A Tale of Two Economies...

[Slimprofits]

Re: A Tale of Two Economies...

Maybe the perceived short-term difference was made up of phony paper wealth all along, and it evaporated in an instant for many (HELOC) in 2008?

[GRG55]

Socialists in a Hurry...

Canada's Left Coast province, which includes "world class city" Vancouver (with its equally world class property bubble) the birthplace of Greenpeace, home of a carbon tax that applies to everything from gasoline to tires and peat moss, and a 25.5 Canadian cents per litre motor fuel tax (that's a cool 91 US cents per gallon), seems to be filled with ecologists and environmentalists in a hurry to get to the public hearings, anti-development protest marches and organic yoga classes organized to save us wretched unbelievers from our own folly:

Speed limits on some B.C. highways to hit 120 km/h

CBC NewsPosted: Jul 02, 2014 10:21 AM PT Last Updated: Jul 02, 2014 9:54 PM PT

...B.C.’s top limit is now 120 kilometres per hour, the highest in Canada...

[GRG55]

Back to the Original Thread Topic...

On a more serious note:

Canada, U.S. economic numbers give hope for strengthening recovery

Canadian exports rise, as does American hiring.

Published on Thu Jul 03 2014
Julian Beltrame

The Canadian Press

OTTAWA—Economic numbers released Thursday point to a strengthening recovery on both sides of the Canada-U.S. border, as Canadian exports surged, while American employers helped cut that country’s employment rate to 6.1 per cent, the lowest it has been since 2008.

At home, Canadian exports to foreign markets grew by a surprisingly robust 3.5 per cent in May, narrowing the country’s trade deficit and setting the economy on a more sustainable growth path.

For contribution to economic output, the Statistics Canada report was even more encouraging as volumes increased by an even bigger 4.2 per cent, as price drops shaved 0.7 per cent from the value of shipments.

The May data on one of Canada’s most important economic indicators was stronger than economists’ consensus forecast, but in line with what analysts had been anticipating would be the next stage of Canada’s economic recovery, with exports and business investment replacing housing as drivers of growth.

Imports also rose in May, although by a smaller 1.6 per cent, bringing Canada’s trade deficit to a slim $152 million from an upwardly revised $961 million in April.

“The export-driven recovery in the trade balance in May supports our expectation that net trade will provide a lift to growth in the second quarter even after accounting for the unexpectedly large deficit recorded in April,” said Dawn Desjardins, assistant chief economist with the Royal Bank, in a note to clients.

“Additionally, the increases in imports were in part due to higher equipment purchases that likely signal a strengthening in investment growth.”...

...Preston noted that Canada’s exports are now 12.7 per cent higher than a year ago, a pace that hasn’t been seen since the end of 2011.
With the housing market and construction slowing, the Bank of Canada has been counting on an export recovery to boost business confidence and convince firms they need to invest in new equipment and machinery to expand production capacity.

On that front, there was more good news from the U.S. — Canadian exporters’ largest market by far — with the American economy creating 288,000 new jobs in June, helping cut the unemployment rate there to 6.1 per cent, the lowest since 2008. It was the fifth straight gain above 200,000 — the best such stretch since the late 1990s tech boom...

...The breadth and consistency of the job growth in the U.S. are striking in part because of how poorly the year began. The economy shrank at a steep 2.9 per cent annual rate in the January-March quarter as a harsh winter contributed to the sharpest contraction since the depths of the recession.

Yet employers have shrugged off that setback and kept hiring.

The unemployment rate dipped from 6.3 per cent in May to its lowest level since the financial crisis struck with full force in the fall of 2008, when the Wall Street firm Lehman Brothers went bankrupt...

...At least one nagging doubt is dampening the enthusiasm: Can the stepped-up hiring lead to higher incomes? U.S. wages have yet to outpace inflation for most workers. Eventually, analysts say, the falling unemployment rate should cause pay to rise more sharply. But no one knows precisely when.

The jobs report from the U.S. Labor Department did make clear that, five years after the recession officially ended, the U.S. economy is showing more vitality even as major economies in Europe and Asia continue to struggle.

Last month’s solid hiring followed gains of 217,000 jobs in May and 304,000 in April, figures that were revised upward by a combined 29,000.

