Canada First Mortgage

by Michael Sanibel, Investopedia.com

The recent financial  crisis and recession have been a worldwide occurrence. The events in the United States since 2008 have garnered most of the headlines because the U. S. has the world’s largest economy and national debt, but the reality is that many countries in Europe are in worse financial shape and continue to deteriorate.

There are various ways to rank indebtedness, such as debt per capita and deficit or debt as a function of gross domestic product (GDP). This ranking is based on cumulative debt as a percentage of GDP and is limited to an analysis of the 25 largest economies. It is further limited to “external” debt, which is the portion of the national debt that is owed only to foreign creditors. The source for the debt and GDP amounts is the Central Intelligence Agency World Factbook most recent numbers from mid to late 2009.

1. Ireland - Debt/GDP: 997%
The days of Ireland enjoying one of the fastest growing economies in Europe are over, at least for now. The story is all too familiar, as easy credit fueled a housing bubble that burst and damaged consumer confidence.

After recording budget surpluses in the prior two years, the economy reversed course in 2009 and contracted 7%. This eroded tax revenues and sent the annual deficit to a record 14.3% of GDP. The European Union set a target for Ireland to reduce that figure to 3% by 2014, but the International Monetary Fund has indicated that the deadline will be missed. Moody’s has subsequently lowered its bond rating.

2. Netherlands - Debt/GDP: 467%
The national debt in the Netherlands has reached record levels as a result of the world financial crisis and recession. Much of the added burden was caused by significant government support for the country’s banking sector. The increase in debt per capita is second only to that experienced in Ireland.

The Netherlands joined the eurozone with a hard guilder a decade ago, but its current debt would likely disqualify it for membership.

3. United Kingdom - Debt/GDP: 409%
Investment bank Morgan Stanley fears that Great Britain could face a severe debt crisis in the near future if it continues down its current path. According to the bank’s report, this is a case of not putting aside sufficient reserves when the economy was sound. During the peak of the boom, it still ran a budget deficit of 3% of GDP when other European countries were running surpluses exceeding 2%.

Like many other countries, Britain bought time during the financial crisis by implementing massive fiscal stimulus and forcing the public to fund losses in the private sector. Without the restoration of fiscal credibility, there is a significant danger of a government bond sell-off, pound weakness and a flight of capital.

4. Switzerland - Debt/GDP: 273%
Generally regarded as having one of the world’s most stable economies, Switzerland has taken its budget crisis seriously. When the national debt began to escalate in the last decade, the Swiss voted to approve a constitutional amendment forcing the government to balance expenses and revenue during each economic cycle. While annual deficits may still occur, this has instilled discipline in the process and lowered the country’s borrowing costs as investors rushed to safety.

This so-called “debt brake” was implemented in response to increasing debt stemming from a slowdown in economic growth. Deficits climbed as spending rose for unemployment benefits and tax revenues declined. While government expenditures were cut across the board, rising revenues have not been sufficient to pay down the incurred debt.

5. Portugal - Debt/GDP: 228%
With last year’s deficit coming in at 9.4% of GDP, the Portuguese government has instituted a growth and austerity program with the objective of reducing that number to 2.8% by 2013. These measures have sparked strikes in the public sector including postal and transportation services. Those events have been further propelled by unemployment above 10%, the worst in 40 years.

The root problem has been low productivity and virtually no economic growth in the past few years. Portugal ranks last in GDP growth among countries that adopted the euro as a common currency. Demand for goods and services has stalled, along with innovation and business momentum. In addition, Portugal’s exports have been undercut by cheap labor in countries such as China. (For related reading, see The Economics Of Labor Mobility.)

6. Austria - Debt/GDP: 214%
The recession and government assistance to banks have contributed to the budget crisis in Austria. The finance minister has rejected the notion of higher taxes in favor of administrative reforms to cut spending. He has predicted that the annual deficit would grow from 3.5% to 4.7% of GDP between 2010 and 2012 before starting to decline. That peak would be the third-highest since 1976 when such data were first recorded.

Rising unemployment has resulted in increased expenditures for unemployment compensation and other government benefits. In addition to the reduced payrolls, tax reforms have driven down overall tax revenues.

