CHHMA - EYE ON OUR INDUSTRY
Volume 14, Issue 48, December 17, 2014

Inside This Issue:

• President’s Year-End Message
• Industry Cocktail Recap
• New from Health Canada's Consumer Product Safety Program
• Ontario Blue Box Stewards Required to Make Up 2014 Funding Shortage Due to Arbitrator’s Ruling
• Hudson’s Bay Hires Ex-Chief of Toys R Us as New CEO
• Lowe’s Plans to Boost Presence in U.S. Cities, Canada & Australia
• CREA Bumps Up Annual Forecasts for Canadian Home Resales in 2014 and 2015
• Canada’s Home Prices Fall for First Time in a Year
• Slower Price Growth Expected in Canada’s Real Estate Hot Spots
• Bank of Canada Warns House Prices are Overvalued by Up to 30%
• Latest U.S. Economic News

This is the last issue of the year, and the CHHMA would like to wish everyone all the best over the holidays and a Happy New Year! 

Association News

President’s Year-End Message  

Seasons Greetings CHHMA Members,

Knowing that all of you keep my year-end message as a reference I have written a new message every year. However, looking at last year’s message it appears that I could simply copy it and you would believe it to be current and fresh. Here is what I opened with:

As we reflect back on the past 12 months most of you would probably say it has not been a bad year, but it has had its challenges. For the industry, sales appear to have been pretty much flat to up 2 -3% depending on the commodity. Those that have seen increases greater than that would probably attribute it to the addition of new product categories or market share gains.

Most of you have told me that the year started off slow, but things started to improve as we moved into summer and stayed strong through the third and fourth quarters. Hopefully that is a good sign for 2014! However, experts tell us that there is really no reason to expect anything different than what we have seen over the last couple of years.  Hopefully the experts are wrong, as they often are.

If I were to add anything to that first paragraph it would simply be “in addition to new products or market share gains those selling winter seasonal goods enjoyed a quick start to the year”.  As for the experts, unfortunately they had it pegged pretty close overall.

Now onto 2015 and what we see the challenges might be. The weakness in the Canadian dollar, falling oil prices and the rising attention being placed on Canada vs. USA pricing may make getting the necessary price increases accepted by retailers more difficult. The recent announcement by the Federal Government of the new “Price Transparency Act” may be nothing more than the government looking to win over a few voters leading up to the fall election. By the way, the Retail Council and major retailers are pushing for and supporting the new “Price Transparency Act” even though their own margins are higher in Canada than south of the border. CHHMA will decide over the next couple of weeks how we will weigh in on the situation, if at all.  I would be interested in hearing member’s views on the issue.

On another front, the issue of data-synchronization is gaining momentum and we see a challenge in getting the industry together to ensure there is a competitive environment amongst the service providers, and not an exclusive arrangement such as what retailers put forward in a letter to vendors on GS1 Canada letterhead 17 or 18 months ago. We’ll keep you posted!

The Board and management have spent a great deal of time and effort over the past year looking at everything the CHHMA does and how we communicate with our members. The launch of our new website is just the beginning. Everything we do at the Association is done to assist our members in running a more profitable business.

As you prepare for the upcoming year, we at the CHHMA wish you all the best through the festive season. Regardless of your faith or beliefs we hope you indulge yourself in the things you enjoy, while at the same time focusing on family and friends.

My personal thanks to the Board, our committee members and our dedicated staff, without them we could not continue offer the services we provide. On their behalf, I would like to thank you for your past support and wish you all a safe, peaceful and enjoyable holiday season and a very happy and successful 2015.

Yours sincerely,

 
Vaughn W. Crofford
President


Industry Cocktail Recap

Once again, despite a snow storm, there was an excellent turn out of retail customers and vendors at this year’s Industry Cocktail reception held last Tuesday at the Casino de Montreal's "Dame de coeur" bar.Attendees enjoyed their time at this fun location and were treated to a selection of great food and exceptional service.

Those vendors who attended took this opportunity to mix, mingle, catch up with old friends and colleagues and exchange greetings with their customers from BMR, Chalifour, Home Hardware, NAPA, RONA etc.....

We extend our thanks to the CHHMA Quebec Committee who work tirelessly to ensure this and other events in Quebec run smoothly.They are already working on a number of customer breakfast sessions scheduled for early in the New Year.  Watch your inbox for more information.

