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20 Aug

Canada’s economic recovery ‘by no means a sure thing’

General

Posted by: Steven Brouwer

Canada avoided the brutal financial meltdown that plagued the U.S. economy, but there are some red flags that make recovery for this country “by no means a sure thing,” says a leading U.S. economist.

Paul Krugman, a Nobel Prize winner, New York Times columnist and renowned economic pundit, described Canada as “a very calm, very happy story” during the world economic crisis.

Canada escaped relatively unscathed, through a combination of good luck and sound, conservative regulation of banking and consumer debt in which “it is not so easy to use your house as an ATM,” Mr. Krugman told the Canadian Bar Association.

“Canada is an example of the virtues of a relatively traditional approach, a country that did not get caught up in the euphoria of banking innovation,” he said in a speech to hundreds of lawyers.

However, he warned that Canadians’ lavish spending habits, stubbornly high unemployment, and rising housing costs are potential trouble spots that could potentially turn a good news story into a bad one.

“There are a few aspects of Canada that are not scary but a little disturbing,” warned Mr. Krugman, a Princeton University professor.

“Canada is by no means insulated. It’s by no means a sure thing that everything is going to be OK.”

Despite better banking regulation, Canadians tend to “spend and borrow and awful lot like Americans,” Mr. Krugman said in his speech.

“Household debt relative to total income is very high here, not quite as high as the United States but getting close.”

On the plus side, however, Canadian confidence in the financial sector has not been shot, and it is helpful for Canada to have its own floating currency, Mr. Krugman said.

The Bank of Canada, in an economic forecast late last month, acknowledged that the global recovery would slow down as a result of an increased focus on budget-cutting at the household and government levels.

As a result, the central bank trimmed its growth outlook for the Canadian economy to 3.5% this year and 2.9 per cent in 2011, compared with earlier estimates of 3.7% and 3.1% expansion.

The Bank of Canada reported that economic growth petered out in the second quarter of this year, following softer household spending and declining real-estate activity.

In a separate speech on Sunday, Canada’s chief justice also weighed in on the foundation of a solid and sustainable economy, saying that it depends on a strong justice system and commitment to human rights.

“In the short term, a country that violates human rights can appear to be just and experience economic growth,” said Beverley McLachlin.

“But in the long term, instability and the waste of human potential, which are a direct result of a systematic suppression of individual rights and economic freedom, will invariably cause its downfall.”

20 Aug

CIBC World Markets Inc. trims forecast for rate hikes and currency strength in Canada as economic growth outlook dampens abroad

General

Posted by: Steven Brouwer

Continuing weakness in the U.S. economy may force the Bank of Canada to put interest rate hikes on hold after September, notes a new report from CIBC World Markets Inc.

“North America’s story is again darkening,” says CIBC’s Chief economist in the latest Global Positioning Strategy report. “We were looking for a material second-half slowdown for the U.S. but as it turns out, it’s already happened.”

Economic growth stateside from April to June is being revised downward, Mr. Shenfeld notes, and key indicators are pointing to growth that will be slower than anticipated by U.S. monetary policy makers.

And still ahead is a “further fiscal belt tightening in 2011 that will have to be softened, and accompanied by quantitative easing, if the U.S. is to stay out of recession in early 2011 and get back to potential growth by the end of that year.

“Forget about any rates hikes from the U.S. Federal Reserve until sometime in 2012 at the earliest.”

While Canada is in much better economic shape – it leads the U.S., Eurozone, U.K. and Japan in first-half growth and has a record gap over the U.S. in the share of working age population holding a job – it “cannot move all the way to normalized interest rates while the U.S. Federal Reserve is still on hold,” Mr. Shenfeld contends.

For starters, an interest rate differential of 300-400 basis points would take the loonie “substantially stronger” creating additional headwinds for Canadian economic growth, says Mr. Shenfeld.

Furthermore, the “external environment will be one of less-than-normal growth as fiscal tightening bites in Europe and the U.S., and with our own upcoming fiscal tightening also hitting domestic demand, monetary policy might have to be set at stimulative levels to allow the economy to return to potential and remain there. To keep moving at all, you have to step on the gas if your car is trying to roll up a steep incline.”

Mr. Shenfeld doubts that the Bank of Canada “has been shocked enough to forestall a rate hike in September” but his forecast that Canadian growth in Q2 and Q3 will fall below the BoC’s outlook will likely warrant a rethinking in the October Monetary Policy Report and in the months to follow.