The Bottom Line
While the U.S. and Canada have large economies, their respective debt-to-GDP ratios are 93% and 62%. The U.S. gets most of the attention because of the size of the numbers that comprise the ratio - $13.5 trillion debt (June 2009) and $14.4 trillion GDP (2009 estimate).

By comparison, China and India have ratios of 7% and 20% respectively. Their economic growth rates have also exceeded the western nations over the past few years, thereby keeping their debt ratios relatively low. If the western nations don’t implement policies to reduce their debts, they run the risk of jeopardizing future economic growth and prosperity.http://ca.finance.yahoo.com/personal-finance/article/yfinance/1785/top-6-most-indebted-countries-and-why

TORONTO, Aug. 18 /CNW/ - Continuing weakness in the U.S. economy may force the Bank of Canada to put interest rate hikes on hold after September, notes a new report from CIBC World Markets Inc.

“North America’s story is again darkening,” says CIBC’s Chief economist in the latest Global Positioning Strategy report. “We were looking for a material second-half slowdown for the U.S. but as it turns out, it’s already happened.”

Economic growth stateside from April to June is being revised downward, Mr. Shenfeld notes, and key indicators are pointing to growth that will be slower than anticipated by U.S. monetary policy makers.

And still ahead is a “further fiscal belt tightening in 2011 that will have to be softened, and accompanied by quantitative easing, if the U.S. is to stay out of recession in early 2011 and get back to potential growth by the end of that year.

“Forget about any rates hikes from the U.S. Federal Reserve until sometime in 2012 at the earliest.”

While Canada is in much better economic shape - it leads the U.S., Eurozone, U.K. and Japan in first-half growth and has a record gap over the U.S. in the share of working age population holding a job - it “cannot move all the way to normalized interest rates while the U.S. Federal Reserve is still on hold,” Mr. Shenfeld contends.

For starters, an interest rate differential of 300-400 basis points would take the loonie “substantially stronger” creating additional headwinds for Canadian economic growth, saysMr. Shenfeld.

Furthermore, the “external environment will be one of less-than-normal growth as fiscal tightening bites in Europe and the U.S., and with our own upcoming fiscal tightening also hitting domestic demand, monetary policy might have to be set at stimulative levels to allow the economy to return to potential and remain there. To keep moving at all, you have to step on the gas if your car is trying to roll up a steep incline.”

Mr. Shenfeld doubts that the Bank of Canada “has been shocked enough to forestall a rate hike in September” but his forecast that Canadian growth in Q2 and Q3 will fall below the BoC’s outlook will likely warrant a rethinking in the October Monetary Policy Report and in the months to follow.

The report also notes that there are limits to how far the Bank of Canada can diverge from the U.S. Federal Reserve without later regretting it. Episodes in recent years in which rate overnight rates were 2 per cent or more above those stateside resulted in sagging or sacrificed growth. These are “lessons learned, we hope,” says Mr. Shenfeld.

“Since a hike at every rate setting date through 2011 would take rates substantially higher than 2%, a pause is coming on the road to tightening.”

As a result of the dampened external growth outlook, Mr. Shenfeld has trimmed his call for rate hikes. He sees Canadian overnight rates going no higher than 2% next year as the U.S. Federal Reserve stays on hold.

A less hawkish monetary policy combined with a mixed outlook for commodity prices affected by slow global growth will also likely see the Canadian dollar roughly two cents weaker than earlier forecast over the same horizon, adds Mr. Shenfeld. The complete CIBC World Markets report is available at:http://research.cibcwm.com/economic_public/download/gps_aug10.pdf

Rising interest rates are weighing on Alberta consumers, who are growing more cautious about the strength of the economic rebound, a new survey shows.

Overall confidence levels remain positive, according to the poll conducted for PricewaterhouseCoopers LP by Leger Marketing and provided to the Herald. But half of respondents also say they have changed their spending as a result of the economic slowdown, a sign of concern over the impact of higher borrowing costs on personal debt loads.

“Consumers are starting to take a look at what (higher) interest rates do to their spending habits,” said Ian Gunn, Calgary-based partner of PwC’s private company service practice.

Among the most cited change was cutting spending at 77 per cent, while 58 per cent also said they shopped more sales.