Over the past 12 months, the economy has added nearly 2.5 million jobs — an average of 208,000 a month, the fastest year-over-year pace since 2006...

...The U.S. job gains in June were widespread. Factories added 16,000 workers, retailers 40,200. Financial and insurance firms increased their payrolls by 17,000. Restaurants and bars employed 32,800 more people. Only construction, which gained a mere 6,000, reflected the slow recovery of previous years...

[Polish_Silver]

Re: Socialists in a Hurry...

Canada's Left Coast province, which includes "world class city" Vancouver (with its equally world class property bubble) the birthplace of Greenpeace, home of a carbon tax that applies to everything from gasoline to tires and peat moss, and a 25.5 Canadian cents per litre motor fuel tax (that's a cool 91 US cents per gallon), seems to be filled with ecologists and environmentalists in a hurry to get to the public hearings, anti-development protest marches and organic yoga classes organized to save us wretched unbelievers from our own folly:

Speed limits on some B.C. highways to hit 120 km/h

CBC NewsPosted: Jul 02, 2014 10:21 AM PT Last Updated: Jul 02, 2014 9:54 PM PT

...B.C.’s top limit is now 120 kilometres per hour, the highest in Canada...

I've always had a mix of curiousity and frustration with people like that. We had plenty in the California of the 1970's.

How many of them are home owners? Does it dawn on them that by restricting new construction they drive up their own property values? Typically, they do not live in inner city high rises, which their ideology suggests they should.

I do respect their integrity--placing a local tax on fuel. In California, they would self righteously call for a national tax, knowing it would never happen.

Actually, I think a US tax on gasoline (or oil imports) would be a good thing, just to stem the flood of dollars going over seas.

[GRG55]

Re: Back to the Original Thread Topic...

A random walk around the headlines this summer morning: job losses, inflation, bubblicious property, more inflation, and the ultimate antidote, public debt

Canada lost 9,400 jobs in June, jobless rate ticks up to 7.1%

34,000 jobs lost in Ontario alone during the month

Last Updated: Jul 11, 2014 9:49 PM ET

Canada's economy shed 9,400 jobs in June, enough to inch the unemployment rate up slightly to 7.1 per cent...

...Economists had actually been expecting a small increase in the number of jobs in Ontario because of activity surrounding the provincial election campaign.

That didn't happen.

The province's hard-hit manufacturing sector had another bad month, as employment in that sector fell by another 13,600 jobs to a record low, dating back to 1976.

The job losses weren't confined to manufacturing alone, however. Ten of the 16 job categories that the data agency tracks posted losses in the month...

...June's jobs data means that Canada has produced a mere 72,000 jobs in the last 12 months. That's the lowest annual figure since February 2010. Worse still is that much of those gains are coming from just a single province — Alberta.

"If Alberta is stripped out of the national total, there would have been no job growth in the past year," BMO economist Doug Porter noted.

The Canadian dollar plunged on the news, down 0.76 cents US to 93.16 cents as economists anticipate the poor result may cause the Bank of Canada to trim its growth expectations for the economy in next week's monetary policy report, while signalling any hike in interest rates is at least another year away...



Vancouver tops list of most expensive cities in Canada again

Annual Mercer list shows Vancouver in top spot over Toronto again

Last Updated: Jul 11, 2014 2:16 PM ET



Luxury home sales soar, condos get connected & new wireless rules

Last Updated: Jul 11, 2014 7:32 PM ET

If the idea of a home that's completely connected to your smartphone in every way is your idea of heaven, it was a good week for you as Samsung and a Toronto condo developer unveiled what they hope the home of tomorrow will look like.

Developer Canderel Residential has broken ground on a 66-storey condo development in downtown Toronto that, when it opens in 2017, will offer something unique to the owners of all 634 suites.

It'll be the first high-rise tower in Canada that will offer all amenities completely connected to your smartphone. Want to call the elevator? Just swipe. Unlock the door and turn on the lights? Use your phone. How about taking a video peek at your condo while you're away — yes, there's an app for that...



