Economic News
Canadian Home Sales Down 5.2% Year-Over-Year in January, but Prices Climb 2%
The Canadian Real Estate Association (CREA) said last Friday that national home resales through MLS edged up 1.3% in January from December, although sales were down 5.2% from the same month last year.
The monthly sales increase marked the fifth month in a row that national sales activity has shown little change from levels in the previous month.
National sales activity has held fairly steady after gearing down last August in the wake of tightened mortgage lending rules CREA said.
Home sales picked up in about half of all local markets in January from the previous month, including some of Canada’s most active. Greater Toronto and Greater Vancouver posted monthly sales increases of 5.6% and 4.7% respectively, while sales in Edmonton climbed by nearly 10% on the month. Activity gains there were partially offset by softer sales in Ottawa, the Fraser Valley, Montreal, Regina, London and St. Thomas, and Calgary.
“There is little new to report about national sales activity, which continues to hold fairly steady at the lower levels first reached when mortgage rules were tightened in mid-2012,” said CREA President Wayne Moen. “That said, things are becoming more interesting among local markets, with improving sales in Vancouver and Toronto likely to come as something of a surprise to some.”
Actual (not seasonally adjusted) activity came in 5.2% below levels reported in January 2012. About two-thirds of local markets posted year-over-year declines in sales activity in January. Notable exceptions include Calgary, Edmonton, Winnipeg, Windsor-Essex, and Guelph.
“Year-over-year declines in activity have received attention lately, and understandably so since they’re more exciting compared to the fairly steady month-over-month trend for national sales following changes made last year to mortgage regulations and lending guidelines,” said Gregory Klump, CREA’s Chief Economist. “If national sales activity remains stable near the levels we’ve been seeing since last August, then year-over-year comparisons will begin fading after the crucial spring buying season. Until then, the focus may remain on how sales were stronger in the first half of last year compared to lower but stable national activity since then.”
The number of newly listed homes rose 1.6% month-over-month in January, their first monthly increase since last September.
New listings rose in a number of Canada’s most active markets, led by Greater Toronto. The monthly increase there reversed a decline of similar magnitude one month earlier. New listings also rose in Greater Vancouver, Montreal, the Fraser Valley, and Vancouver Island, which also marked a reversal in a declining trend for new listings in the final months of 2012.
With sales and new listings both having edged higher, the national sales-to-new listings ratio was little changed at 50.3% in January compared to 50.4% in December. Its reading has held fairly steady around this level for the past six months. Based on a sales-to-new listings ratio of between 40 to 60%, about two-thirds of all local markets were in balanced market territory in January.
Nationally, there were 6.6 months of inventory at the end of January 2013, down slightly from 6.7 months reported at the end of December. The number of months of inventory nationally has held between 6.5 and 6.7 months since August last year.
The actual (not seasonally adjusted) national average price for homes sold in January 2013 was $354,754, representing an increase of 2% from January 2012. There were fewer sales compared to year-ago levels in relatively pricey Greater Vancouver, which continues to exert a strong gravitational pull on the national average sale price. Excluding Greater Vancouver from the national average price calculation yields a year-over-year increase of 3.3%.
Unlike average price, the MLS Home Price Index (MLS HPI) is not affected by changes in the mix of sales, so it provides the best gauge of Canadian home price trends.
The Aggregate Composite MLS HPI rose 3.1% on a year-over-year basis in January. This marks the ninth time in as many months that the year-over-year gain shrank and the slowest rate of increase since April 2011.
Year-over-year price gains decelerated for one-storey single family homes (+4.4%) and two-storey single family homes (+3.6%). By contrast, year-over-year growth held steady for apartment units (+1.2%), and picked up in the townhouse/row segment (+2.2%).
The MLS HPI rose fastest in Regina (+8.8% year-over-year), although the increase was the smallest since December 2011. Price growth also moderated in Greater Toronto (+3.8% year-over-year) and in Greater Montreal (+2.6% year-over-year).
By contrast, the MLS HPI saw year-on-year growth accelerate in Calgary (+8.0%) and the Fraser Valley (+0.7%). In Greater Vancouver, the MLS HPI posted a 2.8% year-over-year decline in January.