Using cash instead of credit came in next at 41 per cent, followed by paying down debt faster at 35 per cent.

For Calgary consumers such as Mary Oliphant, the economy has yet to show signs of consistent growth and she has pared her spending accordingly.

“The economy still, to me, is not stable,” she said Monday while out shopping for school clothes for her teenage daughter at Sunridge Mall.

“I’m optimistic, but I’m being more diligent about where I’m shopping, I’m looking for good sales.”

The fluctuation in confidence levels follows the uneven pace of the economic recovery in Alberta, said one economist, pointing to signs of a cooling housing market and a lack of consistent job gains.

“All you need to do is really look at some of the key indicators in Alberta, in Canada, the U.S. to recognize that a lot of the ‘recovery’ has kind of run its course and is kind of losing steam,” said Adam Legge, chief economist with Calgary Economic Development.

“Everybody has been saying the first half of 2010 was going to be the best. We’re at a point where the economy is starting to have to stand on its own two feet and it’s not quite in a stable position yet — so people are tentative.”

The survey found overall business confidence dropped slightly to 107, down two points from May.

Consumer confidence was down one point to 104. An index above 100 reflects a positive sentiment.

“It is still very positive, but starting to show indications of trending down,” said Gunn.

“Those might slip a little bit further as we go into the start of the fall period — part of that is going to be where interest rates keep getting moved.”

The survey also found some variances over which part of the province would recover more quickly.

More business leaders — 34 per cent — said Edmonton and northern Alberta was the region that would rebound fastest, while 23 per cent selected Calgary and the southern part of the province.

That’s likely a nod to the pickup in oilsands activity, largely seen to fuel spinoff work in Edmonton and Fort McMurray regions, Gunn noted.

Consumers, however, were more evenly split on the pace of rebound between the two regions.

On the job front, consumers were less optimistic about the outlook for unemployment rates, falling four points to 110. That’s still higher than 2009 levels.

Business leaders remain more positive — a possible sign of future hiring intentions — as the index rose a notch to 135. But that is still down 20 points from March.

They were also less optimistic about current business conditions for the second consecutive survey.

For business owner Melinda Gravelle, demand has been off some months but appears to catch up in others. Her sense is the Alberta economy continues to soldier on, citing still busy stores and construction sites.

“It’s sort of evening out,” she said of bookings for her company Playtime Rentals, which lends inflatable play structures.

“Even though it’s been quieter some months, then we get quite busy.”

The survey, conducted between July 16 and 22, polled 900 Albertans, while 208 Alberta business leaders responded to an online survey.

The margin of error is plus or minus 3.3 per cent, 19 times out of 20.

lschmidt@theherald.canwest.com

© Copyright (c) The Calgary Herald

Jesse Kinos-Goodin, Financial Post · Sunday, Aug. 8, 2010

When investing in real estate, sometimes it’s necessary to look beyond your own backyard. The Real Estate Investment Network (REIN), a national organization of investors, has compiled what it says are the top 10 Canadian cities in which to invest. Few are major cities and some are surprising. Don Campbell, president of REIN, as well as one of the researchers on the study, says the results are based on factors such as planned transportation improvements, or if the area’s average income, population growth and job growth are increasing faster than the provincial average.

Oddly enough, nothing east of Ontario shows up on the list, and while Mr. Campbell says cities like Halifax, Saint John and Moncton “still provide decent returns,” the top cities are ones that will outperform the national average between 2010 and 2015.

1. Calgary

Calgary is “poised to outperform the average by a wide margin,” says Mr. Campbell, making it the top-ranked city.

After two years of declining average resale housing prices, the Canada Mortgage and Housing Corp. has predicted they will increase year-over-year in 2010.

The REIN report credits the downturn to a much-needed correction, and that it was “economically impossible for the [Calgary] market to continue at the pace at which it was heading.” But now that it is coming out of the recession, along with economies elsewhere, Calgary’s strengths in producing food, fuel and fertilizer will boost its growth.

“Calgary is in a unique economic and geographic position to take advantage of the direct and indirect jobs this increase in demand will create,” says Mr. Campbell, who adds that with strong in-migration and renewed affordability, the city provides a good buying window for long-term investors.

