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the week

These are stories Report on Business followed this week.

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Homes prices projected to fall soon
Home sales in Canada are clearly softening. The question now is how soon prices follow suit.

The Globe and Mail's Tara Perkins, in Toronto, and Brent Jang, in Vancouver, reported this week on falling residential real estate markets in certain cities, those two being key in that they have been a particular focus for froth watchers.

In Vancouver, sales plunged 32.5 per cent in September from a year earlier. On a trend basis, sales were more than 40 per cent below a 10-year September average. The benchmark price slipped just 0.8 per cent.

In Toronto, where there are fears in particular of a condo bubble, sales in September dropped 21 per cent while prices climbed 8.5 per cent.

Then there are cities like Calgary, where sales climbed about 14 per cent.

As Ms. Perkins reported, a new survey by Royal LePage showed the average price of a two-storey home in Canada rose 4 per cent in the third quarter from a year earlier, to $403,747.

But as Royal LePage and other observers pointed out, softer prices will follow the downturn in sales, which have been hit by tighter federal mortgage rules, exhortations by the Bank of Canada and others for Canadians to get their record debt burdens under control, and generally lofty housing costs.

"Home prices are defying logic and holding remarkably steady, or in some cases, still rising significantly, such as in Toronto and Calgary," said Prof. John Andrew of the Queen's School of Urban and Regional Planning.

"This will be temporary, with a normal lag of three to six months between significant sales volume changes and home price changes."

In Vancouver's case, agreed Sal Guatieri of BMO Nesbitt Burns, prices "can only head lower in the face of a dozen active listings for every sale, and as buyers seek revenge after a decade-long boom that took average prices up 140 per cent."

Adrienne Warren of Bank of Nova Scotia, calling the drop-off "pervasive" but saying that a "sharp correction" isn't likely if the economy keeps going the way it has been, has an interesting take on the question of price, one that's worth noting.

"Swings in volumes are typically greater than in prices, especially in a down market," Ms. Warren said.

"The response of prices to demand shifts is asymmetrical, with demand increases tending to affect prices more than decreases."

All of this isn't to suggest doom and gloom, by the way. As Ms. Warren's Scotiabank colleague Derek Holt pointed out, Canada has notable strengths in the mortgage market compared to the United States and Europe.

"As one bit of evidence in support of this point it merits noting that through episodes of harsh price corrections in Toronto and Vancouver over the past quarter-century, 90 day+ mortgage delinquency rates in each of their provinces barely budged in comparison to the United States," he said.

Jobs market racks up gains
Canadian employers appear to be putting aside any angst they may have over the outlook for the global economy, at least as far as hiring goes.

As The Globe and Mail's Tavia Grant reported, Canada has now chalked up solid gains in the jobs markets for two months running, with a stunning 52,000 positions created in September, according to Statistics Canada data released Friday.

Don't take that to mean that all is rosy.

The jobless rate inched up to 7.4 per cent as more people went on the hunt for jobs, and a hefty portion of those September positions fell in the category of self-employment.

Perhaps most importantly, youth unemployment remained stubborn, at 15 per cent, with the loss of 70,000 jobs over the past year.

"Youths are the only demographic group that have not recovered from the employment losses observed during the recession," Statistics Canada said.

Still, Canada's jobs market has rebounded nicely from the depths of the recession, unlike those of many other countries.

"Despite the headwinds coming from Europe and the U.S., Canada's labour market continues to generate jobs," said assistant chief economist Dawn Desjardins of Royal Bank of Canada.

"The composition and magnitude of employment gains have provided solid support to household spending. Wages, which grew at a relatively modest pace so far during the expansion, appear to be building some upward momentum."

Finance Minister Jim Flaherty may have missed the mark by about $1.4-billion, but that's not likely to sway foreign investors who love all things Canada in this post-crisis era.

The government reported Friday that its 2011-2012 deficit came in at $26.2-billion. That's off the projection from the last budget by some $1.4-billion, but well down from $33.4-billion a year earlier and $55.6-billion in the fiscal year before that.

Mr. Flaherty, of course, pointed out his government's "positive performance" but he also partly blamed developments outside the country's borders and thus beyond his control.

"The global economic environment is still fragile and uncertain, and recent economic developments suggest that there are downside risks to the fiscal outlook contained in Economic Action Plan 2012," he said. "Nonetheless, our government remains committed to achieving our goal of returning to balanced budgets over the medium term."

Canada's fiscal standing and its economic outlook have been drawing investors looking for a haven amid the global turmoil, notably in Europe, which has helped pump up the Canadian dollar.

"In the post-crisis world, Canada stands out as a beacon of economic health and that there is expected to be sufficient strength therein to oblige its central bank to raise interest rates in 2013 sets it aside from many of its peers," Bank of New York Mellon said this week.

All of which leads to a discussion of mighty loonie, as the Canadian dollar is known. And which senior currency strategist Neil Mellor of BNY Mellon Global Markets believes might soon become a "victim of its own success."