The report also notes that there are limits to how far the Bank of Canada can diverge from the U.S. Federal Reserve without later regretting it. Episodes in recent years in which rate overnight rates were 2 per cent or more above those stateside resulted in sagging or sacrificed growth. These are “lessons learned, we hope,” says Mr. Shenfeld.

“Since a hike at every rate setting date through 2011 would take rates substantially higher than 2%, a pause is coming on the road to tightening.”

As a result of the dampened external growth outlook, Mr. Shenfeld has trimmed his call for rate hikes. He sees Canadian overnight rates going no higher than 2% next year as the U.S. Federal Reserve stays on hold.

A less hawkish monetary policy combined with a mixed outlook for commodity prices affected by slow global growth will also likely see the Canadian dollar roughly two cents weaker than earlier forecast over the same horizon, adds Mr. Shenfeld.

4 Aug

Bank of Canada increases overnight rate target to 3/4 per cent

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Posted by: Steven Brouwer

The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.

The global economic recovery is proceeding but is not yet self-sustaining. Greater emphasis on balance sheet repair by households, banks, and governments in a number of advanced economies is expected to temper the pace of global growth relative to the Bank’s outlook in its April Monetary Policy Report (MPR). While the policy response to the European sovereign debt crisis has reduced the risk of an adverse outcome and increased the prospect of sustainable long term growth, it is expected to slow the global recovery over the projection horizon. In the United States, private demand is picking up but remains uneven.

Economic activity in Canada is unfolding largely as expected, led by government and consumer spending. Housing activity is declining markedly from high levels, consistent with the Bank’s view that policy stimulus resulted in household expenditures being brought forward into late 2009 and early 2010. While employment growth has resumed, business investment appears to be held back by global uncertainties and has yet to recover from its sharp contraction during the recession.

The Bank expects the economic recovery in Canada to be more gradual than it had projected in its April MPR, with growth of 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada. The Bank anticipates that business investment and net exports will make a relatively larger contribution to growth.

Inflation in Canada has been broadly in line with the Bank’s April projection. While the Bank now expects the economy to return to full capacity at the end of 2011, two quarters later than had been anticipated in April, the underlying dynamics for inflation are little changed. Both total CPI and core inflation are expected to remain near 2 per cent throughout the projection period. The Bank will look through the transitory effects on inflation of changes to provincial indirect taxes.

Reflecting all of these factors, the Bank has decided to raise the target for the overnight rate to 3/4 per cent. This decision leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending, and the uneven global recovery.

Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.

4 Aug

CREA lowers home sale expectations

General

Posted by: Steven Brouwer

There will be fewer homes sold this year, but for more money than initially thought, the Canadian Real Estate Association said Friday.

CREA downward revised its 2010 housing market forecast after a weak spring buying season in four of Canada’s most crucial markets.

National sales activity via the Multiple Listing Service is now expected to reach just 459,600 units this year, representing an annual decline of 1.2%.

That’s because the pent-up demand resulting from the recession is now running out and further interest rate hikes will keep homebuyers in a cautious mood, CREA said.

As new listings shrink to adjust to fewer buyers, home prices are now forecast to jump 3.5% in 2010 to reach a national average of $331,600.

“Slowing first-time home buying activity means lower- and mid-priced homes are making a smaller contribution to the average price calculation, causing the average price to be skewed upward as a result,” said Gregory Klump, CREA Chief Economist.

Prices are expected to ease off by 0.9% again in 2011, though some provinces could see modestly higher price tags.

“The hangover from accelerated home purchases earlier this year is expected to persist over the rest of the year, but positive economic and job market trends bode well for home price stability,” Klump said.

Big swings in the market could finally be behind us, he said.

“Homebuyers will no doubt welcome a more relaxed housing market in places where there was a shortage of supply earlier in the year.”

CREA expects that in 2011, slower economic growth and consumer spending will contribute to a 7.3% decline in home sale activity.

“While the jump in national sales activity earlier this year likely borrowed from the future, local markets trends are not necessarily in sync with national trends, so buyers and sellers would do well to consult with their local realtor to best understand the outlook in their market,” said CREA President Georges Pahud.

