Housing starts and sales will fall more into line with “demographic fundamentals” this year and next, according to the latest housing outlook from the Canadian Mortgage and Housing Corporation.

The crown agency said it expects housing starts will range between 166,600 to 192,200 units in 2011, with a point forecast of 179,500. That’s a slight dip from 2010 numbers, when Canada saw 189,930 housing starts.

“Modest economic growth, in conjunction with relatively low mortgage rates, will continue to support demand for new homes in 2011 and 2012,” Bob Dugan, chief economist for CMHC, said in a release. “Nonetheless, we are expecting new and existing housing markets to fall in line with demographic fundamentals, as changes to mortgage rules take hold.”

CMHC expects housing starts to grow again in 2012, with a forecast of between 163,200 to 207,000 starts, and a point forecast of 185,300 units.

The crown agency also expects home prices to start moderating later this year, and to end up lower next year. In its forecast, CMHC said prices this year will still record an overall increase due to monthly gains seen in the first half of 2011, but moderating prices will take hold in the the second half and continue throughout 2012.

CMHC does expect existing home sales to climb this year and in 2012, however. The crown agency forecasts a range of between 429,500 to 480,000 units in 2011, with a point forecast of 452,100. That’s compared to the roughly 447,010 homes that traded hands over the Canadian MLS System in 2010.

For 2012, CMHC forecasts existing home sales to range between 410,000 to 511,900 units, with a point forecast of 461,3000.

This week on an abbreviated Big Picture podcast (co-host John Shmuel is off in parts unknown): If you’ve been in the market looking for a home the past few years, you’ve likely griped about how seemingly far out of whack prices have become. This is especially true if you happen to live — or want to live — in certain neighbourhoods in Vancouver that have suddenly shot out of your price range.

Phil Soper, chief executive with real estate firm Royal LePage, joins the podcast to explain why the West Coast is the best coast at more than just hockey at the moment (Go Canucks, for some of you out there) and imparts some sage advice to both buyers and sellers thinking about taking the plunge.

http://business.financialpost.com/2011/05/27/podcast-why-is-housing-so-hot-in-canada/

Some 22 years after writing The Wealthy Barber, which became easily the bestselling personal finance book in Canadian history, David Chilton has a dire warning in The Wealthy Barber Returns, to be released this fall.

“The worst thing that’s happening to Canadians in the last 20 years has been lines of credit,” said Chilton, speaking at the conference of the Canadian Pension & Benefits Institute. “If I was prime minister, I’d shut them down. It’s unbelievable how people are abusing these things.”

He helped one person establish a schedule to pay off $30,000 in credit-card debt, only to have the person take on a $150,000 line of credit from a banker, “because the man was so nice and said I needed it.” The banker’s explanation: “It’s my job.”

Chilton’s summation: “That’s the problem. It’s a lot of people’s job to get Canadians to take on debt.

“Our financial institutions, when I was young, were credit providers. Now they’re credit pushers, and they are very aggressively hoisting as much debt onto the Canadian public as they possibly can. The public is taking it in, and it is not a good situation.”

Chilton graduated from Wilfrid Laurier University in Waterloo, Ont., and became a stockbroker. He realized financial education was his calling, and set out to write a book called The Ultimate Guide to Losing Money. Then while watching the TV show Cheers, he changed the book to The Wealthy Bartender, “but by the time I got to retirement savings plans, everybody was hammered. I had guys picking up girls.”

Eventually he did what he advises everyone never to do: He cashed in his registered retirement savings plan. The money was used to self-publish The Wealthy Barber, which held as one of its tenets “pay yourself first,” 10 per cent of your income. The book sold more than two million copies, and led to a U.S. edition and a PBS TV show.

In his followup book, The Wealthy Barber Returns, the message will shift from saving to not spending.

“When I told Canadians to ‘pay themselves first,’ that was three-quarters of the battle; I didn’t care what they did with the rest of their money.