Gas prices: Here's how they determine what you pay at the pump

Pump prices determined by geopolitical turmoil as well as number of operating refineries

Last Updated: Jul 11, 2014 4:11 PM ET

Energy analysts and gas-price watchers say high gasoline prices across Canada aren't expected to drop significantly until the summer weather and sectarian conflict in oil-rich Iraq cool off.

In mid-June, prices across the country made records. Some gas stations in Toronto reached an unprecedented 142 cents a litre for regular gas, while Vancouver got as high as 152.7. In April, Montreal had an average price of 153 cents, giving it the dubious distinction of having the highest gas prices in Canada, according to the web site TomorrowsGasPriceToday.com...



Canada sells more 50-year bonds

Government moves to lock in funding at historically low rate

Last Updated: Jul 11, 2014 10:23 AM ET

A few months after doing it for the first time, the federal government has gone back to the bond market to sell another batch of 50-year bonds.

Ottawa borrowed $1 billion from the bond market late Thursday, with a maturity date of Dec. 1, 2064, and paying an interest rate of 2.76 per cent.

Ottawa said demand for the debt was "exceptionally strong" from both domestic and international investors.
It's the second time Ottawa has tapped the bond market for ultra-long bonds this year, as Ottawa previously sold $1.5 billion worth of 50-year bonds at the end of April...

[don]

Re: Back to the Original Thread Topic...

on the regulatory front . . . .

This is a verbatim comment from a principled conservative economist friend who will remain nameless and blameless.

"Was at a Cato/Mercatus conference on The Way Forward in GSE Reform. I stood up and asked 'Every solution I have heard is just enriching government cronies and rent seekers. Is this all you've got?'

Dead silence. Yes, it's all they got. Rent-seekers and heart-breakers."

(from Jesse's Cafe Americain)

[GRG55]

A Seriously Unbalanced Economy...

From the "Go West Young Man" file:

In Canada’s economy there’s Alberta, and there’s everywhere else

Bloomberg News | July 23, 2014 | Last Updated: Jul 23 9:31 AM ET

The oil- and gas-rich western province of Alberta was responsible for all of Canada’s net employment growth over the past 12 months, adding 81,800 jobs while the rest of Canada lost 9,500. Alberta’s trade surplus, $7.4 billion in May, almost matched the deficit rung up everywhere else.

If growth trends over the past decade continue, Alberta would pass Quebec to become the country’s second-largest provincial economy in three years, according to data compiled by Bloomberg.

“Alberta is already by far the strongest province economically, and higher oil prices will only exacerbate the regional split,” Benjamin Reitzes, a senior economist at BMO Capital Markets in Toronto, said in a telephone interview.

Alberta’s growing power is doing more than putting energy ahead of manufacturing exports such as Ontario’s cars and Quebec’s aircraft. It’s drawing tens of thousands of young people to the province, seeking energy jobs with some of the country’s highest salaries...

...The unbalanced nature of the economy is reflected in the construction of Calgary skyscrapers, like Encana Corp.’s headquarters. It can also be seen in economic statistics. Alberta has been “effectively the lone driver” of recent housing starts, spurred by population growth that’s the highest in more than three decades, Bank of Montreal estimates. The province’s per capita gross domestic product will reach $88,000 next year, $35,000 more than the rest of Canada, Toronto- Dominion Bank economists predict.

“Alberta will lead all other provinces as many sectors of the economy are performing well,” Arlene Kish, senior economist at Lexington, Massachusetts-based consulting firm IHS Global Insight, wrote in a July 16 report. Economic growth rates of 3.4% this year and 3.0% next year will be the strongest in Canada, she forecasts...

...More people moved to Alberta from other provinces than to any other area — about 27,700 in 2011-12, the latest year available — according to federal statistics agency. Since records began in 1976-77, Alberta has brought in a net 483,600 people from the rest of the country, while Quebec saw an outflow of 465,400 people over that period. Ontario saw a net inflow of 63,200 people, about 13% of Alberta’s total...

[lektrode]

Re: A Seriously Unbalanced Economy...