Wholesale Sales Fall 0.9% in December
Statistics Canada reported on Tuesday that wholesale sales in Canada fell 0.9% to $49 billion in December, after rising 0.7% in November. The decrease was largely a result of lower sales in the computer and communications equipment and supplies industry. The same industry was behind November's increase.
In volume terms, wholesale sales were down 0.9% in December.
In December, five of the seven subsectors were down. The majority of the decrease was concentrated in the machinery, equipment and supplies subsector.
Sales in the machinery, equipment and supplies subsector decreased by 4.1%. Every industry in the subsector reported lower sales. The computer and communications equipment and supplies industry (-8.6%) accounted for two-thirds of the decrease.
The decline in the computer and communications equipment and supplies industry in December came in the wake of a 6.3% advance in November, which coincided with a sharp gain in imports of communications and audio and video equipment. Sales in this industry can be affected by the timing of new product releases.
The second-largest decline was in the personal and household goods subsector. Sales fell 0.7%, mainly as a result of decreases in the toiletries, cosmetics and sundries industry and the home entertainment equipment and household appliance industry.
The miscellaneous subsector declined 0.6%, its ninth decrease in 2012. In December, four of the five industries in the subsector had lower sales.
The largest increase in dollar terms was in the building material and supplies subsector. Sales were up 1.4% in December, their third consecutive advance.
Wholesale sales were down in six provinces in December. The majority of the national decrease was attributable to Ontario, Quebec and Alberta.
Ontario posted a 0.9% decline in sales, the fourth decrease in the second half of 2012. December's decline was largely a result of lower sales in the computer and communications equipment and supplies industry.
In Quebec, weaker sales in the personal and household goods subsector in particular contributed to the 1.9% decline observed in December.
Sales fell 1.3% in Alberta, the first decrease in three months. The December result was due to several industries, including the computer and communications equipment and supplies industry.
Wholesalers' inventories declined 0.6% in December to $60.7 billion, the third decrease in four months. Inventories were down in 12 of the 25 industries.
The largest inventory declines in dollar terms were in the construction, forestry, mining and industrial machinery, equipment and supplies industry (-4.1%) and the motor vehicle industry (-2.9%).
On an annual basis, wholesale sales totalled about $590 billion in 2012, up 4.5% from the previous year. This increase followed two consecutive years of 6.6% growth.
After peaking in May 2012, the sales of Canadian wholesalers showed a slight downward trend late in the year.
In 2012, five of the seven wholesale trade subsectors posted increases. The motor vehicle and parts subsector had the largest gain in dollar terms, followed by the machinery, equipment and supplies subsector.
At the provincial level, Alberta registered the largest increase in 2012, with a growth rate of more than 10%.
Source: Statistics Canada
Manufacturing Sales See Largest Decline Since the Recession
Statistics Canada said last Friday that manufacturing sales in Canada dropped 3.1% in December to $48 billion, the largest decline since May 2009.
Just over half of the decrease reflected lower sales in the transportation equipment industry. Sales were also down in the chemical, petroleum and coal product as well as the fabricated metal product industries.
Sales decreased in 16 of 21 industries, representing 82% of the manufacturing sector. Durable goods sales were down 4.2% while non-durable goods sales declined 2.0%.
Constant dollar sales decreased 3.8%, indicating that the decline in manufactured goods sold was a result of lower volumes.
Manufacturing sales fell 9.1% in the transportation equipment industry, the largest percentage decrease since February 2011. A 15.4% decline in the motor vehicle assembly industry was the main reason for the decline in transportation equipment sales. Motor vehicle assembly plants are often shutdown in December for a portion of the month. However, in December 2012, the reduction in production was greater than usually observed.
Sales in the motor vehicle parts industry were down 2.7%, the fourth decrease in five months.
In the chemical manufacturing industry, sales declined 4.2%. Most manufacturers in the industry reported lower sales.
Petroleum and coal product sales decreased 2.2%, reflecting lower volumes of product sold.
