This week’s top stories include how CIBC raised the question about whether or not more stimulus will be needed, how wages in Canada have begun to outpace inflation, how the Canadian economy expanded slightly during the month of May, how prices of U.S. homes rose again for the fourth consecutive month, how low mortgage interest rates have angered Finance Minister Jim Flaherty and how Vancouver’s home sales have crashed.
CIBC stated this week that there may be a second recession on its way. Under these circumstances, CIBC feels that Ottawa should be considering another round of stimulus spending to secure the foundation for growth in the economy. CIBC chief economist Avery Shenfeld was noted as saying that with interest rates at record low levels and borrowing continuing to be so cheap, the government may actually be better by going deeper into debt.
Mr. Shenfeld stated that because 30 year rates are currently below the economy’s long term expected growth rate, the cost of additional debt will continue to shrink as a portion of gross domestic product (GDP) over time. CIBC feels that the Bank of Canada (BoC) does not have much left to help stimulate the economy as interest rates are already currently quite low and if Canadians borrow even more to lift the housing market, it may be counter productive.
Shenfeld goes further to state that he is not predicting a second recession but merely trying to create a contingency plan should the global economy continue to deteriorate. Most analysts are beginning to think like Mr. Shenfeld as concerns about the global recovery continue to rise and Canada would be heavily affected if the European crisis continues down its current path. What do you think? Please comment below.
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According to the latest report from Statistics Canada, Canadians brought home more cash and earning in the month of May than the rate of inflation increased. Average weekly earnings were up 0.5% when compared to the month of April and gains were noted to be in all Canadian provinces.
The average Canadian worker made $894.61 per week, which is an increase of 2.5% when compared to last year, and is above the 1.2% inflation rate that was recorded on record for May of this year. Wages increased over the past year but there were changes to employment composition by occupation, industry and job experience that aided the higher average wage according to Statistics Canada.
Mining, quarrying and oil and gas extraction led the employment growth with a 6.8% increase year over year. The hours worked were the same at 32.9 hours per week and overtime hours were not a factor in the wage gains. Retail trade employees averaged a 4% wage increase in may. Construction workers experienced the largest increase with a 5.3% upward shift in earnings and the educational workers sector wages increasing 4.3%. What do you think of the latest increases? Please comment below.
According to the latest release from Statistics Canada, the economy expanded by 0.1% in the month of May after witnessing growth of 0.3% in the previous month of April. Economist had anticipated more of an expansion and were expecting to see growth of 0.2% for the month of May.
The expected results were based on indicators that manufacturing, sales and wholesale trade were all up during the month. The news of weak May gains leaves the Canadian economy under pace to record second quarter growth of 2%. Growth during May was mainly attributed to retail sales and the finance and insurance sectors. What do you think of the news? Please comment below.
U.S. single family home prices were up for the fourth consecutive month in May on a seasonally adjusted basis. This hints that the recovery in the U.S. housing market is continuing to move forward according to a survey that was taken on Tuesday of this week.
The S&P/Case Shiller composite index of 20 metropolitan areas was up 0.9% in the month of May on a seasonally adjusted basis. This beat all economist’ expectations for a 0.5% gain. On a non seasonally adjusted basis, pricing was looking even more attractive, up 2.2%. David Blitzer, chairman of the index committee at Standards Poors’ commented, “With May’s data, we saw a continuing trend of rising home prices for the spring. The housing market seems to be stabilizing, but we are definitely in a wait-and-see mode for the next few months.”
Blitzer did note that the spring and summer are known to be strong months for buying and that any advances need to continue into the remainder of the year. The rate of decline on a yearly basis was down as prices took a dive of 0.7%. This is definitely not as much as April where a decline of 1.9% was witnessed. What do you think of the U.S. housing market? Has it bottomed out? Please comment below.
Finance Minister Jim Flaherty is in a bit of an uproar as the five year fixed rate mortgage has dropped below the 2.99% marker again for those with excellent credit. He already had advised mortgage lenders earlier this year not to be aggressive with pricing as it may cause many to over-borrow.
10 year fixed rate mortgages are even more appealing at 3.76% right now. All lenders have been pushing rates for the 5 year fixed rate mortgages either below or at 2.99% although, no one has come out and advertised it as of yet. There is even talk of rates getting lower. Mortgage interest rates are tied directly to the bond market and bond yield. The yield is currently the highest it’s been since the 2008 financial crisis.
Mr. Flaherty has threatened to impose tougher guidelines if the banks become overly aggressive with their pricing. There’s been a slowdown in sales in the last few months and some in notable area’s. This may mean that low mortgage interest rates are just not enough for people to go out and buy a home. Does this mean that some of us are actually taming our spending? One thing I do know is that now may be the best time ever to consolidate your debt into your mortgage or a line of credit.
Vancouver was Canada’s hottest real estate market but that has quickly changed as numbers sales numbers have hit lows not seen since the crash of 2000. The Real Estate Board of Greater Vancouver noted yesterday that only 2,098 properties were sold in the month of July breaking Junes low of 2,362.
The numbers are down 18.4% from July of last year and prices are down 0.7% from last month. Oddly enough, the MLS home price index composite benchmark price was up 0.6% to $616,000 from last year. Listings were also up 18.8% or 18,081 homes from last years numbers.
I think home owners are still over valuing properties and this is causing the market to take on additional supply. It may turn into a buyers market after all. What do you think? Please comment below.
Please note that there will not be an article next week as I continue to spend some time on the growth of my business and my brand. I will return with the latest in mortgage related news on August 17, 2012
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