From the "Go West Young Man" file:

In Canada’s economy there’s Alberta, and there’s everywhere else

Bloomberg News......
....
...More people moved to Alberta from other provinces than to any other area — about 27,700 in 2011-12, the latest year available — according to federal statistics agency. Since records began in 1976-77, Alberta has brought in a net 483,600 people from the rest of the country, ....

and i'll bet the liftlines at lake louise are/have been krankin - along with the rooms/meals prices ?? - and fuhgetabout the lift tickets, which they dont even want to talk about, apparently - as they aint showin em for last season anymore - but the summer price - 29buxCDN - for a ride up the gondie?
ahhhhegm.... is still quite a bit cheaper than they gettin down in the southern rocks...
and the (winter) season pass rates are as well....

and hey! - if the loonie cooperates - might just hafta come up there and check em out again GRG - since it was '81 the last time i was up there...

[GRG55]

Re: A Seriously Unbalanced Economy...

From the "Go West Young Man" file:

In Canada’s economy there’s Alberta, and there’s everywhere else

Bloomberg News | July 23, 2014 | Last Updated: Jul 23 9:31 AM ET

The oil- and gas-rich western province of Alberta was responsible for all of Canada’s net employment growth over the past 12 months, adding 81,800 jobs while the rest of Canada lost 9,500. Alberta’s trade surplus, $7.4 billion in May, almost matched the deficit rung up everywhere else...

From the "We Can't Let Our Students See Us Owning Dirty Alberta Oil" file:

Apparently we Colonials have more faith in the British economy than the natives like Mega. Then again, maybe what goes around eventually comes around and the Brits are luring our unsuspecting capital, intent on revenge for all those defaulted railway bonds more than a century ago :

Ontario Teachers’ Pension Plan to increase stake in Bristol Airport

Reuters
1:58 PM, E.T. | July 28, 2014

Canada’s Ontario Teachers’ Pension Plan said on Monday it plans to increase its ownership of Britain’s Bristol Airport from the current 49 per cent as Australian asset manager Macquarie Group reportedly shops for buyers for its 50 per cent stake.

“We plan to increase our ownership, and in fact we feel that we are the right buyer, given our history and expertise. Bristol Airport is an asset in which we already hold a significant stake, so we know and understand it well,” the pension fund’s spokeswoman, Deborah Allan, said in an email to Reuters.

[Fiat Currency]

Re: A Seriously Unbalanced Economy...

Crumbling of Canada’s 3 stock pillars fuels concern about the economy

[ATTACH=CONFIG]5520[/ATTACH]

Oil, bank and raw-materials are the biggest laggards in Canada for the first time since at least 1988, fueling concern the nation’s economy is fading just as the U.S. is taking off.

The three industries, which collectively account for two-thirds of the Standard & Poor’s/TSX Composite Index, are the worst performers among 10 groups this year, according to data compiled by Bloomberg. The nation’s largest banks joined oil and materials in a rout that erased 4.1 per cent from the benchmark index in three days, including the biggest one-day retreat since June 2013.

The selloff in the biggest pillars of the Canadian equity market comes as data showing a weaker jobs market coupled with slowing exports suggest a tentative economic recovery. Banks have slumped as earnings last week collectively missed estimates amid declining trading revenue and sluggish consumer borrowing. Meanwhile, the S&P 500 Index has reached all-time highs on signs of accelerating growth.

“It is fair to assume that the recent slide does send a much more muted message for Canada’s economy than the generally brighter U.S. picture,” Doug Porter, chief economist at BMO Capital Markets in Toronto, wrote in a research note dated Tuesday. Porter said last month that Canada’s expansion in the next few quarters may be curbed by the drop in prices for crude oil.
With a slump in commodities prices and lowered prospects for the banks weighing on its three largest industries, the S&P/TSX will struggle to keep pace with its peers in 2015. The Canadian market is lagging the S&P 500 for a fourth straight year.

‘Never Pleasant’

The S&P 500/TSX tumbled 329.53 points, or 2.3 per cent, to 14,144.17 Monday as the selloff in oil accelerated, with energy companies plunging the most since August 2011 as crude dropped to a five-year low.

“I’ve seen it before, more than once,” said John Kinsey, fund manager at Caldwell Securities Ltd. in Toronto. His firm manages about $1 billion. “It’s never pleasant, there’s a lot of stress. You’ve got all of this stuff where people are starting to panic.”