The committee includes: Christine Papineau, Chairman, (Garant GP), Robert Begin (Canadian Technical Tape Ltd.), Alain Bourdages (Moen), Mark Gagliardi (J.L. Gagliardi & Associates Ltd.),Richard Guindon (Exchange-A-Blade), Richard Lepine (LM2 Marketing Inc.), Richard Paradis (IPEX Inc.) and Pierre Vachon (PPG Architectural Coatings).
  

Government & Legislative News

New from Health Canada's Consumer Product Safety Program    

As part of the Government of Canada’s commitment to Transparency and Openness, Health Canada wishes to inform companies that two new summary reports will be web published: the Consumer Product Enforcement Summary Reports and the Quarterly Consumer Product Safety Incident Summary Reports.

1. Consumer Product Enforcement Summary Reports will be produced by Health Canada at the end of each planned enforcement project.

Health Canada carries out planned inspection projects for products with specific regulatory requirements under the Canada Consumer Product Safety Act (CCPSA) and for cosmetics under Canada's Food and Drugs Act. Higher risk products such as children’s products or product categories with a history of a high degree of non-compliance are looked at more frequently than lower risk products with a good degree of compliance.

The Consumer Product Enforcement Summary Reports will provide information to industry and consumers on products that were reviewed by Health Canada and which ones met or did not meet safety standards. It will also inform Canadians as to any corrective actions. The reports will include a description of the product focus of the enforcement project, compliance with regulations, a description of the stakeholder base and communications, and testing results (including brand, product name, responsible establishment, nature of Non-Compliance, and Corrective Actions).

Note that these summary reports relate only to the product(s) actually tested and the specific criteria indicated.Testing by Health Canada does not represent approval or endorsement of the product(s).

Click here to see a template file.

2. Quarterly Consumer Product Safety Incident Summary Reports will be produced on a quarterly basis.

Health Canada regularly receives reports on human health or safety concerns related to consumer products.Industry is required to submit reports when they become aware of an incident related to their consumer product under Section 14 of the CCPSA. Consumers also report to Health Canada on a voluntary basis.

All reports on consumer products are reviewed for possible health or safety hazards. Factors considered include the age of the person involved, the severity of any injuries, and any other details of the event. This allows Health Canada to focus risk assessment and risk management actions on products that may pose an unacceptable risk to Canadians.

The Quarterly Consumer Product Safety Incident Summary Reports will provide useful statistics on different types of consumer products and cosmetics. The statistics are based on data collected under Section 14 of the CCPSA and include voluntary reports from consumers on health and safety issues about consumer products and cosmetics. The statistics will include the number of reports received by Health Canada, percentage of reports by product category, ratio of industry reports to consumer reports, percentage of reports involving injuries, and top injury types/products.

Click here to see a sample report. 

For further information regarding Health Canada’s Regulatory Transparency and Openness Framework, please visit the Health Canada website at http://www.hc-sc.gc.ca/home-accueil/rto-tor/index-eng.php.

For any further inquiries, please contact the Consumer Product Safety Directorate (Health Canada) by email (cps-spc@hc-sc.gc.ca).

Source: Health Canada


Stewardship News

Ontario Blue Box Stewards Required to Make Up 2014 Funding Shortage Due to Arbitrator’s Ruling

As advised in last week’s Government Watch Report, retired Justice Robert Armstrong rendered his decision in the arbitration between the Association of Municipalities (AMO) and the City of Toronto, and Stewardship Ontario on November 25.While he validated all of Stewardship Ontario's key legal arguments that steward payments should be limited to reasonable costs, he found that in the absence of a negotiated agreement between AMO/City of Toronto and Stewardship Ontario, the 2014 obligation should be set at $115M versus the $95.7M proposed by Stewardship Ontario.

Stewardship Ontario has therefore had to calculate a 2014 Adjustment Fee Schedule designed to address the municipal obligation shortfall which is due to be paid to municipalities by March 31, 2015. The 2014 Adjustment Fee Schedule was approved last week by Stewardship Ontario's Board and Waste Diversion Ontario's Board.

The arbitration award set the 2014 municipal obligation at $115M. Fees paid by stewards in 2014 were based on the 2013 fee schedule because the ongoing arbitration prevented the WDO Board from approving the 2014 Blue Box Program Rules and fee schedule.  Steward fees paid in 2014 raised a total of $99.7M which has left a funding gap of $17.4M after accounting for program management costs and CNA/OCNA in-kind payments.