In the fabricated metal product industry, sales were down 4.0% to $2.8 billion. The drop largely stemmed from lower sales volumes.
More than two-thirds of the decline in Canadian manufacturing sales was concentrated in Ontario. In total, six provinces posted lower sales in December.
In Ontario, sales fell 4.6% to $21.9 billion, the largest drop in percentage terms since May 2009. The decline mostly reflected decreases in the motor vehicle assembly industry (-15.9%). The aerospace product and parts (-41.2%), chemical, (-4.3%), computer and electronic product (-9.8%), and motor vehicle parts (-2.7%) industries were also down.
In Alberta, sales fell 4.5% to $5.8 billion, the third consecutive monthly decrease. The drop reflected declines in the machinery (-16.0%), fabricated metal product (-14.5%) and chemical (-4.8%) industries.
Sales were down in New Brunswick (-6,7%) and British Columbia (-3.3%). In New Brunswick, lower sales in the non-durable goods industries were mostly responsible for the decline. In British Columbia, sales were down in 18 of 21 industries.
In Quebec, sales were up 0.7% to $11.6 billion, offsetting a small portion of the overall national decline. Higher production in the aerospace product and parts industry was responsible for the provincial gain.
Inventories decreased 1.0% to $64.5 billion, primarily reflecting declines in the transportation equipment as well as the petroleum and coal product industries.
Unfilled orders rose 2.6% to $65.8 billion. The increase stemmed from a 5.0% gain in the aerospace product and parts industry. Unfilled orders in the aerospace industry stood at $35.9 billion in December. A 3.2% decline in the machinery industry offset a small portion of the gain.
New orders declined 4.4% to $49.7 billion in December.
For 2012 as a whole, Canadian manufacturing sales reached $590.5 billion, up 3.4% from 2011. This was less than half the rate of growth of 7.8% in 2011 and 8.9% in 2010.
The largest contributor to the 3.4% increase in 2012 was the transportation equipment industry, where sales rose 12.6% during the year to $102.5 billion. Over two-thirds of the annual gain stemmed from higher sales in the motor vehicle assembly industry — a result that contrasts with the decrease in sales for the industry in December 2012. Another major contributor to the annual sales increase in 2012 was the petroleum and coal products industry, where sales were up 6.6%.
The slowdown in growth for the manufacturing sector in 2012 was the result of sales trends in some key industries. In the primary metals industry, annual sales fell 3.4% to $46.9 billion in 2012, following a 15.6% increase the year before. Sales in the petroleum and coal products industry increased 6.6% in 2012, compared with a 17.0% gain in 2011. Sales in the food industry fell 0.8% in 2012, following a 4.0% advance in 2011. Finally, sales gains in the machinery and chemical industries in 2012 were less than half those in 2011.
Source: Statistics Canada
IMF Says Canada’s Housing Market Still Overvalued, Economy Should Pick Up Later this Year
The International Monetary Fund (IMF) said in its annual report last Thursday that Canada’s economy will grow by 1.8% in 2013, hobbled by a weak second-half handover from the previous year.
But GDP is expected to speed up “thanks to the strengthening of the U.S. economy from mid-2013,” with the IMF pegging Canadian growth at 2.3% for 2014.
By comparison, the Bank of Canada has forecast GDP growth of 2% for Canada this year. In its quarterly Monetary Policy Report, released in January, the bank said growth should be around 2.7% in 2014.
“Our outlook for the Canadian economy is relatively a rosy one,” said Roberto Cardarelli, who heads IMF’s Canadian operations.
“The main reason for our optimism is that we expect export growth to strengthen as the recovery in the U.S. economy gradually steps up pace,” he told reporters in Ottawa, following the report’s release.
“And we expect a more sustainable and less uncertain global recovery to unleash capital spending that Canadian firms have been postponing for a while now, despite extremely favourable financing conditions.”
The weak outlook for economic growth, along with inflation now at a tame 0.8%, well below the central bank’s 2% target, pushed back calls for the resumption of interest rate hikes until at least 2014.
Growth began to slow last year as the European debt crisis grew and the shaky U.S. fiscal position worsened, threatening that country’s recovery as well as Canada’s.
