find a new floor before picking up again. Even those who don't see a pickup on the horizon, however, aren't forecasting a U.S.-style meltdown.

As The Globe and Mail's Kevin Carmichael reports, the Bank of Canada suggested today that the battle against a housing bubble has now been won, and consumers are tackling their record debts.

Some observers have suggested that the type of restrictions brought in by Finance Minister Jim Flaherty have only a months-long impact, and a rebound follows.

And as Tara Perkins writes, others expect a pickup heading into the spring selling season. Indeed, CIBC World Markets economist Benjamin Tal referred this week to "bubble fatigue," by which he meant that potential buyers have been hearing "bubble" for so long that they may be starting to ignore it.

But chief economist Douglas Porter of BMO Nesbitt Burns, citing February sales numbers from some cities, indicate that national sales were down by about 12 per cent from a year earlier.

They were down 15 per cent in Toronto and 29 per cent in Vancouver, though last year was a leap year so there was an extra day.

"While we are certainly not in the crash camp, we are realists, and the reality is that home sales have taken a big step back and are unlikely to rebound any time soon," Mr. Porter said in a research note titled "Home sales: Bubble fatigue? Try buyer fatigue."

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Bank of Canada
The Bank of Canada is still looking at a rate hike - somewhere down the road - but said today its ultralow overnight rate isn't moving up for quite some time yet.

As Mr. Carmichael reports, the central bank is putting its focus squarely on economic growth, believing a housing bubble is no longer a threat.

"With continued slack in the Canadian economy, the muted outlook for inflation, and the more constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2-per-cent inflation target," the central bank said today, changing its language somewhat from its last statement.

Noting that the economy expanded at an annual pace of just 0.6 per cent in the fourth quarter of last year, Governor Mark Carney and his colleagues on the policy-setting panel said they expect economic growth to "pick up through 2013," buoyed by "modest growth" in consumer spending, an eventual rebound in exports and "solid" investment by the country's businesses.

"With a more constructive evolution of imbalances in the household sector, residential investment is expected to decline further from historically high levels," the Bank of Canada said as it held the benchmark rate steady at 1 per cent.

"The bank expects trend growth in household credit to moderate further, with the debt-to-income ratio stabilizing near current levels. Despite the expected recovery in exports, they are likely to remain below their pre-recession peak until the second half of 2014 owing to restrained foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar."

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CIBC World Markets economist Peter Buchanan sees today's statement as "a bit more dovish" than expected, but "not sufficiently to change our own view that rates will remain on hold until the latter part of 2014."

Ranks of wealthy to rise
The number of rich Canadians is projected to increase by 35 per cent over the next decade, with Toronto boasting the biggest concentration of wealth, according to a new report today.

The Knight Frank report, which looks at 80 markets, puts the number of high net worth individuals at 4,922 in 2012, and forecasts their ranks will swell to 6,637 by 2022. (These are folks whose net assets are at least $30-million U.S.)

And, cheer up, Toronto, where the housing market is on the ropes. Among the world's major cities, Toronto is No. 20 in terms of the number of wealthy, at 1,765, and that's set to climb by 34 per cent in the next 10 years, according to the real estate consulting group.

By comparison, New York is No. 1, with 7,580, and Rome is No. 30, with 1,130.

After New York, Toronto trails London, Tokyo, San Francisco, Los Angeles, Beijing, Mumbai, Hong Kong, Sao Paulo, Rio de Janeiro, Delhi, Mexico City, Osaka, Shanghai, Chicago, Paris, Houston, Washington and Dallas.

It beat out Zurich, Munich, Singapore, Sydney, Dusseldorf, Hamburg, Geneva, Melbourne, Frankfurt and Rome.

In terms of how "luxury residential markets" markets performed, Knight Frank's Prime International Residential Index puts Toronto in the No. 22 spot, and Vancouver at No. 66.

Toronto is up, and Vancouver down by that ranking, which looks at the "most desirable and most expensive property in a given location."

The Vancouver and Toronto real estate markets, of course, have been the focus of our collective angst over residential real estate. While Toronto has seen a sales slump, prices have held up, though they're down in Vancouver.

These people, of course, go well beyond the 1 per cent, which Statistics Canada ranks by annual income.

To get into that group, according to the last report in late January, you just have to earn $201,400 a year.

They account for 10.6 per cent of Canada's total income – and, no surprise here, it's a mostly male, urban group though women are making inroads – but that's down from the peak of 12.1 per cent in 2006.

Knight Frank also looked at how the wealthy are crossing borders.

Russians, for example, are increasingly buying property in the United States, while wealthy Chinese are active in countries such as Britain and the United States.

"The power of this type of Chinese buyer looks set to continue into 2013," the report said.

"Already strong in Hong Kong, Singapore, Malaysia and Australia, and growing in Canada and the U.S., their influence is now spreading to London too."

EU hits Microsoft
The European Commission has fined Microsoft Corp. $732-million (U.S.), accusing the software giant of breaching commitments on allowing a screen that would give users an easy way to choose their web browser.

"In 2009, the commission had made these commitments legally binding on Microsoft until 2014," the EC said in a statement today.

"In today's decision, the commission finds that Microsoft failed to roll out the browser choice screen with its Windows 7 Service Pack 1 from May 2011 until July 2012," it added. "Fifteen-million Windows users in the EU therefore did not see the choice screen during this period. Microsoft has acknowledged that the choice screen was not displayed during that time. "

Microsoft chalked it up to a "technical error" for which it takes "full responsibility."

"We provided the commission with a complete and candid assessment of the situation, and we have taken steps to strengthen our software development and other processes to help avoid this mistake – or anything similar – in the future," it said in a statement.

Black nears deal
The Canadian newspaper magnate who wants to build one of the world's largest refineries says he is a month away from signing an initial agreement to secure $25-billion in debt financing, The Globe and Mail's Nathan VanderKlippe reports.

David Black has been working for several months with Oppenheimer Investments Group to lay the foundations for a massive refinery he hopes to build near Kitimat, B.C.

Mr. Black said today he is weeks away from a first-step deal on the $25-billion the project is expected to cost: $16-billion for the refinery, $6-billion for an oil pipeline, $2-billion for a natural gas pipeline and $1-billion for supertankers.

Torstar profit plunges
Days after announcing cuts at its flagship Toronto Star newspaper, Torstar Corp. said today profit fell almost 65 per cent in the fourth quarter due to a weak national advertising market and a writedown at its online job search division.

The company said it posted a $24-million profit, down from $64-million a year ago. It took an $11-million non-cash writedown on its Workopolis subsidiary, which has been hammered by increased competition in the online recruitment industry and generally weak economic conditions.

Revenue fell 5 per cent to $395-million, compared to $425-million a year ago.

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