After careful consideration of the effects of using reserve funds to cover the full funding gap, a decision was made by the Board of Directors to retain 10% of annual operating costs in reserve, in accordance with Stewardship Ontario's reserve policy and WDO's reserve guidelines.  Despite this restriction, Stewardship Ontario is able to apply $9.7M of reserves, leaving $7.7M to be raised from our Blue Box stewards.

The full 2014 Adjustment Fee Schedule, reflecting the above, can be viewed here.

Steward Ontario issued its fourth and final 2014 invoice to stewards in early November.The arbitration decision requires them to issue a fifth 2014 invoice. The 2013 Rules (which remain in effect because the 2014 Rules were not approved by WDO) do not permit Stewardship Ontario to issue five invoices for one obligation year.Stewardship Ontario therefore sought and received approval from WDO to create an Arbitration Adjustment Rule that permits the issuance of a fifth 2014 invoice to stewards.  The fifth invoice, in the aggregate, will equal the difference between the 2014 steward fees invoiced to date, and the amount required to fulfill our obligations as awarded under the arbitration, less the reserve funds applied.

Stewardship Ontario will endeavour to issue invoices to stewards before the end of this year and payment will be due February 27, 2015.  Any steward that is unable to make the necessary payments by February 27th and wishes to discuss a payment plan is asked to contact Steward Services as soon as possible at 1-888-980-9549, or email them at: WeRecycle@stewardshipontario.ca.

Due to the arbitration, Stewardship Ontario was unable to provide stewards with an approved 2015 fee schedule at the October 15th Annual Steward Meeting.Instead, Stewardship Ontario provided stewards with two fee scenarios: one which reflected Stewardship Ontario's position on Best Practice Costs and one that reflected municipalities' position on Reported Net Costs.

In the absence of an agreed upon 2015 obligation, stewards will be invoiced beginning April 1, 2015 based on the Net Reported Costs fee schedule, which can be found here.

Stewardship Ontario believes that the 2015 fee schedule will raise adequate funds for the 2015 obligation because they are based on municipalities' net reported costs.Discussions with municipalities will commence shortly to determine the 2015 municipal obligation based on the reasons given in the arbitration award.

Stewardship Ontario has received conditional approval from the WDO Board for the 2015 Rules for Stewards.The 2015 Rules contain some changes from previous years' rules - the most significant being the removal of the fee schedule from the Rules to be replaced by reference to the fee setting methodology in the Program Agreement. This is permitted under the Waste Diversion Act and is consistent with other waste diversion programs.

The 2015 Rules have now been posted on the Stewardship Ontario website to allow for comments from stewards:

Comments should be sent to WeRecycle@stewardshipontario.ca with 2015 Rules in the subject line no later than January 23, 2015.

Stewardship Ontario will post any comments received and their responses along with confirmation that the 2015 Rules for Stewards and 2015 Blue Box Fees have received final approval.

To help answer some of the questions you might have, Stewardship Ontario has included a Q&A document available here.

Stewardship Ontario will combine all the questions and publish another Q&A.

Source: Stewardship Ontario
  

Industry News

Hudson’s Bay Hires Ex-Chief of Toys R Us as New CEO 

The Hudson’s Bay Bay Company announced on Wednesday that it will have a new chief executive officer starting next month, although the man who currently holds the position will remain as governor and executive chairman of the company as it explores opportunities to expand to new international markets.

Gerald (Jerry) Storch becomes CEO effective Jan. 6. He has previously been a chairman and CEO of Toys R Us, and a vice-chairman of Target.

Storch will be responsible for HBC’s overall business, which currently includes Hudson’s Bay, Lord & Taylor, Saks Fifth Avenue, Home Outfitters an d HBC Digital.

Current CEO Richard Baker will remain and jointly run the Office of the Chairman with Storch, who led Toys R Us through a period of expansion into electronic commerce and China.

Donald Watros has been appointed president of a new international unit, where he will focus on identifying, launching and operating expansion opportunities.

Watros will continue to report to Baker, who has held HBC’s top executive position since July 2008. Prior to that he was chairman of Lord & Taylor, now one of HBC’s subsidiaries.

Under Baker’s leadership, HBC has divested its Zellers operations, refocused the core Hudson’s Bay brand and acquired U.S luxury retailer Saks Fifth Avenue and its lower-priced Saks OFF 5TH.