4 Aug

Summer sales cool in Victoria

General

Posted by: Steven Brouwer

A chill swept Greater Victoria’s summer real estate market last month when both the volume of sales and average prices dropped significantly.

In July, 527 properties changed hands — down 43.5 per cent from the same month in 2009 during a red-hot market. The total value of July sales through the Victoria Real Estate Board came in at just over $257 million, a drop of 40 per cent compared to the same month last year.

Average prices for single family houses, condominiums and townhouses all slid month-over-month, the board said Tuesday.

The average price for a single-family house in Greater Victoria was $615,004 in July, down from $649,280 in June.

The region had 16 sales of more than $1 million, including one on the Gulf Islands.

Condominiums averaged $322,905 in July, down from $331,131 in June.

Inventory dropped to 4,477 in July from 4,730 in June, and the number of homes for sale was still 23 per cent more than the 3,632 of July 2009, the board said.

Real estate has been volatile in recent years as buyers rushed to purchase and joined bidding wars, followed by a cooling off when the recession arrived. Sales were slow at the start of last year, building up to strong numbers as buyers ventured back into the market.

But more recently, sales have been slowing and inventory rising.

Factors include mortgage interest rate affordability, tighter rules for low-equity buyers and more fragile consumer confidence, possibility influenced by the arrival of HST in July.

Randi Masters, president of the Victoria Real Estate Board, called the 2000s “rocket years” as sales numbers and priced climbed repeatedly.

The capital region’s market will become more balanced, similar to the late 1990s, she said. Sales will pick up but, “it is not going to be smoking hot like July of last year.”

Spring is typically Victoria’s strongest market when more homes are up for sale, gardens are blooming, and buyers start shopping, Masters said. The spring market starts solidly in February. July, August and into September normally sees some cooling off because people are on holidays.

Sales slumped for the area north of the Malahat as well. Single-family home sales decreased to 347 in July, down by 35 per cent from 536 sales in July of 2009, the Vancouver Island Real Estate Board said. June reported 415 sales.

Read more: http://www.vancouversun.com/business/Summer+sales+cool+Victoria/3357562/story.html#ixzz0vdraIx6N

14 Jul

Real estate broker predicts lower home prices on the way

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Posted by: Steven Brouwer

Home buyers can expect more choice and lower prices in the second half of 2010, while sellers can expect fewer offers for their homes, says one of Canada’s leading real estate brokers.

“Accurate pricing is going to be really key,” said Phil Soper, president and chief executive of Royal LePage Real Estate Services.

In its latest housing survey, Royal LePage said Wednesday the real estate market will start to slow in the second half of 2010 with the number of sales expected to fall compared with the hot activity earlier in the year.

“I would say if you’re a seller, the first thing you should expect is fewer multiple offers on your home,” Soper said.

Sellers who try to squeeze extra money out of their homes will likely have their homes “languish” on the market, unless they’re exceptional properties, he said.

“I believe we are through the highly volatile spiking of prices and activity levels, both up and down,” Soper said.

“We’ll see a much a more stable, but frankly less exciting in a good way, real estate market in the next 18 months,” he said.

The Canadian housing market has been a strong pillar under the economic recovery in Canada, mainly because of low mortgage rates and positive consumer confidence. However, interest rate increases and stiffer bank lending rules have taken some of the steam out of the sector since the early part of the year.

Soper said a lot of buyers were frustrated by a tight supply and “over-exuberant competition,” particularly in the 2010 first quarter, but that’s easing with increased listings.

In the first six months of 2010, about half of real estate transactions involved first-time buyers, he said.

“It took a while for sellers to get comfortable that the recovery from the recession was real. We had an all-time record number of new homes come on the market in the first quarter of 2010. It started to impact prices in the second half (of 2010).”

Derek Burleton, vice-president and deputy chief economist at TD Bank Financial Group, said the decline in homes sales is expected to accelerate and selling prices will also go down.

“The market is frothy and it’s going to come back down to earth for the usual reasons,” he said.

In the survey, Royal LePage said some markets will see a decline in home prices and sales volumes toward the end of 2010 but that should be seen more as a reaction to the highs reached late last year rather than a major slowdown.

Prices for detached bungalows and two-storey houses were up about nine per cent in the April-June quarter, compared with the same time last year. Condominiums were up 7.3 per cent.