The Canadian benchmark equity gauge has plunged 9.7 per cent since reaching a record on Sept. 3, wiping out more than $270 billion in market value and reducing its gain for the year to 3.8 per cent. The S&P/TSX, which was the second-best performing market among developed nations through the first half of the year, now ranks 16th.

Three Groups

Energy companies have slumped 14 per cent this year and materials stocks have dropped 4.5 per cent, leading declines among 10 major groups. While financials are still up 8.1 per cent for all of 2014, they have plunged 4.7 per cent from an all-time high in November.

“The three groups are feeding off each other,” said Shailesh Kshatriya, senior investment analyst at Russell Investments Group in Toronto. His firm manages about $307 billion globally.

That combination is stirring concern as recent data suggests the nation’s economy is vulnerable. Gross domestic product rose at a 2.8 per cent annualized pace in the third quarter, Statistics Canada said last month. That’s slower than the second quarter’s 3.6 per cent expansion.

A report last week showed employment fell by 10,700 in November, while the unemployment rate rose to 6.6 per cent. The country’s trade surplus narrowed for a third straight month in October as export growth slowed.

The U.S., by contrast, added the most to payrolls in three years during November, while the economy grew 3.9 per cent in the third quarter, capping the strongest six months in a decade.

Trickle-Down

“If we had a more diversified economy with a broader base, the drop in energy would be a positive for the economy as a whole because consumers have all this money,” said Bruce Campbell, fund manager at StoneCastle Investment Management Inc. in Kelowna, British Columbia. His firm manages about C$100 million. “We’re so focused on energy and the money that’s derived from that, that’s going to hit our GDP and there’s a trickle-down to where money is spent and not spent.”

The economic picture is further clouded by the latest round of bank profits. The nation’s largest lenders slumped the most in three years last week on weaker-than-forecast earnings for the fiscal fourth quarter. Royal Bank of Canada was the only one of the six biggest banks to meet expectations.

Toronto-Dominion Bank, the nation’s largest lender by assets, sank 2.8 per cent to $52.72 yesterday, the lowest since Oct. 16. Bank of Nova Scotia, the third-largest, fell 1.8 per cent to $65.07.

Lost Cachet

Canadian banks had been considered a haven, showing resilience through the financial crisis, yet now face weaker demand for loans as consumers seek to reduce record household debt.

“They’ve been a great place to park your money, but they may have lost that cachet,” said David Cockfield, fund manager at Northland Wealth Management in a phone interview from Toronto. His firm manages about $270 million.

“I’d been expecting to be disappointed so many times in the past and they kept coming through, so I was neutral this time and they ended up getting hit.”

The drop in banks combines with a worse showing for commodity shares. Oil stocks have led the market lower this year, with producers from Crescent Point Energy Corp. to Encana Corp. plunging to multi-year lows.

Brent and West Texas Intermediate crudes have slumped into a bear market amid concerns of slowing global growth and a U.S. oil glut with production at the fastest pace in three decades.

Gold Slump

Raw-materials stocks have retreated with gold prices touching a four-year low in November and demand for base metals such as copper slowing in China, the world’s largest commodities consumer. China is Canada’s second-largest trading partner after the U.S.

China’s economic growth will decelerate to a 26-year low of 6.7 per cent in 2016, according to data compiled by Bloomberg.

Teck Resources Ltd., Canada’s largest diversified miner, has plunged 42 per cent this year, the biggest decline since 2008. Barrick Gold Corp., the world’s largest gold producer by production, is down 29 per cent in 2014 and touched a 1991 low on Nov. 5.

While energy producers are starting to curb capital spending to preserve their balance sheets, the sentiment in Canada’s oil patch in Calgary is not as negative as in 2008, said Martin Pelletier, managing director and portfolio manager at Calgary-based TriVest Wealth Counsel Ltd.

“It doesn’t feel like the financial crisis,” Pelletier said in a phone interview. “It doesn’t have the same fear factor, yet the share prices are trading close to those levels.”