“The board and I could not be more pleased to have Jerry, an accomplished executive with a proven track record of growing retailers through both digital and traditional channels, join us. We believe this change will enhance our growth strategy.”

Jerry Storch commented, "I'm thrilled to join Hudson's Bay Company and partner with Richard. The HBC team has built a very strong foundation and I am excited to help take the company to the next level. There are many exciting opportunities across these great retail franchises, including strengthening the connection between our store and digital businesses, expanding our outlet channel and investing in our world class store base."

Mr. Storch has had a distinguished 30-year career in retail leadership and management consulting. As Chairman and CEO of Toys"R"Us, he led a resurgence of the business and grew the company into a $13 billion global retailer. He expanded the company's ecommerce business to over $1 billion, drove growth in China and throughout the world and oversaw acquisitions including FAO Schwarz, eToys and KB Toys.

Prior to his tenure at Toys"R"Us, Mr. Storch was Vice Chairman of Target.  Among his accomplishments there, he founded and grew Target.com, founded and ran Target's grocery business and founded and oversaw the Target Financial Services credit card business. He also oversaw the Marshall Field's Department Stores and led Target's Corporate Strategy function for over a decade.

Prior to Target, Mr. Storch was a Principal at McKinsey & Company from 1982 to 1993. Mr. Storch advised Fortune 500 retail, consumer goods and financial services clients.

Mr. Storch received a MBA from Harvard Business School, a JD from Harvard Law School, and a BA from Harvard College. Mr. Storch is non-Executive Chairman of the Board of Supervalu and a Director of both Bristol Myers Squibb and Fanatics.

Source: HBC, The Canadian Press

Lowe’s Plans to Boost Presence in U.S. Cities, Canada & Australia
 
The U.S. economy is finally seeing a recovery from the Great Recession, and homeowners and apartment dwellers are spending again on their residences. So Lowe's Cos. Inc. execs believe it's time for the home improvement retailer to kick up its growth.

Lowe's executives and others met with financial analysts and investors last Thursday to talk about the company's strategies for the next year and beyond.

"We're at a great point in our company's evolution," Robert Niblock, Lowe's CEO told the gathering at the corporation's headquarters. "The housing market and broader economy are recovering just as our transformation is gaining momentum."

Part of that strategy is to add "high-return stores" in U.S. cities and urban areas where there are no Lowe's stores. Lowe's has already announced plans to open two stores in Manhattan during the second half of 2015.

Another growth area: "high-potential international markets" such as those in Canada and Australia for extending the penetration of the Lowe's brand.

In Canada, Lowe's wants to open 25 stores, in addition to its current 37, over the next three years.

In Australia, Lowe's already has a one-third stake in a joint venture with Woolworths to open Masters Stores. Now Lowe's wants to add about 10 Masters Stores each year in 2015-17 in the Outback, which has a $40 billion annual home improvement market.

Lowe's currently has 1,835 stores in the U.S., Canada and Mexico.

The company also reiterated its prior sales and earnings guidance for the 2014 fiscal year that ends Jan. 30.  Company-wide sales are expected to increase 4.5 to 5%; same-store sales are expected to increase 3.5 to 4%; Lowe's expects to earn $2.68 per share for the fiscal year and it is adding six home improvement stores and four hardware stores this year.

Source: Charlotte Business Journal, Lowe’s


Economic News

CREA Bumps Up Annual Forecasts for Canadian Home Resales in 2014 and 2015

The Canadian Real Estate Association (CREA) has updated its forecast for MLS home sales activity for 2014 and 2015.

CREA said on Monday that with mortgage rates remaining at historic lows since the summer, activity has remained stronger for longer than previously expected and has yet to show clear signs of fading.

As a result, their forecast for annual sales in 2014 and 2015 has been upwardly revised. Almost all of the upward revision to national activity in both years stems from the current strength and momentum of sales across most of British Columbia and much of Ontario, particularly in the Greater Golden Horseshoe region.

In British Columbia, historically low mortgage interest rates have helped fuel a broadly based increase in the number of homes changing hands this year, although activity has only recently risen above its 10-year average. In Ontario, strong demand has been met with a rise in listings, which in recent years had been in shorter supply. The recent momentum for sales in both cases has endured for longer than expected and has shown few signs of diminishing. These two provinces together account for more than half of national activity and are responsible for much of the upward revision to projected and forecast national sales.

Sales are now projected to reach 481,300 units in 2014, representing an annual increase of 5.1%. While this places annual activity 8% below the record set in 2007, it marks the strongest annual sales since then.