“One thing we’re seeing that we never saw 20 years ago is that all sorts of people who built up their RRSP through ‘pay yourself first,’ have simultaneously built up their credit line through the back end and their net worth has changed modestly if at all.

“People cannot resist lines of credit. And the worst combination in the country is a line of credit and a home renovation — once they renovate one room, the other rooms pale by comparison, so they go on to the next room and it’s a never-ending cycle of renovation as they get deeper and deeper and deeper in debt. The four most expensive words in the English language are ‘while we’re at it.’ And the four most expensive letters are ‘HGTV.’

“We go through a credit crisis brought on by too much private debt in the developed world, particularly in the States, and our response — the Home Renovation Tax Credit. That’s like starting an alcoholic’s rehab by taking him on a pub crawl. The problem with governments is they want to get re-elected.”

“The economy needs to be strong as measured by GDP, and GDP is made up primarily of spending. Government is never going to try to get us away from spending during slow times, through artificially low interest rates and by subsidizing debt. The raison-d’etre of banks is to lend. We are borrowing too much money.”

Chilton says public and private debt in the developed world is “shocking,” and dealing with it through inflation or formal default restructuring is “going to lead to slower economic growth over the next X number of years.”

He also sees an erosion of the middle class in retirement.

“Right now a lot of people 75 or 80 have too much money; they’ve done an excellent job of saving throughout their entire lives, and they had defined-benefit pension plans to boot. It’s so tough to give away money you’ve spent your whole life saving.”

But personal and government debt will cause a new generation of people to run out of money as they live longer in retirement. “Even with pension plans, counting on historic returns is a very shaky move.”

Some people saving for their children’s education or housing will become cash-poor themselves. “Let the kids scramble on their own. You know how many people are headed to retirement with no money now, it’s crazy.”

Chilton reiterated a few topics from his first book.

“Your metric for housing affordability should be: Can you pay it back, can you save for retirement, and can you pay it back before you retire? I think one of the best things that could happen in Canada is if real estate prices fell.”

With life insurance, he said people who need it tend to be 10 to 15 per cent underinsured, but Canadians as a whole are overinsured.

Another way to reduce expenses is by avoiding active money management fees.

“What matters is whether your professional money manager is smarter than the other professional money managers. When you look at Canadian mutual fund sales, it’s amazing how many of the dollars are flowing into funds that have had good recent two-or three-year numbers; the problem is long-term performance has no proven correlation with future performance, and short-term performance has slightly negative correlation with future performance.”

A key is to develop good financial habits early.

“Beyond ‘Pay yourself first,’ I still say ‘Start young’ is the most important personal finance advice by far. It’s getting young kids to save, whether they’re in their 20s or 30s, and to live within their means. Living within their means is what financial planning is all about; it’s still what we struggle most with.” http://www.financialpost.com/personal-finance/retire/Credit+lines+worst+trend+last+years+Wealthy+Barber+writer+says/4862498/story.html

More Canadians are living closer to the edge as consumer debt loads continued to climb in the first three months of the year, a study shows.

Already at record levels, Canadians now owe just under $26,000 on average on their lines of credit, credit cards and auto loans, according to credit rating agency, TransUnion.

That’s an increase of 4.5 per cent, or another $1,000, over the same period last year.

The report comes a day after Bank of Canada Governor Mark Carney warned consumers to curb their spending, saying record low interest rates aren’t going to last forever.

The fear is that higher rates could push more consumers beyond their ability to repay their loans.

“There are going to be a lot of people in the market who are near the edge,” TransUnion vice-president Thomas Higgins said in an interview. “If there’s a drastic change in interest rates or unforeseen unemployment or some other shock from the U.S. or the European Union that throws off a province, or a region, or an industry, the people on the edge have no buffer.”

The news is not all bad.

Debt growth in Canada is slowing from the double-digit pace seen before the recession, Higgins said.

And total borrowing, including mortgages, typically the biggest household loan, is slowing, major Canadian banks said recently in their quarterly reports.

TransUnions’ figures don’t include mortgages, which typically make up two-thirds of a household’s debt.