Canada’s trade picture has also darkened, with exports and import slowing, reflecting a drop in domestic and global demand.
“Near-term adverse risks remain elevated, in particular from continued uncertainty on U.S. fiscal policy, further turbulence from Europe, and a decline in commodity prices driven by an economic slowdown in emerging markets,” the IMF said in its report.
“While supporting the highly accommodative monetary policy stance,” it said, “there is some space for further easing if the economy were to weaken further.”
The report said “in the event of a significant negative economic shock, there would be room for conventional monetary easing and that, if needed, other tools could be used, including forward guidance and liquidity support.”
On fiscal policy, the Washington-based lender said the federal government’s efforts to balance Ottawa’s budget by 2015 has “also held growth in check.”
“At the same time, weak external demand and the strong currency depressed exports. Together with lower commodity prices, this caused a sharp widening of the current account deficit.”
Now, even the red-hot housing market is showing initial signs of cooling, due in large part to tightening mortgage and lending rules pushed through by the Finance Department.
The IMF said the housing sector is “an important source of vulnerability,” citing the high household debt-to-income ratio. Should the ratio continue to rise, “additional measures may be needed.”
Canadian housing prices were still about 10% overvalued at the end of 2012, the IMF said , and it warned that authorities may have to intervene a fifth time in the mortgage market if personal debt levels rise further.
The IMF acknowledged that Canadian government measures since 2008, and most recently last July, to cool overheated mortgage borrowing and house prices have helped prevent a U.S.-style housing bubble.
But residential prices and construction are both still excessive, according to its assessment based on meetings with Canadian officials from December 3-18.
“Our analysis suggests an overvaluation in real terms of about 10% at a national level, although with significant variations across provinces,” said Mr. Cardarelli, in comments provided as a complement to the technical report.
Since the IMF conducted its study, there have been more signs of moderation in the Canadian housing market. Home prices grew at the slowest pace in three years in December year-on-year and housing starts fell more steeply than expected in January.
Like Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty, the IMF worries that highly indebted Canadians make the country more vulnerable to an external shock that could lead to job losses and bankruptcies.
While it expects a soft landing, it urged Ottawa to be ready to intervene again if the household debt-to-income ratio rises further from already record highs.
“These measures could include higher down-payment requirements, lower caps on debt-service-to-income ratios, and tighter loan-to-value ratios on refinancing,” it suggested.
The central bank, for its part, should not use interest rate hikes to curb household borrowing except as a very last resort, the IMF said. It urged the Bank of Canada to keep its benchmark rate on hold at 1.0% until growth regains momentum, which it expects in late 2013.
Wading into a controversial domestic debate, the report states that the sharp appreciation of the Canadian dollar and increased competition from China as a trade competitor “contributed to the decline of Canada’s manufacturing market share in the United States over the last decade.”
It noted that the Canadian authorities “only partially agreed” with this view, saying the decline of manufacturing was a trend among all advanced economies.
The federal government is on track to balance its budget by 2015-16, but the fiscal outlook for some of the largest provinces such as Ontario and Quebec is less certain, the IMF said. A priority in the medium term will be to contain healthcare costs, a provincial responsibility, it said.
“Private consumption and residential investment are expected to contribute less to growth than in the recent past, as households deleverage and the housing sector continues to cool off,” the IMF said.
“But business investment and net exports will benefit from the expected strengthening of the U.S. economy.”
The IMF also said the country’s currency was between 5 and 15% higher than warranted by long-term economic fundamentals, lifted in part by commodity prices and the country’s safe-haven status for investors.
Source: Financial Post, Reuters
Canada’s House Price Correction to Continue for Another Two Years, Says Mark Carney
The correction underway in Canadian house prices is likely to persist for another two years, warns Bank of Canada Governor Mark Carney.
“We’ve seen the adjustment in the housing market. We think there’s a bit more to come over the next couple of years,” Mr. Carney told CTV’s Question Period in an interview broadcast last Sunday.
Mr. Carney said rapidly rising prices experienced in Canada over the past decade are “certainly not normal” and Canadians shouldn’t count on home prices to be their main source of wealth gains.