‘Fire Sale’

TriVest, which has a 6 per cent weighting in energy, owns names including Vermilion Energy Inc., Crescent Point, Tourmaline Oil Corp. and Whitecap Resources Inc. There will be opportunities for investors to buy energy stocks at “fire-sale prices,” Pelletier said.

In the meantime, the uncertainty and volatility surrounding benchmark oil prices make it difficult to predict a bottom for Canadian energy stocks, let alone broader resource companies, said Caldwell’s Kinsey.

“If the oils keep going, nobody knows where they’re going to go,” he said. “Commodities can be very brutal.”

[GRG55]

Re: A Seriously Unbalanced Economy...

The unequals

December 9th, 2014

On one side of the river is a depressed little Ontario town of 29,000 souls, and on the other is a city in New York State with ten times the population, a daily paper, three local TV stations, pro hockey and football teams. The median home price in Buffalo is $69,900. But yards away in Fort Erie, it’s $179,680.

Niagara Falls, Ontario, is a little more upscale and home prices reflect it, at $215,625. But that same money will buy you three houses across the gorge in Niagara Falls, New York, where the average is $60,500.

These bizarre differenials are consistent from coast-to-coast. The median house price in Canada is now $402,100, while in the States it’s just $222,900. A survey done (and published in the aghast Buffalo News) showed that of 10 sets of border communities, houses on the Canadian side cost more in nine. The only exception was Burlington, Vermont ($266,950), which sits across from Saint Jean Sur Richieu, Quebec ($213,850).

This disparity is made all the more interesting because the Yanks can write off mortgage interest from their taxable incomes (a huge advantage), plus they can lock in an interest rate for an entire 30 years (currently about 4% ),while we have to play rate roulette every five. Imagine that. Never having to renew. Never seeing payments rise.

Now, Canadians earn more. But taxes here are (in general) considerably higher. And even accounting for the income differential, house prices in Canada are still wildly above those to the south. This is the case even after a 20% improvement in American real estate values since the depths of the housing crisis in 2008, when properties shed 32% of their value nationally.

Since then mortgage lending rules have been tightened and huge loans (called ‘jumbo’) have been curtailed. The home ownership level in the States has travelled form 69% down to 64% (the lowest level in 19 years), while here it has increased here to 70%. In the States, first-time buyers have plunged as a share of all buyers, into the 20% range (historically it has been twice that), while here a stunning 49% of all offers are made by virgins.

The differences are epic. Two countries, side-by-each, with similar cultures, economies, incomes and structures, and yet in one – the nation with a tenth of the population, far higher taxes and riskier mortgages – houses cost twice as much. How could this be?

Simple. We’re fools. And the current oil-fired mayhem will play a role in proving it.

We have developed an appetite for debt that’s nothing short of awesome. Canadian houses cost more because Canadians are dumb enough to borrow unlimited amounts to buy them. Rates are low, bankers are omnivorous, mortgage rules are lax and most people still think paying $1,100,000 for a buggy beater house in a ‘developing’ neighbourhood is less risky than putting ten grand worth of dividend-spewing Canadian Tire stock in your TFSA.

But, all this will change. In fact, it is. A year ago one of the housing hotspots in Canada was Fort McMoney, that oily boom town in northern Alberta. Well, guess what? The latest stats are out, showing a 65% crash in new housing starts. CMHC reports that where 584 multi-unit homes were being built last year, now it’s 179. Single house construction has fallen by 50%. The resale market has also frozen – and not just because it was minus five there today.

A new RBC report says Alberta, Saskatchewan and Newfoundland will all be taking negative hits to incomes because of oil, while the provinces that suck up the energy (especially Ontario) will benefit. Even with oil at $70 next year and $80 in 2016 (which seems a stretch), growth in the Canadian economy will shrivel like a cowboy skinny-dipping in a mountain stream, and come in at less than 2%. Meanwhile a mess in the oil patch will ripple out broadly. Plot the flight destinations by Westjet and Air Canada out of Fort McMurray, and see what I mean. That’s where the paycheques flow.
Meanwhile, cheap gas (at these levels) is equivalent to giving everyone in the US a pay raise of 2%. Coming along with robust corporate profits and more than 200,000 new jobs every month this year, it all means a tailwind for America.

