Canada First Mortgage

Bernanke: near term growth prospects good

Mark Felsenthal and Kristina Cooke, Reuters 

JACKSON HOLE, Wyo. — U.S. Federal Reserve chief Ben Bernanke on Friday said prospects for a return to global economic growth looked good “in the near term,” the clearest signal yet the world’s most powerful central banker thinks a recovery is at hand.

“After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good,” Bernanke told an annual Fed conference here in the shadows of the Grand Teton mountains.

“Although we have avoided the worst, difficult challenges still lie ahead,” he said, cautioning that the “recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”

His remarks were a bit more upbeat than a statement from Fed policy-makers last week, and nodded toward private forecasts for a solid upturn in the second half of 2009, while stressing headwinds still face the global economy.

Bernanke said “critical challenges remain” from financial markets still strained from a severe crisis that broke two years ago. The difficulties households and businesses face in getting loans is another source of stress, he said.

The crisis highlights the need to “urgently” address structural weaknesses in the financial system, particularly in the way governments set rules and supervise it, he said. Bernanke delivered the remarks at a conference sponsored by the Kansas City Federal Reserve Bank that draws top central bankers from around the world, along with a Who’s Who of economists.

Germany, France and Japan have pulled out of recession and the U.S. economy appears to be stabilizing after a devastating financial crisis and painful economic downturn that eliminated almost seven million U.S. jobs.

The Fed chopped interest rates to near zero in December and has pumped around $1 trillion into financial markets to combat the crisis and spur economic growth.

Earlier this month, the central bank said it would phase out its purchases of long-term U.S. Treasuries, one of the extraordinary measures it has used to revive the economy.

Its emergency action has gained traction. Data out on Friday showing a powerful jump in U.S. existing home sales in July to an annualized pace of 5.24 million units, notching the fastest rate in two years.

U.S. stock indexes rallied after Bernanke’s speech and the better-than-expected housing data, with the benchmark S&P 500 index rising to new 10-month highs while Treasury bonds fell.

While the U.S. economy appears to be gaining health, analysts worry a recovery could prove fleeting.

Expectations for solid growth in the second half of the year reflect the impact of a government program to spur car buying and an anticipated restocking of inventories. U.S. consumer demand is still weak and unemployment is rising.

The Fed chairman’s talk to an audience of peers at the annual Fed retreat outlined how central banks reacted to the series of flashpoints in the crisis. Without speedy actions by the Fed - some of which were “unfortunately unavoidable” - the panic could have intensified, he said.

“As severe as the economic impact has been, however, the outcome could have been decidedly worse,” Bernanke said.

He said the Fed’s moves to pump funds into frozen financial markets have promoted stability. Declining use of some of those emergency facilities since the beginning of the year is a “clear signal” that financial markets are normalizing, he said.

© Thomson Reuters 2009

TSX gathers strength as commodities rise

                                   ·           TSX +142.25(Reuters)  as market sentiment brightened and rising commodity prices helped lift the resource-heavy index after Monday’s steep descent. The upbeat mood on Bay Street was helped by better than expected quarterly results from big U.S.-based retailers Home Depot and Target

                                   ·           DOW +82.60 

                                   ·           Dollar +.44c to 90.76USD 

                                   ·            Oil +$2.44to $69.19US per barrel. 

                                   ·          Gold +$3.40 to $937.70USD per ounce  

                                   ·           Canadian 5 yr bond yields +.03bps to 2.53. The spread, based on 5 yr rate of 4.29% is 1.76%

                                   ·          http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us

      The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield  is something to watch.  If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise. Ideally lenders are looking for a new spread between 1.65 and 1.85

The International Monetary Fund is declaring the worst global recession since the Second World War over, but warns that the recovery will be sluggish and hard choices - including higher taxes - will be necessary to sustain the economic rebound.

Canadians among most optimistic: report

Misty Harris, Canwest News Service     Canadians are among the most optimistic in the world when it comes to feelings about the job market, personal finances, and readiness to spend, according to a newly released analysis of some 14,000 people in 28 countries.

The report, authored by market research firm The Nielsen Company, finds consumer confidence on a global scale has jumped five points, to 82, since March, with gains in 24 of 28 markets. Confidence in Canada climbed six points to 90, making our nation one of eight countries worldwide in which such lofty levels were achieved — Indonesia, India, Philippines, Brazil, Australia, China, and United Arab Emirates were the other countries.

Nielsen analysts conclude that the notion of recovery is finally taking hold, with most people feeling “hopeful about an end to the global economic downturn.”

Among the optimistic is Helen Goldstein, who lost her corporate wellness business, along with a third of her portfolio, to the recession.

“I feel very positive about the economy, and very positive about the ultimate effects of this (downturn),” says Ms. Goldstein, 62. “It’s been a really good lesson to look at what’s important in life.”

In May, Ms. Goldstein launched a new business venture — a Toronto social salon called Buddha Groove — and has since found that people are “spending, just spending in a wiser way.”

Indeed, the Nielsen report describes Canadians as being “among the world’s most responsible consumers.”

The proportion of Canadians using spare cash to pay down debt has dropped to 40%, from 47% in March, which analysts say is a “positive sign” Canadians are spending in other areas. The most popular of these include out-of-home entertainment (23%), holidays or vacations (23%), clothing (21%), and home improvement (20%.

Thirty per cent of Canadians are funnelling their extra cash into savings, while 11% are using excess funds to invest in retirement.