“Real wealth is built through innovation, and it’s gained through hard work,” Mr. Carney explained in an interview taped before this weekend’s G20 finance ministers and central bankers meeting in Moscow. “It’s not through some magical asset inflation.”
Canada’s housing market has been slowing since mid-2012. Housing starts and homes sales have come down, while prices appear to have peaked in many once-booming markets, such as Vancouver.
Canadians are continuing to add to their record debt levels, mainly through home mortgages and lines of credit, but the rate of increase has slowed substantially.
Canadian policy makers have “pivoted” from actively pushing homeowners to buy homes and borrow, to dissuading debt and promoting exports, said Mr. Carney, who is leaving his job at the Bank of Canada to head the Bank of England in July.
“That’s a difficult rebalancing, but what we’re seeing, without question, is a very constructive evolution of Canadians’ attitudes towards debt and towards the housing market,” he said. “And it is moving towards a much more sustainable equilibrium.”
Mr. Carney said the pace of debt accumulation has slowed to about 3% a year from 10%.
Mr. Carney also reaffirmed his intention to come back to Canada when his five-year term at the Bank of England is over in 2018.
“I’m a Canadian and most comfortable in this country,” he said. “This is where my friends are, this is obviously where my family is. And it’s just natural.”
Discussing his new job at the Bank of England, Mr. Carney said he was hired to bring an outsiders’ view to reforming the British central bank and the European financial system.
“The value of me going there to the institution is to bring a different perspective,” he said. “To be a bit of an outsider, to help with the reform, the re-founding, of the Bank of England ... and more broadly in the U.K. and Europe about policy options to really get those economies going and fix those financial systems.”
Source: The Globe & Mail
Euro Zone Economy Shrinks Most Since 2009
The euro zone slipped deeper into recession during the fourth quarter of 2012 with its worst performance in almost four years, as its largest economies, Germany and France, shrank markedly at the end of the year.
It marked the currency bloc’s first full year in which no quarter produced growth, extending back to 1995.
GDP in the 17-country region fell by 0.6% in the fourth quarter (from the previous three months), the EU’s statistics office Eurostat said last Thursday, following a 0.1% drop in output in the third quarter.
The drop was the steepest since the first quarter of 2009 and more severe than the average forecast of a 0.4% drop from economists.
From a year earlier, the euro-area economy shrank 0.9% in the fourth quarter, the statistics office said. For the year as a whole, GDP fell by 0.5%.
European Central Bank (ECB) President Mario Draghi said last week that confidence in the region has stabilized and the ECB sees a gradual recovery beginning later this year, though the situation is “fragile.”
Within the zone, only Estonia and Slovakia grew in the last quarter of the year, although there are no figures available yet for Ireland, Greece, Luxembourg, Malta and Slovenia.
The big economies set the tone.
Germany contracted by 0.6%, official data showed, marking its worst performance since the global financial crisis was raging in 2009.
France’s 0.3% fall was also slightly worse than expectations.
Worryingly for Germany was its export performance, the motor of its economy.
“In the final quarter of 2012 exports of goods declined significantly more than imports of goods,” the German Statistics Office said in a statement.
The euro hit a session low against the dollar after the weaker than forecast German reading and dropped again after the release of full euro zone figures.
Back revisions to the French figures showed its output fell by 0.1% in each of the first and second quarters of 2012, meaning the country has already experienced one bout of recession in the last twelve months.
While the European Central Bank’s pledge to do whatever it takes to save the euro has taken the heat out of the bloc’s debt crisis, even its stronger members are gripped by an economic malaise that could push debt-cutting drives off track.
French Prime Minister Jean-Marc Assault acknowledged for the first time on Wednesday that weak growth was putting his government’s deficit goal for 2013 out of reach.
Economists say the euro zone may also shrink in the first quarter of 2013 although more resilient Germany is expected to rebound.
“The chances that the (German) economy will return to growth at the beginning of this year are very good. The early indicators are all pointing upwards,” said Andrea Reese, chief German economist at UniCredit.