Royal LePage is forecasting that by the end of 2010, home prices will rise an average 6.8 per cent over last year, while the number of home sales will increase by just over one per cent from 2009. http://news.therecord.com/Business/article/741919

By year end, the broker expects home price appreciation to average 6.8 percent year over year to C$342,000 ($325,714), while home sales will increase by about 1 percent to 470,000 units compared to 465,251 units in 2009, Royal LePage said.

That compares with double-digit price appreciation and sales growth during the peak of the Canadian housing boom.

“This should not be interpreted as a severe correction but rather a natural reaction to the market having peaked quite early this year.”

Overall, the broker expects the market to be supported by firm consumer confidence and a healthy job environment. Home prices in markets with strong local economies, such as Alberta, are expected to keep rising.

The average price of a detached bungalow in Canada climbed 9 percent to C$331,868 from a year earlier, while standard two-story homes rose 8.7 percent to C$367,835. Condominiums rose 7.3 percent to C$230,014.

In the second quarter, St. John’s, Newfoundland, reported the sharpest price increases, up an average 18.4 percent to 19.6 percent across three housing types, spurred by its robust oil sector.

Vancouver and Toronto, two of the country’s biggest markets, continued to show firm gains, though both are also expected to experience downward pressure in prices for the balance of the year.

Detached bungalows led the strong gains in Vancouver, up 19.1 percent in the quarter to C$905,000, while other housing types rose between 16.6 percent to 17.6 percent.

Greater Toronto home prices rose an average 7.7 to 11.4 percent year over year, with detached bungalows reaching an average price of C$481,933 in the second quarter. http://ca.news.finance.yahoo.com/s/07072010/6/finance-canada-home-prices-sales-stabilizing-2nd-half.html

14 Jul

Canadian economy adds 93,200 jobs in June; loonie jumps after employment report

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Posted by: Steven Brouwer

Canada enjoyed another big month for employment in June, churning out a whopping 93,200 new jobs — almost all in Ontario and Quebec and all in the services sector.

The strong performance brings the jobless rate to 7.9 per cent, the first time it has been under eight per cent since the depths of the recession in January 2009.

The Canadian dollar rose sharply after the Statistics Canada report. A few minutes before the release, the loonie was trading overseas just below 96 cents US and jumped more than half a cent after the jobs report came out.

Canada’s dollar was at 96.71 cents US shortly before the official open of trading Friday, up about a cent from the previous close of 95.79 cents

With the employment gains in June, the Canadian economy has recouped almost all the jobs that were lost during the economic contraction that began in the fall of 2008.

But Statistics Canada noted that the unemployment rate remains well elevated above the 6.2 per cent that existed in October 2008 because many more Canadians have since joined the labour force.

Still, the quickly improving labour market likely gives the Bank of Canada all the evidence it needs to raise its key interest rates by another quarter-point to 0.75 per cent on July 20 in order to keep inflation in line.

There were a number of surprises in the Statistics Canada report.

Economists had expected a modest pick-up in the range of 15,000 new jobs because several economic indicators, including retail sales, exports and building permits, have been weak since March.

Also, the 109,000 additional jobs created in April suggested a pay-back was in order.

The other surprise was that the jobs were all concentrated in Ontario and Quebec, despite the fact that manufacturing actually shed workers during the month.

Ontario gained 60,300 workers, slicing the province’s unemployment rate 0.6 points to 8.3 per cent.

Meanwhile, Quebec gained 30,400 new jobs, bringing its unemployment rate to 7.8 per cent.

This was accomplished without any help from the manufacturing sector, a mainstay in both provinces, as factories actually shed 14,300 jobs overall in June.

All of the new jobs were in the services, including retail and wholesale trade, business building and other support services, health care, social assistance and other services, such as auto repair and personal care.

The agency said the new jobs were split between full-time and part-time, with more than half private sector.

There was also a big increase in student employment — 63,000 more last month than was the case in June last year.

However, there were setbacks. There were 10,200 fewer working in the goods producing industries last month, with losses in the factories sector leading the way.

Regionally, other provinces didn’t fare a well as Canada’s two most populous, with most recording slight gains and Newfoundland and New Brunswick outright job losses.