Finance Minister Jim Flaherty said Tuesday he’s not concerned about a slowdown in consumer spending, as it suggests Canadians are heeding official warnings about spending beyond one’s means.

However, TransUnion said the fact that consumers’ debt load is still rising is a worry.

The Bank of Canada’s trend-setting overnight lending rate is just 1 per cent. But with inflation running at 3.3 per cent, above the central bank’s ideal range, Carney is under pressure to start raising lending rates to dampen demand.

Analysts predict a rate hike could come later this year barring unforeseen circumstances.

Total debt per consumer increased to $25,597 in the first three months of this year, Trans Union said.

Among types of loans, TransUnion said credit card debt, usually the most expensive to carry, barely budged from a year ago, falling $25 to an average of $3,539.

In a sign some borrowers may already be struggling, the national credit card delinquency rate rose 11 per cent. The rate measures the ratio of consumers who take 90 days or more to pay their bill.

The average line of credit, the most popular loans for their low cost and high flexibility, rose 5.9 per cent to $33,762 compared to last year. However, total line of credit debt declined for the first time in five quarters.

One noticeable shift was the decreased use of lines of credit, Higgins said. The category is the largest among consumer loans, making up 41 per cent of the total, and even more in Ontario, at 57 per cent.

But consumers are moving away from these highly flexible, low-cost products in favour of more rigid installment type loans, perhaps in a bid to force themselves to make regular payments, he said.

The average auto loan rose 12.4 per cent to $16,181 compared to a year ago. Total auto debt declined slightly to $45.8 billion.

The study found debt loads rose in all provinces, led by Quebec and Newfoundland and Labrador. British Columbians had the highest load at $36,649.

The average borrower debt on auto loans was also up in the quarter — by 12.4 per cent to $16,189 from $14,402 in the first quarter of 2010. The delinquency rate on auto loans fell slightly to 0.1 per cent from 0.13 per cent a year ago.

Lines of credit are the most popular form of consumer debt, excluding mortgages, accounting for more than 41 per cent of outstanding debt at the end of the first quarter. Debt on lines of credit stood at an average $33,981, up 5.9 per cent from $31,867 in the first quarter of 2010.

The report is based on anonymous credit files of all credit-active Canadians. http://www.moneyville.ca/article/1000720–canadian-debt-load-26-000-excluding-mortgages

WASHINGTON— From Saturday’s Globe and Mail

Whatever momentum the U.S. economy had earlier this year is gone, snuffed out by higher fuel prices and the disruption of global trade caused by the Japanese earthquake.

American employers added a mere 54,000 jobs in May, the weakest showing since a string of four consecutive monthly declines in hiring ended in October, 2010, according to government data released Friday. The unemployment rate rose to 9.1 per cent, the second monthly increase after the jobless rate had dropped one percentage point over four months, to 8.8 per cent in March.

The increase in payrolls was well below the 165,000 jobs projected by Wall Street, a forecast that was itself considerably lower than even a couple of weeks ago, as analysts made last-minute corrections to their outlooks after a run of negative data this week.

The Dow Jones industrial average and the Standard & Poor’s 500-stock index slumped to their lowest levels since March, as analysts variously described the labour report as “bleak,” “terrible,” and “very weak.” The U.S. dollar fell against a basket of currencies, and Treasury yields declined as investors sought the relative security of U.S. debt.

The most recent U.S. data describe an economy bereft of confidence, suggesting economic growth will remain slow because companies are unwilling to take the risks that would drive a faster expansion.

As a result, the seven million people who have lost work since the start of 2008 will continue to languish.

Companies added workers for an eighth month, the longest stretch of uninterrupted monthly jobs growth since 2006. Yet the gains are unspectacular by historical standards, and there is little indication that employers are willing to push through headwinds such as higher energy prices.

Productivity rates in the United States are at high levels, an indication that bosses would rather squeeze more out of existing workers than commit to new salaries and benefits. In May, businesses reduced temporary workers, a bad omen because the addition of short-term workers tends to precede sustained hiring of full-time employees.