“The question is how strong the first quarter will be. We expect growth of 0.3 per cent but it could be more.”
Dutch GDP dropped 0.2% over the quarter, keeping it in recession, while the Austrian economy shrank at the same rate.
For the more embattled members of the currency bloc, matters are of course worse.
Italy suffered its sixth successive quarterly fall in GDP – this time by a sharp 0.9%, putting it into a longer slump than it suffered in 2008-2009.
Its recession has been deepened by austerity measures that outgoing Prime Minister Mario Monti introduced to stave off a debt crisis.
With an election due on Feb. 24/25, all sides in a three-way race between Monti’s centrist bloc, Pier Luigi Berman’s centre-left coalition and Silvio Berlusconi centre-right are pledging to cut taxes to try to kick start economic growth.
Spain, the euro zone’s fourth largest economy, released figures two weeks ago which showed it remained deep in recession after a
0.7 % contraction in the fourth quarter.
Madrid is also pressing on with harsh austerity measures to cut its debt but may be given more time to meet its deficit targets by the European Commission if its economy worsens further.
There are signs that countries like Spain are starting to benefit from harsh internal devaluations – marked by wage falls and job losses aimed at making companies leaner and more productive.
In Greece, which doesn’t publish quarter-on-quarter data, GDP fell 6% in the fourth quarter from the same period a year earlier.
The European Central Bank (ECB) predicts the euro zone will pick up later in the year although its currency, if it keeps strengthening, could quickly snuff out any of those hard-won competitive advantages for its high debt members.
More recent data for January have already suggested some upturn in the first months of 2013, in the bloc’s stronger members at least, and if improvement comes it is likely to be seen in Germany first.
“We do believe the worst is behind us,” said Frederik Ducrozet, an economist at Credit Agricole SA in Paris. “We may have some very modest contraction in the first quarter, some stabilization in the second quarter and stronger recovery building up in the second half of this year.”
Still, the ECB has predicted that the euro zone’s economy will shrink 0.3% this year.
In the 27-nation European Union, GDP fell 0.5% in the fourth quarter from the previous three months and 0.6% on the year. The statistics office is scheduled to publish a breakdown of fourth-quarter GDP next month.
Source: Reuters
Latest U.S. Economic News
U.S. Housing Starts Fall in January, But Permits Up
U.S. residential construction fell in January but a jump in permits for future home building to a 4-1/2 year high offered hope the U.S. housing market recovery remains on track.
U.S. residential construction fell in January but a jump in permits for future home building to a 4-1/2 year high, offered hope the U.S. housing market recovery remains on track.
U.S. housing starts dropped 8.5% last month to a 890,000-unit annual rate, pulled down by a sharp drop in the volatile multi-family unit category, the Commerce Department said on Wednesday.
But starts for single-family units hit their highest level since July 2008 and permits for future home construction were at a 4-1/2 year high.
“This may be a correction of sorts but nothing to signal any newfound worries in the housing market,” said Sean Incremona, an economist at 4CAST in New York.
U.S. Home Builder Confidence Slips a Bit But Still Near 7-Year Peak
U.S. home-builder confidence in the market for single family homes eased slightly in February from last month’s seven-year high as builders faced higher material costs, an index showed on Tuesday.
The NAHB/Wells Fargo Housing Market index edged down to 46 this month from 47, which had been its highest since April 2006. Economists polled by Reuters had expected it to rise to 48.
The National Association of Home Builders (NAHB) said ongoing uncertainties about job growth and rising costs for building materials had slowed the solid gains seen over the last year.
NAHB chief economist David Crowe also said the slight pause in early 2013 came as “builders adjusted their expectations to reflect the pace at which consumers are moving forward on new-home purchases.”
He said building was likely “to continue on a modest rising trajectory this year.”
A reading below 50 means more builders view market conditions as poor rather than favorable. The index has not been above 50 since April 2006.
A measure of sales expectations in the next six months, however, rose a point to 50, while a gauge of current sales conditions shed a point to 51. The prospective buyers’ index fell to 32 from a downwardly revised 36.
Source: Reuters