It also places 2014 sales slightly above, but still broadly in line with its 10-year average. Despite periods of monthly volatility since the recession of 2008-09, annual sales have held steady within a narrow range around its 10-year average. This stability contrasts sharply with the rapid growth in sales seen in the early 2000s prior to the recession.

British Columbia is projected to post the largest annual sales increase (14.5%) followed closely by Alberta (9.3%). Demand in both of these provinces is currently running at multi-year highs. Annual activity in Ontario is also expected to come in 3.6% above 2013 levels.

Sales in Saskatchewan (+1.8%), Manitoba (+0.8%), Quebec (-0.1%), New Brunswick (-0.8%), and Prince Edward Island (no change) are expected to hold near 2013 levels. Activity in Nova Scotia and in Newfoundland and Labrador is projected to decline this year by 3.9% and 4.7% respectively.

In 2015, CREA expects Canadian exports, job growth and incomes to improve with mortgage interest rates edging only slightly higher.  These opposing factors should benefit sales activity in housing markets where demand has been softer and prices have remained more affordable. Sales in relatively less affordable housing markets are expected to be more sensitive to higher mortgage interest rates.

National sales are now forecast to reach 485,200 units in 2015, representing a year-over-year increase of 0.8%. While sales nationally are still expected to peak this year and trend lower throughout 2015, they are not expected to return to weakened levels recorded in the first quarter of 2014.

Sales activity is forecast to grow fastest in Nova Scotia (+2.6%), followed by New Brunswick (+2.9%). Quebec (+1.2%), Ontario (1.1%), British Columbia (0.5%), and Alberta (0.1%) are forecast to see little change on an annual basis, reflecting a rising trend in 2014 mirrored by a softening trend in 2015.

CREA cited a number of upside and downside risks to their forecast. In British Columbia and Ontario, activity is still expected to be held in check by eroding affordability for single family homes. However, with sales in British Columbia now only at average levels, they may climb further before rising interest rates begins to materially reduce affordability.  Sales in Ontario may also remain stronger than expected should new listings continue to come onto the market at higher levels in places and in market segments where a lack of supply in recent years has led to pent-up demand.

Additionally, consumer confidence and job growth in the Prairies may come under downward pressure depending on how far oil and non-energy commodity prices decline and on how long they remain low.

Saskatchewan and Manitoba sales are forecast to post declines of seven-tenths of one per cent and nine-tenths of one per cent respectively in 2015. Both provinces are experiencing higher than normal levels of supply while sales have shown recent signs of moderating.

The national average price has evolved largely as expected since the spring, resulting in little change to CREA’s previous two forecasts.

The national average home price is now projected to rise by 6% to $405,500 in 2014, with similar percentage price gains in British Columbia, Alberta, and Ontario. Saskatchewan and Manitoba are expected to post increases of close to 3%. Newfoundland and Labrador and Prince Edward Island are forecast to see average home prices rise by a little over 1% this year, while Quebec is forecast to see an increase of slightly below 1%. Prices are forecast to recede by about half a per cent in New Brunswick and Nova Scotia.

The national average price is forecast to edge higher by 0.9% in 2015 to $409,300. Alberta and Manitoba are forecast to post average price gains of almost 2% in 2015, followed closely by Ontario at 1.3%. Average prices in other provinces are forecast to remain stable, edging up by less than one percentage point.

Source: CREA


Canada’s Home Prices Fall for First Time in a Year

Canadian home prices fell in November from October, their first monthly decline in a year, the Teranet-National Bank Composite House Price Index showed last Friday.

The index, which measures price changes for repeat sales of single-family homes, showed prices fell 0.3% nationally last month. They were still up 5.2% from a year earlier, however.

Mazen Issa, senior Canada macro strategist at TD Securities, said the data showed “a necessary breather” in this year’s run-up in prices.

“But we do not foresee a protracted period of lower prices, with interest rates mired near historical lows and no inclination from the Bank of Canada to use monetary policy to reduce excesses in the housing market,” Issa said in a note to clients. “The more likely path for home prices in 2015 is to grind higher yet again.”

Analysts do not expect Canada’s central bank to raise rates until the second half of 2015. Canada escaped the U.S. housing crash that accompanied the 2008-09 financial crisis, and home prices have risen sharply, if not steadily, over the past five years despite the federal government’s moves to tighten mortgage lending rules.