“I’m gun shy,” said Peter Bredlau, president of Quality Services Associates Inc., a small construction company based in Roselle Park, N.J., that these days is making most of its money from servicing heating and air conditioning systems.

A little more than a year ago, Mr. Bredlau said he had to write off debt owed to him of about $30,000 (U.S.), a significant sum for a company that employs fewer than 20 people.

“My wounds are still a bit raw,” said Mr. Bredlau, who no longer accepts work without a significant down payment. “History is telling me I have to be careful.”

Coaxing people like Mr. Bredlau to take a leap of faith is not only an economic problem, but a political one, especially for U.S. President Barack Obama.

No president has won a second term when the unemployment rate was higher than 7.2 per cent since Franklin Delano Roosevelt. To win in November, 2012, Mr. Obama almost certainly will have to test history.

Matt McDonald, a partner at Washington-based consultancy Hamilton Place Strategies and a former White House staffer, argues that Mr. Obama’s chances of success would be bolstered considerably if the unemployment rate were to dip below 8 per cent by election day. Such a reading would squelch criticism that the President’s policies are hurting the economy, and show up as considerable improvement from the 10.1-per-cent peak in October, 2009.

The latest numbers put Mr. Obama well off the Hamilton Place target. Before Friday’s report, Mr. McDonald calculated the economy needed to generate an average of 209,000 a month to drop the jobless rate below 8 per cent by November, 2012. Over the eight months of employment growth through May, employers created an average of 150,000 jobs.

Manufacturing employment fell 5,000 in May, compared with an average gain of 27,000 over the previous six months, suggesting the destruction of factories in Japan is forcing U.S. facilities to curb production because of a lack of Japanese components.

State and local governments shed 30,000 workers, a trend that is likely to continue as politicians cut spending to shrink inflated budget deficits. Private-sector service providers added 80,000 positions in May, compared with an average increase of 152,000 over the previous six months, according to Kevin Logan, chief U.S. economist at HSBC in New York.

“Today’s weak report raises more concerns about the underlying strength of the economy,” Mr. Logan said in a note to his clients. Previous releases this week showed that home prices, factory production and consumer confidence all deteriorated in May.

Economists at Barclays Capital in New York cut their forecast for economic growth in the second quarter to a 2-per-cent annual rate from a previous estimate of 3.5 per cent. Many analysts said the weaker economic data would force the U.S. Federal Reserve Board to refrain from raising borrowing costs for longer than previously anticipated.

There was one positive in the May labour market report: Average hourly earnings rose 0.3 per cent to $22.98 in May. It also is important to note that monthly jobs figures are volatile. In 2004, when the U.S. economy was strong, employers added fewer than 50,000 jobs in a month on two occasions.

Tom Porcelli, chief U.S. economist at Royal Bank of Canada in New York, argued that the disappointment with the May jobs data is the result of too many analysts believing the U.S. economy was stronger than it is.

That also is Mr. Bredlau’s perspective. Nothing much changed for him in May. In fact, he’s just added an employee to help keep up with increased demand for his ventilation services, which is the result of

some competitors going out of business.

“I hear we are heading back into recession mode,” he said. “I don’t believe we ever left.” http://www.theglobeandmail.com/report-on-business/economy/jobs/bleak-us-jobs-report-underlines-economic-malaise/article2045797/

Homeowner’s insurance is one of the most common types of insurance and one of the least understood. Many homeowners believe that their policies will cover them for practically any damage sustained to the house or contents. The reality is that homeowner’s policies contain many exclusions and restrictions on coverage that can leave you with a coverage gap. Here are five common myths about homeowner’s insurance. (For related reading, also take a look at The Beginner’s Guide To Homeowners’ Insurance.)