2. Kitchener-Waterloo-Cambridge, Ont.

REIN refers to Canada’s Technology Triangle as the “economic Alberta of Ontario.” That means KWC is not only seen as the economic engine of the new Ontario economy, but also that it “will outperform all other major regions in eastern Canada,” Mr. Campbell says. For indicators, he points to job growth, student growth and a new light rapid-transit system.

3. Edmonton

Edmonton sits near the top of the report’s list because of its future potential. Calling it a “perennial overachieving market,” REIN says the city is a “growing market, [with] an increasing population, and a forward-looking leadership.”

It will also be the main benefactor of energy development in Western Canada, says Mr. Campbell, resulting in a “very affordable, strong rental market with strong in-migration from across Canada.” Major infrastructure improvements, such as the ring road and LRT expansion, will be key.

4. Surrey, B.C.

British Columbia’s second-largest city is growing so fast it could become even bigger than Vancouver.

“Just a decade ago, it was known as the punch line to many a joke,” Mr. Campbell says. But with two border crossings to the United States, links to five major highways, deep sea docks and four railways, Surrey is a prime location to do business, he says.

Although there may be a strong rental market, it’s a city that requires a closer examination, taking “neighbourhoods and even the street’s characteristics into consideration when deciding where to purchase,” REIN warns.

5. Maple Ridge & Pitt Meadows, B.C.

The Translink and Gateway Project infrastructure improvements have made these B.C. towns the “most accessible regions in [Vancouver’s] Lower Mainland,” the report says. They’ve come a long way, Mr. Campbell says. The unofficial motto of Maple Ridge used to be “You can’t get there from here.” As a result of poor infrastructure in the past, property values have been historically low in this area. But with the improvements, it’s predicted an additional 400 business will move into the area, REIN says, improving the demand for both residential and commercial property.

6. Hamilton, Ont.

“The perception no longer matches the reality of Hamilton,” Mr. Campbell says. “The city’s leadership, as well as local business owners, have transformed what was once a rough-and-tumble steel town to a city with economic vitality, diversification and population growth.” REIN applauds Hamilton’s leadership as being innovative in revitalizing the city, adding Hamilton

“has beaten its overall building permit value for the second year in a row.”

7. St. Albert, Alta.

“Long thought of as a satellite of Edmonton, St. Albert is poised to be the biggest benefactor of the new Edmonton Ring Road,” says Mr. Campbell, who adds that as the transportation access improvement is completed, the city will begin to experience “a flood of not only new residents, but also the relocation of companies and jobs into town.” Other attributes of the city include consistently low vacancy rates, high rents and strong property value increases. It also helps that the city has “turned itself into a major retail centre for the northern region while adding to its industrial and commercial job base,” REIN says.

8. Barrie & Orillia, Ont.

These two cities have been shedding the perception of being just cottage country and have become a “hot bed for growth,” Mr. Campbell says. University and college expansion campuses have brought new life to the area, and the addition of Go Train access has made them viable commuter towns for the Greater Toronto Area, REIN says. For investors, this all adds up to healthy property appreciation, a respectable vacancy rate of 4.7% and the youngest residents on average in a given Census Metropolitan Area (CMA).

9. Red Deer, Alta.

In the centre of the Edmonton-Calgary corridor, Red Deer is not close to either. But REIN suggests reviewing city plans, as there will be a lot of hidden opportunities. “The whole central Alberta region has witnessed very strong population and job growth, as well as a real estate market that has continually outperformed most other regions of the country,” Mr. Campbell says. He adds that with a continually expanding industrial and commercial job base, Red Deer is in a good position to “take advantage of the inevitable growth in demand for food, fuel and fertilizer.”

10. Winnipeg

Winnipeg is often left off the real estate investment radar, but Mr. Campbell says it’s a good city for “consistent economic performance — not too high during booms and not too low during downturns.” But people should stick to buying top-quality properties. REIN also notes that housing prices, after dipping last year, are back to double-digit increases, which could “lead to an influx of inventory on the market.” But with one of the lowest vacancy rates in the country, at 1.2%, there is room for movement. Another positive factor for the city is international immigration is expected to increase under the provincial nominee program being undertaken by the government.
Read more: http://www.financialpost.com/news/Where+cities/3369599/story.html#ixzz0w4mDdnyK