The Teranet data showed prices fell in November from the month before in eight out of 11 cities.

The monthly slump was led by a 1.6% drop in Halifax, a 1.5% fall in Quebec City, and a 1% decline in Montreal.  Prices fell 0.7% in Winnipeg, 0.6% in Ottawa and 0.3% in Toronto, Calgary and Victoria.

Home prices were flat in Hamilton and Vancouver, and they rose in only one market, a 1.1% increase in Edmonton.

By contrast, eight of the 11 cities showed year-over-year price gains.

On that basis, prices were up 1.4% in Calgary, 6.2% in Edmonton, 7.0% in Hamilton, 0.6% in Montreal, 7.3% in Toronto, 5.9% in Vancouver, 1.4% in Victoria and 1.5% in Winnipeg.

They were down 1.8% in Halifax, 0.2% in Ottawa and 0.3% in Quebec City.

Source: Reuters


Slower Price Growth Expected in Canada’s Real Estate Hot Spots
(Article by Rachelle Younglai, The Globe and Mail)

A new report released last week forecasts that housing prices will register modest gains in most Canadian cities next year, disappointing homeowners in Toronto, Calgary and Vancouver that have been riding a property value surge.

According to Re/Max, the average selling price in Canada will rise 2.5% from 2014 to $416,300, with more affordable areas such as Moncton and Windsor expected to see the biggest jump in prices.

However, slower growth is expected in some of the country’s hot spots.

“The drop-off is all relative,” said Gurinder Sandhu, executive vice-president with Re/Max. “It is still healthy growth.”

The average selling price of a house in the Toronto area is expected to rise 4% to $589,100 from $566,400. This year, home values in the Greater Toronto Area jumped 8.3%.

“After years of strong price appreciation … we feel that Toronto will not be able to replicate that high of an appreciation,” Mr. Sandhu said.

A similar story is playing out in Western Canada. The average selling price in the Vancouver area is forecast to rise 3% to $863,600 from $838,400. That compares with a hefty 7.3% rise this year.

Likewise, the average selling price in Calgary is seen growing 3% to $497,500 from $483,000. That compares with a 5.9% appreciation this year.

In contrast to the skyrocketing prices in Toronto and Vancouver, the average selling price in Moncton and Windsor was below $200,000 this year. Both areas are expected to see house prices increase by more than 5%.

Re/Max said the appreciation in housing prices mirrors the “resilience” of the country’s economy, although economists are warning that the steep drop in oil prices will take a toll on business activity. The price of oil has plunged to a five-year low of $63 (U.S.) a barrel, down from more than $100 this summer, prompting Canadian energy producers to slash their budgets.

Calgary Realtors say their city is more than just oil and gas but that the real estate market is not as frantic.

“What we are noticing is that the intensity is off a little bit, but the interest is not,” said Lowell Martens, owner of Calgary-based Re/Max Real Estate (Mountain View). “Some of my agents are experiencing buyers that don’t seem to be in as big a rush as they were a little while ago. … I don’t think there is any fear out there that everything is going to hell in a handbasket.”

Source: The Globe and Mail 


Bank of Canada Warns House Prices are Overvalued by Up to 30%

The Bank of Canada estimates that house prices in the country are overvalued by as much as 30% in a report released last week that warned household debt remains the biggest risk to Canada’s economy.

On Dec. 10, the Bank of Canada released its Financial System Review, a bi-annual look at the major risks threatening Canada’s financial system.

For the first time, the bank published its estimates for house price over-evaluation in Canada, putting the reading at between 10% and 30%.

That range is significantly higher than estimates by the International Monetary Fund (10%) and Canada Mortgage and Housing Corp., which judges there is a “moderate degree of overvaluation.”

Highlighting the importance of high household debt and strains in the housing sector, the central bank has developed a new method of evaluating these risks — based on house price corrections in 18 counties in the Organization of Economic Co-operation and development dating back to 1975.

“The most important risk is the inability of stretched households to service their debt should they face a sharp decline in their incomes or a sharp rise in interest rates, which could trigger a correction in house prices,” the central bank said.

“The probability of this happening is low,” it added. “But if it did, the effect on the economy would be severe. The bank maintains its assessment of this risk as “elevated.”

Policymakers still believe the housing market is headed for a soft landing — dependent on the global economy gaining strengthen and as interest rates “normalize.”But have also said that prices are still rising in cities, such as Toronto, Calgary and Vancouver.