1. Loss-of-Use Coverage

If you have damage to your home severe enough that you cannot live in it while it is repaired, you likely expect that the insurance company will put you up in a hotel while the work is being done. However, that is not necessarily true. Not all policies include a loss-of-use provision. If you have to pay for a hotel, meals and other services out of pocket, it can add up quickly and put you at financial risk. If loss-of-use is covered, it will be stated explicitly in your policy, along with any limits of coverage. For example, your policy may state a maximum per diem amount or restrict the length of time the expenses will be paid for.

2. Replacement Cost

Replacement cost in a homeowner’s policy refers to valuing the loss at the amount it will cost to replace the item. For example, if your four-year-old computer is lost in a fire, replacement cost coverage would allow you to purchase a new one with similar features. Most homeowners believe that is what will happen if they have a claim, however, the bulk of policies do not carry this clause. If not included, losses will be valued at what they were worth in their condition before the calamity. The four-year-old computer might be valued at $250 – not enough to purchase a new one. Replacement cost clauses are a valuable inclusion in a homeowner’s policy.

3. Flood Coverage

Almost all homeowner’s policies exclude flood coverage, along with earthquakes and other natural disasters. Floods can occur from a number of causes, such as a hurricane, burst pipes or sewer backup. A flood is one of the most common causes of home damage and the destruction of contents. There are companies that specialize in flood coverage, and, if you live in a susceptible area, look into having a separate flood policy. Your mortgage company may require this additional coverage as well. (For more information, see Understanding Lender-Required Flood Insurance.)

4. Termites

Termites live all over North America but are most destructive in southern climates, where their lifecycles are not affected by cold weather. Termites eat wood – lots of it – and can eat the supports in your house as easily as fallen leaves in the forest. They live in large colonies and, collectively, can destroy the structure of your home. Repairing termite damage and eradicating them can cost thousands of dollars. Most policies exclude termites and other pest damage. If you live in a susceptible area, the best insurance is to have the house regularly checked and sprayed by a professional.

5. Valuation of Loss

When you have a house insurance claim, the insurance company will send out an appraiser to determine the extent of the damage and the best way to fix it. The appraiser will assess a value to the loss which will be the minimum the insurance company can pay in order to meet their contractual obligations. However, you do not have to take that value as final. If you can prove your loss should be valued higher, you can negotiate the settlement with the company. Keeping receipts and pictures of valuable items will help you back up your claim.

The Bottom Line

To really know what is in your homeowner’s policy, you should read it thoroughly. Look for exclusions to coverage and decide how you will cover those risks. In some cases, your insurance company will have separate add-ons that they can attach to your policy or you can get specialized insurance from another company. For those risks that cannot be insured, analyze how you will financially cover those risks if they should happen. (For additional reading, also see Insurance Tips For Homeowners.) http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/five-myths-about-homeowners-insurance/article2034273/

The risk that the economic slowdown in the United States will turn into another North American recession is not high, Canada’s finance minister said Tuesday as he cautioned that too many people nevertheless remain jobless in this country.

“I do not think the risk is great,” Jim Flaherty said in response to a reporter’s question at the International Economic Forum of the Americas taking place in Montreal. “There are risk indicators with respect to which we are concerned which we reviewed in the budget [Monday] and which I reviewed with the private sector economists with whom I met last week. The nature of the risks have not changed. We are concerned about debts and deficit in the United States and the need for a convincing longer term plan in the United States” to deal with those problems.

Ottawa is also concerned about some evidence of continuing slowness in the U.S. real estate market which puts a damper on consumer confidence in that country, Mr. Flaherty said. As well, it is worried about the sovereign debt situation among some eurozone countries, including Greece.
“These are all risk factors but they are known risk factors,” Mr. Flaherty said, adding that to address the risk in the latest budget, federal finance officials discounted private sector growth assumptions by $10-billion in nominal GDP each year, equalling a revenue markdown of $1.5-billion annually.

The U.S. economy grew at a 1.8% annual rate in the first quarter but job growth remains anemic, prompting U.S. Federal Reserve Chairman Ben Bernanke to say Tuesday that the central bank should maintain monetary stimulus to boost a “frustratingly slow” recovery. U.S. employers hired 54,000 more people in April, well below the 165,000 expected by economists.