Mr. Mellor noted in a report that the loonie is in high favour, and should continue to be one of the world's "favoured" currencies.

But he noted recent data from the U.S. Commodities and Futures Commission showing futures trader are betting heavily on the further ascension of the Canadian currency.

"The CFTC commitment of traders report shows that there exists a speculative long position in the CAD amounting to 111,000 contracts, a record high following a steady build-up since the summer," he said, referring to the loonie by its symbol.

The U.S. dollar has come back over the past couple of weeks, Mr. Mellor said, and momentum traders are reported to be interested in the breach of a key level on the Canadian dollar against the U.S. currency.

"Given that it is unclear how far this rebound could go, then it would seem entirely prudent to take to the side-lines for the time being and await the decline in momentum and a shakeout in positions that should then offer a glowing opportunity," he said.

He added that flows into Canada "remain promising" when it comes to bonds, more so than stocks.

8 things
1. Colour commentary of the week, from Michael Hewson at CMC Markets in London on Monday: "European markets appear to be adopting a glass-half-full approach today, no doubt buoyed by the feel-good factor from yesterday's fantastic European Ryder Cup comeback to defeat the Americans at Medinah in Chicago. If only European leaders could show such togetherness and fortitude the crisis in Europe might well on the way to some form of a resolution."

2. Kudos to Local 1118 of the United Food and Commercial Workers union for injecting some fun into their lockout at a poultry plant in Edmonton, with this leaflet: "Lilydale's fowl play against Alberta workers ... This Thanksgiving, give Lilydale the bird!"

3. Press release headline of the week: "Harper government helps Canadian Horticulture plant seeds for success." No, it's not really the headline of the week. I just want to know who writes this stuff.

4. Quote of the week: "It is no secret that Calgarians are enthusiastic supporters of their namesake warship and having that support really makes an impact for my crew." So said Commander Paul Francoeur, in a statement from Navy Public Affairs, as he brought his crew to Calgary for a five-day visit. No, it's not really the the quote of the week. I just want to know who writes this stuff.

5. Unsolicited e-mail pitch of the week: "From her years working at Frisky's Wildlife and Primate Sanctuary, Heather Wandell has explored the connection between primate social behaviour and human workplace conduct in her latest book, Monkey Business: 37 Better Business Practices Learned Through Monkeys."

6. Spam of the week: "Learn how people in your profession can earn a 30% increase!" Do these guys actually know what's been happening in my profession?

7. From Dennis Gartman, publisher of The Gartman Letter: "Things are so much better regarding employment in Canada than they are in the U.S. that Mr. Macklem is now warning of the possibility soon of labour shortages in Canada as the 'baby boomers' there retire but are not being fully replaced either via new births or immigration. Horace Greely told Americans in the 19th century to 'Go West, young man; go West.' A modern day Horace Greely might instead say 'Go North, young man; Go north.'"

8. From the Scotch Whisky Association this week: "Growth was seen in the USA, Venezuela, Germany and in exports to Russia through the Baltic states in the first six months of this year. Asia remained steady with good growth in Taiwan. This helped Scotch Whisky exports maintain their value in the first half of 2012 at £1.8-billion, despite continuing pressure in some euro zone countries and the after-effect of an increase of shipments to France last year ahead of a substantial tax rise."

Required reading this week
The spreading unease about the proposed takeover of Nexen Inc. by Chinese energy explorer CNOOC Ltd. extends deeply into Canada's corner offices. Richard Blackwell reports on our C-Suite survey of executives.

What better use of taxpayers' money – saving jobs that will likely vanish when the subsidies run out, or making investments that will pay dividends for decades? Barrie McKenna looks at the issue.

A new battle for the plus-size woman is taking shape as fashion players turn their attention to an often-neglected customer, Marina Strauss writes.

Buoyed by a new mantra of cost discipline, Canadian gold miners are starting to catch the wave of booming bullion prices after a summer of woe, Pav Jordan reports.

Blame the economy, high gas prices and congested streets built for chariots and horse-drawn carts: Italians are trading four wheels for two. Eric Reguly reports from Rome.

What to watch for next week
Given all the attention on the housing market, observers will be watching closely when Canada Mortgage and Housing Corp. reports Tuesday morning on how residential construction fared in September.

While the real estate market has slowed, home construction "has yet to buckle," noted deputy chief economist Douglas Porter of BMO Nesbitt Burns, projecting the September housing starts number will come in at slightly more than an annual pace of 200,000.

"Given cooling sales, especially in the condo space, and a slight softening in construction payrolls, we look for starts to begin simmering down," Mr. Porter said.

"However, it is far too early to look for a major correction."

Markets will also be watching closely when Statistics Canada unveils the August trade reading on Thursday. Remember that Canada's trade deficit grew to a record $2.3-billion in July. Economists expect that shrank somewhat.

Next week also marks the beginning of earnings, when Alcoa Inc. reports quarterly results on Tuesday.

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