In Toronto, for example, the bank warned of the risk of an “impending overbuild” in the condominium market.

Rapidly escalating prices are also hitting the commercial real estate market, which the bank called dramatic.  Average per square foot values are up 39% since 2009, led by downtown Calgary, where prices are up 50 %.

Earlier this month, the Bank of Canada Governor held its trend-setting interest rate at 1%, where it has been since September 2010.

The low rate has encouraged Canadians to accumulate piles of debt since the recession as a way to help stimulate the battered economy. Most economists and analysts don’t expect the rate to budge until at least the middle of next year.

In the meantime, Canadians will continue to take advantage of cheap credit.

The bank’s report cautioned that Canada’s household debt-to-income ratio is near a record high, with conditions that may have been partly fuelled by stiff competition among lenders.

The situation, it said, may have encouraged some Canadians to borrow too much and led financial entities to lend to riskier clients.

The review said 12% of Canadian households as “highly indebted.” The bank said this percentage has been steady in recent years, but is nearly double the level in 2000.It also said these households carry about 40% of the country’s overall consumer debt load.

Young homeowners, the bank added, have become even more vulnerable to negative shocks to income and to higher interest rates.

“Among the current generation of young households, those who own homes carry more mortgage debt relative to income than previous generations did at the same age,” the review said.

The bank is also keeping an eye on growing number of auto loans that Canadians are taking on which are “substantially outpacing the growth in other forms of household credit.”

“This can be explained, in part, by strong auto sales and also by important structural changes in the market for auto financing,” the review states. “In particular, there has been a broad shift from lease financing to loan financing since the financial crisis, and banks are taking a more prominent role.”

However, just as with the housing market, the bank said these developments present “only modest concerns, given its small share of overall household debt and the limited exposure of banks.”

“Nevertheless,” the bank adds, continued monitoring is “warranted.”

In addition to rising consumer debt and a potentially overvalued housing market, the review warned of increased risk-taking in financial markets and emerging threats, such as weakening commodity prices and the plunging price of oil.

However, the report said despite the red flags the economy continued to show signs of a “broadening recovery” and its overall assessment of Canada’s financial stability remains roughly unchanged since the summer.

Source: The Financial Post, The Globe and Mail

Latest U.S. Economic News 

U.S. Consumer Prices Post Largest Decline in Six Years
U.S. consumer prices recorded their biggest drop in nearly six years in November as gasoline prices tumbled, but this probably will do little to change views the Federal Reserve will start raising interest rates in mid-2015.

The Labor Department said on Wednesday its Consumer Price Index fell 0.3% last month, the largest decline since December, 2008, after being flat in October.

In the 12 months through November, the CPI increased 1.3% per cent, the smallest gain since February, after advancing 1.7% in October.

Wall Street had forecast the CPI slipping only 0.1% from October and rising 1.4% from a year ago.

Underlying price pressures are also ebbing a bit after showing some signs of creeping up in October.

Stripping out food and energy prices, the so-called core CPI edged up 0.1% after rising 0.2% in October. In the 12 months through November, the core CPI rose 1.7% after increasing 1.8% in October.

The Fed targets 2% inflation and it tracks an index that is running even lower than the CPI.

Plunging crude oil prices, which hit a fresh 5-1/2 year low this week on increased shale production in the U.S. and slowing global demand, are keeping overall inflation in check for now.

While inflation is trending lower, job growth has shifted into higher gear and the pace of slack absorption in the economy has accelerated in recent months.

That has left many economists to expect the U.S. central bank could signal its intention for a mid-2015 interest rate hike when officials end a two-day meeting later on Wednesday.

Such a signal could come through changes to the Fed’s so-called forward guidance on rates and new economic projections.

Low inflation could still urge caution for the Fed, which has kept its short-term interest rate near zero since December, 2008.

Gasoline prices fell 6.6%, the biggest drop since December, 2008, after declining 3.0% in October. Gasoline has now declined for five straight months.

Food prices rose 0.2% after nudging up 0.1% the prior month. Within the core CPI, shelter costs increased 0.3% last month after rising 0.2 % in October.

There were also increases in airline fares, medical care and alcohol prices. New motor vehicle prices, however, fell as did the cost of household furnishings, apparel and used cars and trucks.

Source: Reuters

U.S. Housing Starts Fall, But Trend Remains Upbeat
U.S. housing starts and permits fell in November, but the underlying trend remained consistent with an improving housing market.