“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,” Mr. Bernanke said in a speech in Altanta.

The U.S. economy is growing above “stall speed,” Deutsche Bank AG foreign exchange analyst Alan Ruskin told Bloomberg in an interview Tuesday.

“A lot of people say that if the U.S. economy slows below 2% in year-over-year gross domestic product historically, we’ve slipped in to recession. The key is that we stay above that line, otherwise that is perceived as stall speed and other issues kick in.”

The pace of economic recovery in the United States is crucial for Canada because America is Canada’s largest trading partner, buying 75% of all Canadian exports like oil, wood and cars. Any major slowdown would hurt Canadian businesses and force layoffs here.

Mr. Flaherty maintained that unemployment in Canada also remains too high, even as his government initiates targeted hiring investments. The country’s unemployment rate stood at 7.6% in April as the economy added 58,000 mostly part-time jobs. Employment has grown by 1.7% in the last year.

Asked if the Canadian government has picked a preferred candidate to lead the International Monetary Fund, Mr. Flaherty said not yet. Former IMF chief Dominique Strauss-Kahn resigned last month amid allegations he sexually assaulted a New York City hotel worker. Agustín Carstens, the head of the Mexican central bank, and Christine Lagarde, France’s finance minister, are vying for the job.

In a speech to conference delegates, Mr. Flaherty stressed the importance of sound fiscal management for an elected government, noting no one truly foresaw the credit crisis in the fall of 2008 and subsequent recession. He said “it’s unpredictable” when the next shock might come.

The finance minister on Monday delivered a budget that included a pledge to bring the federal government back into surplus position by 2014-2015. He said he will do that through a combination of $4-billion in annual spending cuts and closing tax loopholes to generate another $4.1-billion.

The cuts mark the most intense attempt to rein in public sector spending in more than a decade. The government is conducting an operational review of the federal service and some departments have begun laying off staff.

Opposition against the cuts is expected to grow in the months ahead.

Canadian Auto Workers union president Ken Lewenza said Monday the government’s  spending will wipe out thousands of jobs and hurt service delivery. “With the economic rebound being so uncertain and anemic private sector investment growth, these billion-dollar cuts are the last thing Canada needs,” Mr. Lewenza said.

But compared to what a private company would do to trim spending, the government’s $4-billion plan is not very ambitious, Mr. Flaherty argued.

Mr. Flaherty’s savings target represents 5% of Ottawa’s $80-billion in annual discretionary spending. The government won’t book the savings until it achieves them and has not provided any details of which programs and departments will be affected.

http://business.financialpost.com/2011/06/07/canada-can-offer-lessons-for-recovery-flaherty/

Stephen Harper has kept one economic lynch pin, promoted two others, and brought in an untried new face — but his Conservative government’s message and policies remain the same.

The top economic minister, Jim Flaherty at Finance, was brought back to cabinet Wednesday in order to re-introduce the March 22 budget the opposition parties rejected.

Another, Tony Clement, leaves the industry portfolio where he learned to say no to Australia’s BHP Billiton in its attempt to buy Potash Corp, and moves upstairs to Treasury Board — where he will need to find $4 billion in annual savings by saying nyet to the public service.

Replacing Clement at Industry is former natural resources minister Christian Paradis, who now inherits the task of freeing up Canada’s telecom industry to foreign competition.

And Harper added a brand new player, British Columbia MP Ed Fast, to continue the job of negotiating free trade arrangements with the European Union and India, both already well on their way.

“Although a number of changes have been necessary and desirable, the new ministry is fundamentally about stability and continuity,” Harper told reporters after emerging from the swearing-in ceremony at Rideau Hall.

“I’m confident that the team that was just sworn in … will hit the ground running.”

For Canada’s business community, it’s full-speed ahead with the previously established economic agenda, with possibly a few minor delays while new ministers get caught up.

