This weeks top stories include how the slowdown in the housing market will affect the greater economy and GDP as a whole, how home sales witnessed a drastic decline in the month of December leading to signs that the housing market correction is taking place, how the United States is on the cusp of losing it’s credit rating with Fitch Ratings and how ING left the mortgage broker channel this week after being purchased by Bank of Nova Scotia.
Canada’s top chief economist is stating that the Canadian housing bubble is more likely to develop a slow leak than actually burst. The slow down in real estate will be an advantage to buyers but will be a risk to the greater economy. When residential sales slow, it means less jobs in the constructions sector as well as a risk to some peoples retirement as house prices come down and equity is lost.
Avery Shenfeld, chief economist with CIBC stated, “It’s not a trivial matter,” and I have to agree with him. Even without a total housing market crash, the slowdown in sales will kill new residential construction, which could take 0.5% off of Canada’s already weak 2% economic growth rate in 2013. The slowdown could take place as early as this summer but isn’t showing signs yet due to the pre sold market of condo’s continuing to build until the condo’s are completed. Warren Jestin, chief economist with Scotiabank stated, “By the time we get into the second half of this year you’re likely to see housing construction down very substantially.”
If house sales decline, you can bet that purchases of home related items will also slow. This means new couches, fridges, stoves, T. V’s and even renovation items. When you put it all together, it’s quite a hole in the overall gross domestic product (GDP) growth rate. Canada’s leading economist are now hoping that an upturn in global economic activity will create a demand for Canada’s exports to subsidize any loss from the housing sector. Interest rates continue to remain low, which is great for borrowers but hurts people that are looking to save for retirement. What do you think of the current low interest rates being offered? Please comment below.
The Canadian housing market continues to shows signs of drastic cooling as home sales were down 17.4% in the month of December when compared to the previous year. Prices went the opposite way with home prices increasing 1.6% from the previous year in the month of December. When looking at a month over month basis, sales were basically the same as they were in the month of November according to the Canadian Real Estate Association (CREA).
New listings were down 1.3% from the month of November when compared to Decembers numbers. 2012 witnessed a decline of 1.1% in yearly sales when compared to the previous year. Total sales in 2012 were 452,372. Sales in the month of December were down in four out of five housing markets. Calgary witnessed an increase in sales and stood out as the exception. Sales have continuously been on the decline since the introduction of new mortgage rules in 2012, which was the fourth round of changes for the mortgage industry in a two year period.
The changes were meant to slow the market and create a soft landing, for the current housing bubble that Canada is experiencing, rather than a market crash. CREA president Wayne Moen commented, “National sales activity continues to hold fairly steady at lower levels since mortgage rules were changed earlier in 2012, but there are still some real differences in trends between and within local housing markets.” Toronto lead the way for the largest drop in new listings but they were down almost 50% in most markets.
CREA’s chief economist Gregory Klump tuned in as well stating, “The decline in new supply may reflect purchase offers below asking price that are made to sellers who are under no pressure to sell. Instead they choose to take their homes off the market once their listing expires. In the absence of economic stresses like a spike in interest rates or a sharp drop in employment, this dynamic can be expected to keep the housing market in balance.“ The Canadian housing market is now clearly in a market correction. What do you think of what’s happening? Please comment below.
The U.S. is on the verge of losing it’s top credit rating, for the second time, if there is a further delay in raising the country’s debt ceiling according to Fitch Ratings. Congress has been working on a plan to increase the U.S. debt limit, which outlines how much debt the U.S. can have, by the end of February. If it does not raise the debt ceiling, the country will face a potential default, which could be disastrous for the economy.
The concern is that the debate will continue to cause a rift that wasn’t seen since the last effort to raise the debt ceiling in the summer of 2011. U.S. Secretary Timothy Geithner has continued to warn that the U.S. had nearly reached the point where the government would be unable to meet their commitments securely. David Riley, managing director of Fitch Ratings global sovereigns division stated, “The pressure on the U.S. rating, if anything, is increasing. We thought the 2011 crisis was a one-off event …. if we have a repeat we will place the U.S. rating under review.”
This means that there is a material risk that the rating would be cut lower. If Fitch does downgrade the U.S. it will join Standard & Poor’s, who took away the triple A rating of the U.S. for the first time in history in 2011 because of the dysfunctional nature of the debate. It seemed that the U.S. couldn’t come to terms with a decision last time and it caused a panic, which lead to the downgrade. Fitch already has a negative outlook on the U.S. due to the country’s debt burden rising to 100% of gross domestic product (GDP). U.S. debt was at $16.4 trillion at the end of last year. What do you think of the debt? Please comment below.
Bank of Nova Scotia (ScotiaBank) recently purchased ING Direct. As listed on our Facebook profile on Wednesday this week, ScotiaBank has decided that ING will no longer support the mortgage broker channel. This is the second lender that recently left the broker channel after a long and grueling close to First Line Mortgages under the CIBC brand.
ScotiaBank stated that both ING and themselves had considerable overlap when it came to the products it offers and decided to cut out ING and place more focus on themselves. Kim Luxton, director of broker sales commented, “We felt that both ING Directs and Scotiabank’s objectives would be better served by allowing each entity to focus its efforts on its own relative strengths.” ING will now focus solely on the direct channel to consumers while all mortgage brokerage activities will be handled by ScotiaBank. Originally ScotiaBank stated that they would keep ING operating as a separate entity but that comment didn’t last long at all.
The mortgage brokerage industry is undergoing massive changes recently with regulation changes, new B-20 rules and guidelines and now another lender leaving the broker channel as RBC & BMO did before them. Peter Routledge, director of equity research for financial services at National Bank commented, “It’s a straight consolidation play. One of the things you do when you buy a competitor is you consolidate operations. If you have two units that do the same thing, after the integration you have one.” What do you think? Did ScotiaBank make the right move by cutting ING from the mortgage broker channel? Please comment below.
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