Groundbreaking declined 1.6% to a seasonally adjusted annual 1.028-million-unit pace, the Commerce Department said on Tuesday. November’s starts were revised up to a 1.045 million-unit rate.

Economists polled by Reuters had forecast starts rising to a 1.04 million-unit rate from October’s previously reported 1.01 million-unit pace.

Housing continues to be stymied by tepid wage growth, which has been far outpaced by home price increases. Higher mortgage rates are also a constraint, although they have since declined from a peak reached in September, 2013.

But with job growth accelerating, wages are expected to pick up next year and pull first-time buyers, especially young Americans, into the housing market, providing a tailwind for the economy.

Last month’s drop in groundbreaking was concentrated in the single-family homes segment, the largest part of the market, which fell 5.4% to a 677,000-unit rate. Single-family starts had posted two straight months of hefty gains.

Starts for the volatile multi-family homes segment increased 6.7% to a 351,000-unit pace. The increase unwound some of October’s 9.9% drop.

Multi-family starts continue to be driven by demand for rental units as many financially strapped Americans shun home ownership.

Last month, permits dropped 5.2% to a 1.035 million-unit pace after two straight months of gains. That was the biggest drop since January.

Permits, which lead starts by three to four months, have been above the 1-million pace threshold since July.

Permits for single-family homes fell 1.2% to a 639,000-unit pace. Permits for multi-family housing tumbled 11.0% to a 396,000-unit pace. That followed two strong months of big increases.

Source: Reuters

U.S. Retail Sales Get a Boost from Lower Gas Prices
U.S. consumer spending advanced at a brisk clip in November as lower gasoline prices gave the holiday shopping season a boost, offering the latest sign of underlying momentum in the economy.

The Commerce Department said last Thursday that U.S. retail sales excluding automobiles, gasoline, building materials and food services, increased 0.6% last month after rising 0.5% in October.

The so-called core retail sales correspond most closely with the consumer spending component of GDP. November’s increase exceeded Wall Street’s expectations for a 0.4% gain.

It also suggested that consumer spending, which accounts for more than two-thirds of U.S. economic activity, was accelerating in the fourth quarter after slowing in the July-September period.

That could see economists raising their fourth-quarter growth forecasts, which are currently converging around a 2.5% annual pace.

“It was a constructive number as we push ahead into the year-end holiday season. Consumers are taking some momentum into the end of the year,” said Tom Porcelli, chief economist at RBC Capital Markets in New York.

The solid retail sales data added to November’s bullish employment report in painting a fairly upbeat picture of the U.S. economy, despite a recession in Japan and faltering growth in the euro zone, China and major emerging markets.

In a separate report, the Labor Department said new claims for state unemployment benefits fell last week, pushing them firmly beneath the key 300,000 level, in a sign of continued improvement in the jobs market.

Tightening labour market conditions are starting to spur faster wage growth, which together with lower gasoline prices is helping to stimulate consumer spending.

U.S. gasoline prices have dropped by about 64 cents to $2.767 (U.S.) per gallon since the beginning of the year. Economists at Moody’s Analytics estimate that consumers save about $1-billion over a year with each one-cent drop in the price of gasoline.

“Consumers are putting the money they save at the pump to work,” said Gennadiy Goldberg, a strategist at TD Securities in New York.

Lower energy prices are also keeping imported inflation pressures subdued. A second report from the Labor Department showed import prices recorded their biggest drop in nearly 2-1/2 years in November.

Last month, core retail sales were lifted by a 1.2% jump in receipts at clothing stores, an indication that the holiday shopping season got off to a solid start, with retailers offering discounts to attract shoppers.

Aside from clothing, there were increases in most of the retail sales categories.

While declining gasoline prices are supporting consumer spending, they weighed on service station sales, with receipts falling 0.8%.

That decline was, however, offset by a 1.7% surge in automobile sales, which helped to lift overall retail sales by 0.7% in November. It was the largest gain since March and followed a 0.5% increase in October.

Source: Reuters

  

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"Eye On Our Industry" is published by the CHHMA as an information resource for our members. Member input regarding content and format is welcomed. Please contact Michael Jorgenson by email: mjorgenson@chhma.ca, or call at (416) 282-0022, ext. 34. CHHMA is located at 1335 Morningside Ave., Suite 101, Scarborough, ON, M1B 5M4 www.chhma.ca

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