That agenda includes continuing to reduce corporate taxes, controlling government spending, and expanding trading opportunities in the U.S. and globally.

“My group will feel it’s pretty much steady as she goes,” said John Manley, president of the Canadian Council of Chief Executives, representing the country’s largest companies.

Manley, a former Liberal industry minister, said the portfolio will be an especially steep learning curve for Paradis because of the complex files dealing with a new copyright law, rules on foreign takeovers and opening up the telecommunications industry to foreign competition.

“But I don’t think there’ll be a lot of surprises,” he added. “I think the Conservatives pretty much laid out their agenda in the election campaign and the expectation is now that they are elected, they will get to work on it.”

Flaherty is the safest of bets as far as his immediate intentions. He has said he intends to introduce his budget — likely on June 7 — with only minor tweaks and keep the government on a deficit-elimination track over the next four years.

That’s one year earlier than the March budget calculated, but officials say the earlier deadline can be achieved by including savings from a new Strategic and Operating review, which they claim will cut spending by $4 billion annually.

The task of finding those savings through staffing cutbacks or even elimination of low priority programs falls on Clement, who many expect will be known as Dr. No in Ottawa.

Although not regarded as an economic portfolio, the appointment of John Baird to Foreign Affairs may be the most critical to Canada’s economic well-being, said Perrin Beatty, head of the Canadian Chamber of Commerce.

Coincidentally, Beatty said Baird was hired as a junior adviser on his staff when he was foreign affairs minister in 1993.

“I expect he’ll have more time than I did,” Beatty said of his brief stint during the short-lived Kim Campbell government.

Beatty called Baird a quick study and, importantly, someone who has the ear of the prime minister.

“We need to make real progress on issues like energy and border management and this is someone who will be seen by the Americans and other countries as someone who has the respect of the prime minister,” he said.

Neither Beatty nor Manley said they knew Fast, the new trade minister, but expressed confidence that free trade talks with Europe and India would not be disrupted. http://ca.finance.yahoo.com/news/Harper-signals-continuation-capress-3303407985.html?x=0

Canadian home prices continued their upward march in April, driven by strong investor demand in Vancouver, as cracks in the Toronto condominium market may be starting to appear.

The Canadian Real Estate Association said yesterday the average price of a home sold in April in Canada was $372,544, up 8% from a year ago. It was the third straight month that the average price rose 8% on a yea-over-year basis but the Ottawa-based group cautioned that the figure was skewed due to “surging multimillion-dollar property sales in selected areas of Greater Vancouver.”

The group also shrugged off slow April sales, which dipped 4.4% from March on a seasonally adjusted annual basis and 14.7% on an actual basis from a year earlier. The slow sales are said to have been driven by new mortgage rules that came into effect April 19 and made borrowing tougher, leading people to rush into purchases in March.

The same sort of impact was felt in April 2010. Purchases moved forward to avoid mortgage rule changes, higher interest rates were feared and the harmonized sales tax loomed in two provinces.

“This makes it difficult to compare,” said Gregory Klump, chief economist of CREA. “Changes to mortgage regulations that took effect in April 2011 likely sidelined a number of first-time homebuyers. By contrast, higher-end homes sales in Greater Vancouver and Toronto had their best April ever.”

Worries about the sustainability of the housing market could be stoked by a report from Urbanation Inc., which monitors the Toronto condominium market. The group says more than 50% of condominiums purchased in the last year were by buyers who do not intend to occupy their units and plan to rent in many instances.

Condominium rents in Toronto in the first quarter of 2011 were $2.11 per square foot compared to $2.09 a year earlier, a 0.8% increase. Condominiums being registered now and ready to be occupied are priced for sale at $450 per square foot range while newer units are going for $550 per square foot.