30 Jun

Risk and Reality

General

Posted by: Steven Brouwer

There is a lot to consider when deciding whether to go for a fixed or variable rate mortgage — not least, your tolerance of risk and your ability to sleep at night. Generally, fixed rate mortgages charge a higher rate and cost more, but payments are fixed for the term of the mortgage so you know what amount is coming off your principal. Variable rate deals, on the other hand, have generally cost less over the term of a mortgage but payments rise — and fall — with rate changes, so while your payment stays the same, the amount that goes toward the principle could vary.

In recent years, a number of lenders have begun offering mortgages that feature a fixed and variable combination.

“You would have multiple mortgage segments attached to the same home,” says Marcia Moffat, head, Home Equity Financing, RBC Royal Bank. You could set up a mortgage where, for example, you have “half your mortgage as a five-year fixed rate, a quarter of your mortgage as a two-year fixed rate, and you could take a variable rate mortgage for the other part.”

A number of brokers have seen increased interest in these umbrella products.

“Combination or hybrid mortgages are growing in demand,” says Rosa Bovino, a mortgage broker with Invis, “… mostly because people are unsure where the market is going. For those who are not comfortable locking in the full amount and want to play with the prime rate, there are some great variable rates out there where you’re … paying 1.9%, which is phenomenal.”

As well as being exposed to different interest rates, the amortization period for each segment can also be different.

“If you think of the other side of your balance sheet, with your investments, you would typicallydiversify– you wouldn’t take a single approach to all your assets,” says Ms. Moffat. “This is applying the same mindset to the credit side of the balance sheet.”

The hybrid mortgage has one other hidden asset, Ms. Bovino says. It can help households in which the mortgage holders have different risk tolerances.

“You do get couples, one is more conservative [and] the other one wants to gamble,” says Ms. Bovino. “That’s where you see a larger percentage of the clients taking on [hybrid mortgages].”

As with all mortgages, it pays to ask questions and read the fine print.

“There are a lot of nuances with those mortgages, and you have to be very careful with the lender you choose and the different … options and terms,” says Kim Gibbons, a broker with Mortgage Intelligence in Toronto. “I disclose up front what the risks are for those mortgages and when I do…for the most part, (clients) usually choose to go either fixed or variable. I am able to provide them with a better rate on either fixed or variable as opposed to the hybrid.”

Whether or not you pay a rate premium for a hybrid mortgage may depend on how it is structured.

“If they’re working with a mortgage broker, they’re going to get the wholesale rate so there is no upping any interest rate because you’re splitting your mortgage,” says Ms. Bovino. “Overall, by doing the combination mortgage you will probably pay less over the life of a mortgage … if a component of it is at the lower variable rate.”

Advisors also suggest thinking ahead to renewal time.

“When the mortgage comes up for renewal, there may be two portions of it that are up for renewal at different times,” says Ms. Gibbons. “This makes it very difficult to break the mortgage … you would have to pay penalties on the part that is not matured.”

While you cannot readily switch lenders mid-way through a hybrid mortgage, “the nice thing about them coming up at different times is that you’re not 100% exposed to any one particular rate environment. This is a way to hedge your bets,” says Ms. Moffat. “With a five-year and a two-year, you’ll be exposed to whatever the environment is in two years and the other in five years. It’s a bit of a laddering approach.”

29 Jun

How the HST impact will differ between Ontario and B.C.

General

Posted by: Steven Brouwer

TORONTO — The harmonized sales tax about to take effect in British Columbia and Ontario is proof of Benjamin Franklin’s assertion that “in this world nothing can be said to be certain, except death and taxes.”

Funerals are just one of many services and goods previously exempted from provincial sales taxes that will be subject to the HST starting Canada Day, as governments in both provinces switch the tax burden from corporations and to consumers.

However, exactly what’s going up in price and what’s not depends entirely on which province you live in.

The single sales tax, which combines the five per cent Goods and Services Tax with provincial Retail Sales Taxes, will be 12 per cent in B.C. and 13 per cent in Ontario.

Energy costs will be the biggie for most Ontario consumers, with an immediate jump in the cost of electricity, natural gas and home heating oil because of the HST.

Ontario motorists will be among the first to feel the pinch when they fill up at the pumps. Gasoline and diesel fuel, which had been exempt from the province’s eight per cent sales tax, will be subjected to the 13 per cent HST.

British Columbia is maintaining its exemption for the provincial sales tax portion of the HST on gas and diesel, and won’t apply the HST to electricity or home heating fuels. However, B.C. has a carbon tax on energy that will rise to 4.82 cents a litre on July 1.