Almost four in 10 (39%) believe local job prospects over the next 12 months will be good or excellent — impressive, given the 331,000 Canadian jobs shed in 2009 alone — while slightly more than half (52%) feel the state of their personal finances will be good or excellent this year.

Notably, the Nielsen Global Consumer Confidence Survey was conducted June 15 to 29, weeks before the Bank of Canada declared the recession to be technically over.

“Recovery has started in Canada, so consumer confidence is going to reflect that reality,” says Ernest Biktimirov, an associate professor of finance at Brock University in St. Catharine’s, Ont.

Although bank closures continue to plague the U.S., with the latest casualties in Nevada, Alabama, Arizona and Pennsylvania bringing the 2009 total to 77, Canada’s prudent financial institutions are doing comparatively well. Building permits issued to Canadian contractors rose unexpectedly in June — the second consecutive monthly gain — and commodity prices are springing back.

But Mark Meldrum, an assistant professor in the Odette School of Business at the University of Windsor, Ont., cautions that “as quickly as someone can become confident, it takes one crisis to destroy it.”

Women make home-buying decisions faster than men: survey

 By Mario Toneguzzi, Calgary Herald

CALGARY - A national survey of homebuyer intentions shows that while couples make real estate buying decisions together, women make up their minds significantly faster than men when it comes to purchasing a home.

Coldwell Banker Real Estate LLC surveyed 1,000 individuals to discover how much men and women differ in the home-buying process. In a report released today, the company said that when asked how long it took before they knew their home was “right” for them, almost 70 per cent of women had made up their mind the day they walked into the house versus 62 per cent of men. Conversely, significantly more men needed two or more visits: (32 per cent of men versus 23 per cent of women).

“The results were surprising,” said Diann Patton, the Coldwell Banker consumer real estate expert. “Not only did we uncover some of the inherent differences between men and women, but we also pinpointed a number of ways that the two genders are actually the same. For example, both men and women are increasingly concerned with having a space to work in their homes – something we would not have seen 40 years ago.”

Some key highlights from the Coldwell Banker study:

– Women would rather live closer to their extended family than to their job – 55 per cent of women find it more important to be closer to their extended family (those that do not live in their household) than to their job, compared to only 37 per cent of men;

– A home’s security is a deal-breaker for both men and women – 64 per cent of women said that if they found the home of their dreams but had concerns about its security, they would no longer be interested. More than half of men agreed (51 per cent).

It has been quite apparent to the numbers in the data below that many Canadians have taken advantage of the historical low interest rates.  And really….why not? 

Housing resales rocket in July

Record 18.2% jump

Alia McMullen And Garry Marr, Financial Post 

Canada’s housing market boomed in July as low interest rates and improving economic confidence sent sales of existing homes to a record for the month, despite generally weak economic conditions.

The remarkable turnaround from an almost frozen market at the start of the year has economists stunned, and while they predict activity will level out soon, the risk is continued low interest rates begin to stoke a house price bubble.

“We can’t rule it out,” Douglas Porter, the deputy chief economist at BMO Capital Markets, said of the possibility of a bubble. But he said the scenario was hard to fathom given the underlying weakness in the economy.

Even so, that weakness to date has not prevented a strong rebound in the existing housing market, which declined steadily throughout 2008 and hit a decade low in January.

Home resales increased by 18.2% in July compared with a year earlier, to reach 50,270 units — the highest July sales result on record, Canadian Real Estate Association figures showed yesterday. At this pace, the housing market is on track to be even hotter than it was in 2007, which was a record year. Seasonally adjusted sales have risen for six straight months to be up 61.2% since January and are now just 1.4% below the peak in May 2007.

But despite the spectacular gain, the level of activity in the first seven months of this year remains 6% lower than in 2008 when activity had already begun to decline. Mr. Porter said some of the rise in the month was a result of sales that had been held back from the start of the year because of the weak market conditions.

But homebuyers have swarmed back into the market because of low interest rates and more affordable house prices.

“Homebuyers recognize that interest rates and prices have bottomed out, and are taking advantage of excellent affordability before prices and interest rates move higher,” said Dale Ripplinger, the president of CREA.

A five-year fixed-rate mortgage, the most popular product among consumers, is still available for under 4% at some financial institutions. Variable-rate mortgages, tied to prime, remain in the 3% range and are not expected to rise until June. The Bank of Canada has promised to keep the benchmark interest rate at a record low 0.25% until mid-2010, provided inflation does not begin to rise.

The strength in the market has been felt right across the country. Vancouver sales last were up 90% from a year ago, while sales climbed 28% in Toronto and 28% in Edmonton. The strong demand in the country’s highest-priced markets has to some degree skewed the average price higher. The average price of a home sold on the Multiple Listing Service last month rose 7.6% from a year earlier to $326,832.

The strength in the resales market has not been echoed in the price of new homes, which fell 3.3% in June compared with a year earlier, Statistics Canada figures showed Wednesday.

Part of the pressure on prices has come from a decline in supply, which has fallen for seven straight months. New listings in July were down 13% from a year earlier to 73,444.

Economists are skeptical the housing market will be able to continue to post such strong growth.

“After improving markedly, affordability will deteriorate in coming quarters, and unemployment will continue to rise,” said Pascal Gauthier, an economist at TD Bank Financial Group. “New listings might well start rising again too. Combined, a larger supply and a softening in demand should cool prices in a delayed fashion.”