“What happens when these newer units hit the market?” said Ben Myers, executive vice-president of Urbanation. “At $550 per square foot a 750 square feet [condominium] is $413,000. You put 25% down and you have a mortgage of $310,000. Take a five-year variable rate mortgage at 3% with 25-year amortization and you get $1,475 a month mortgage. Your condo fee is $345, property tax is another $345 and you are up to $2,200 in carrying costs. That’s a huge [operating] loss [given the average rental rate would bring in just under $1,600/month]. People are buying these for capital appreciation.”

Don Lawby, chief executive of Century 21 Canada, says the housing market has been affected by foreign investors — notably Chinese — who have reacted to tougher tax rules in their home country by investing abroad.

“They are buying investment properties and not just in Vancouver but to some degree in Ontario and Calgary,” said Mr. Lawby, adding many of those investors are not concerned with carrying costs. “They are not afraid to offer above price and they are not afraid to get into a bidding war.”

Nevertheless, Mr. Lawby says while these investors are skewing national averages, he maintains the overall numbers are small and the impact on the larger market minimal.

Toronto-Dominion economic analyst Leslie Preston said while April numbers present a market with falling sales and rising prices, she agreed market conditions were exaggerated by some one-time issues.

“I think the effect in April was a little larger and I would expect to see a bit of bounceback in May because of the decline,” says Ms. Preston. “But we have been calling for awhile now for a mild softening in Canadian housing markets overall this year, particularly as interest rates rise.” http://business.financialpost.com/2011/05/17/home-prices-continue-climb/

Canada’s fiscal advantage will only go so far in protecting the country against a debt crisis growing in the world’s advanced nations and Asia’s emerging economic powerhouses, Bank of Canada governor Mark Carney warns.

Trying out a theme he will likely take to Washington later this week, Carney told the Canadian Club of Ottawa on Monday that the world is in the midst of a major economic power shift and governments must prepare by getting their fiscal houses in order.

Advanced economies face a protracted period of slow growth as they struggle to come out from under a mountain of debt, while emerging economies such as China will face the opposite challenge of restraining inflation.

“In this environment, domestic macro stability is paramount,” he said in notes from the speech released prior to his address.

“Sustained fiscal adjustment is now required in most advanced economies. Debt-to-GDP (gross domestic product) in G7 countries is now the highest since the Second World War. The age of austerity is not a slogan but a timetable.”

The issue of debt in Europe and increasingly in the United States has become one of the key challenges for the global economy, both in the long and short terms.

Last week, Finance Minister Jim Flaherty took his concern about the U.S. debt situation to Washington, since what happens there has direct implications for Canada on everything from exports, to interest rates to the value of the loonie.

Carney said experience suggests when debt exceeds 90 per cent of GDP, economic growth will slow, and that is a situation facing most of Canada’s major trading partners, particularly the U.S.

Canada is one of the few advanced economies that is not in that position — debt to GDP is projected to start falling as both Ottawa and the provinces move to balanced budgets. But that doesn’t mean Canada won’t be sideswiped, as it was in the 2008 recession when a financial meltdown among other countries submarined Canadian exports, Carney said.

“Fiscal slippage by some major countries may increase interest rates for all,” he said. Moreover, if growth in the U.S. and Europe is slowed, Canadian exports will again feel the pain.

The governor gave no hint about his own long-term plans for interest rates in Canada, suggesting that he will not hike the policy rate on May 31.

The transformation in the world, with three quarters of growth coming from emerging markets, does present an opportunity for Canadians, Carney added, but so far the corporate sector has not taken full advantage of it. Emerging market growth has boosted demand for commodities, leading to higher prices that have stimulated production and investment in the Canadian sector, he notes.

But the corollary is that only 10 per cent of Canada’s exports go into these fast-expanding markets and taking commodities out of the equation, Canada’s exports share into these markets has been almost halved in the last decade.

“Increasing market share in emerging markets will require sustained efforts to develop trade, technical and academic partnerships,” he said. “In tandem, Canadian business needs to improve its competitiveness, source new suppliers and prepare to manage in a more volatile environment.” http://www.therecord.com/news/business/article/533033–high-debt-in-u-s-and-other-countries-will-impact-canada-as-well-says-carney