The tax on alcohol is actually decreasing, but the prices won’t. The provincial taxes of 10 to 12 per cent will be lowered under the HST, but other fees and taxes will rise because of what the provinces say is their social responsibility to maintain minimum prices for liquor.

The HST will not apply to purchases of resale homes in either province, but will apply to new homes costing over $400,000 in Ontario and those over $525,000 in B.C. New home buyers in Ontario will receive rebates up to $24,000 to lessen the impact of the HST.

There are so many other differences to the way B.C. and Ontario are harmonizing sales taxes that retailers who operate in both provinces will need two rule sheets to figure out what’s taxed and what’s not.

Internet fees will now be subject to the HST in Ontario, but were already hit with both taxes in B.C.

British Columbia will apply the HST to cable television fees and local residential phones, both of which were already taxed with the GST and PST in Ontario.

Green fees at golf courses will be subjected to the HST in Ontario but not in British Columbia.

Ontario has exempted newspapers and prepared meals and drinks costing under $4 from the HST, but British Columbia did not.

B.C. will apply the HST to snack foods, catering services, over-the-counter medications and food-producing plants and trees.

Ontario will apply the HST to legal services but they will remain exempt in B.C.

B.C. will subject shoe repairs, tailoring, wedding planning services and veterinary bills to the HST while those services remain exempt in Ontario.

Taxes will go up in both provinces on services such as lawn care, snow removal, dry cleaning, hair cuts, massages, personal trainers, gym memberships and home service calls. Home renovations and real estate commissions will also rise because of the HST.

Home insurance was exempt from the GST so it will not be hit with the HST, but will still be subject to the provincial sales tax.

Other items previously exempt from the PST but now subject to the HST include hotel rooms, taxis, domestic air, rail and bus travel along with campsites and hunting and fishing licences.

Also rising will be the tax on magazine subscriptions, some theatre tickets, ski lift fees, rental fees for hockey rinks and banquet halls and lessons for everything from ballet to soccer. However, music lessons will remain exempt from the HST.

Music and videos downloaded as MP3 files will also be subject to the HST after previously being exempt from the provincial sales tax.

Cigarettes and other tobacco products — and nicotine replacement products — will also be subjected to the HST after being exempt from the provincial sales tax, as will vitamins.

There will be no HST on vital documents such as health cards and birth certificates or on driver’s licence and vehicle plate renewals, although personalized vanity plates will be subject to the HST in Ontario.

Used cars, which were previously exempt from the five per cent GST when sold privately, will now be subject to the 13 per cent HST in Ontario and a 12 per cent provincial sales tax in B.C.

Both provinces negotiated some exemptions from the HST with the federal government, which wanted the tax applied as widely and with as few exemptions as the GST.

Consumers will continue to pay only the five per cent GST on children’s clothing and footwear, children’s car and booster seats, diapers, books and feminine hygiene products.

The HST will not be charged on basic groceries, rent, condo fees, prescription drugs, some medical devices, child care, municipal public transit, most health and education services, tutoring, most financial services and legal aid.

However, even though condo fees are exempt from the HST, purchases by condominium corporations will be subject to the tax, so condo fees are expected to rise.

The price of going to the movies or a sporting event in Ontario is actually expected to drop with the introduction of the 13 per cent HST because those outings were hit with a 10 per cent PST plus the GST.

17 Jun

Home sales sputter in May

General

Posted by: Steven Brouwer

Buyers backed away from Canada’s housing market in May, driving sales lower in what is traditionally the busiest month of the year for the country’s real estate agents.

The housing market has been key to Canada’s economic recovery, as low  interest rates and pent-up demand drove buyers into the market after months of stagnation in 2008. But with interest rates likely heading higher in the second half of the year, many buyers who would have preferred to buy in the fall or early winter chose to buy sooner.

Tougher mortgage rules imposed by the federal government in mid-April also prompted buyers to act sooner, the Canadian Real Estate Association said. Meanwhile, tens of thousands of homeowners have seen the rampant demand and listed their houses for sale to take advantage of high prices.

Sales fell to 8.5 per cent to 40,393 units in May compared with April. Sales remain elevated by historical markers, but are 15 per lower than last fall’s peak.

Prices were essentially flat in May, gaining 0.5 per cent to an average national resale price of $346,881 – the highest on record.