One or two more quarters of surging economic growth there and the Fed will begin the inevitable process of raising rates.

That might not matter a whole lot if you just bought a nice house in Buffalo for $110,000 in cash. But it sure does when you borrowed $600,000 for a tract home in Mississauga.

At least everyone can bitch about their lousy hockey teams.

[thriftyandboringinohio]

Re: A Seriously Unbalanced Economy...

Thanks, GRG55, for continuing to bring us these updates on the Canadian housing market.
It all seems so familiar to the US housing mania ten years ago.

In the US mania a few smart and brave people made good money shorting the bubble.
Does Canada offer similar opportunities now?

[EJ]

Re: A Seriously Unbalanced Economy...

The unequals

December 9th, 2014

On one side of the river is a depressed little Ontario town of 29,000 souls, and on the other is a city in New York State with ten times the population, a daily paper, three local TV stations, pro hockey and football teams. The median home price in Buffalo is $69,900. But yards away in Fort Erie, it’s $179,680.

Niagara Falls, Ontario, is a little more upscale and home prices reflect it, at $215,625. But that same money will buy you three houses across the gorge in Niagara Falls, New York, where the average is $60,500.

These bizarre differenials are consistent from coast-to-coast. The median house price in Canada is now $402,100, while in the States it’s just $222,900. A survey done (and published in the aghast Buffalo News) showed that of 10 sets of border communities, houses on the Canadian side cost more in nine. The only exception was Burlington, Vermont ($266,950), which sits across from Saint Jean Sur Richieu, Quebec ($213,850).

This disparity is made all the more interesting because the Yanks can write off mortgage interest from their taxable incomes (a huge advantage), plus they can lock in an interest rate for an entire 30 years (currently about 4% ),while we have to play rate roulette every five. Imagine that. Never having to renew. Never seeing payments rise.

Now, Canadians earn more. But taxes here are (in general) considerably higher. And even accounting for the income differential, house prices in Canada are still wildly above those to the south. This is the case even after a 20% improvement in American real estate values since the depths of the housing crisis in 2008, when properties shed 32% of their value nationally.

Since then mortgage lending rules have been tightened and huge loans (called ‘jumbo’) have been curtailed. The home ownership level in the States has travelled form 69% down to 64% (the lowest level in 19 years), while here it has increased here to 70%. In the States, first-time buyers have plunged as a share of all buyers, into the 20% range (historically it has been twice that), while here a stunning 49% of all offers are made by virgins.

The differences are epic. Two countries, side-by-each, with similar cultures, economies, incomes and structures, and yet in one – the nation with a tenth of the population, far higher taxes and riskier mortgages – houses cost twice as much. How could this be?

Simple. We’re fools. And the current oil-fired mayhem will play a role in proving it.

We have developed an appetite for debt that’s nothing short of awesome. Canadian houses cost more because Canadians are dumb enough to borrow unlimited amounts to buy them. Rates are low, bankers are omnivorous, mortgage rules are lax and most people still think paying $1,100,000 for a buggy beater house in a ‘developing’ neighbourhood is less risky than putting ten grand worth of dividend-spewing Canadian Tire stock in your TFSA.

But, all this will change. In fact, it is. A year ago one of the housing hotspots in Canada was Fort McMoney, that oily boom town in northern Alberta. Well, guess what? The latest stats are out, showing a 65% crash in new housing starts. CMHC reports that where 584 multi-unit homes were being built last year, now it’s 179. Single house construction has fallen by 50%. The resale market has also frozen – and not just because it was minus five there today.

A new RBC report says Alberta, Saskatchewan and Newfoundland will all be taking negative hits to incomes because of oil, while the provinces that suck up the energy (especially Ontario) will benefit. Even with oil at $70 next year and $80 in 2016 (which seems a stretch), growth in the Canadian economy will shrivel like a cowboy skinny-dipping in a mountain stream, and come in at less than 2%. Meanwhile a mess in the oil patch will ripple out broadly. Plot the flight destinations by Westjet and Air Canada out of Fort McMurray, and see what I mean. That’s where the paycheques flow.
Meanwhile, cheap gas (at these levels) is equivalent to giving everyone in the US a pay raise of 2%. Coming along with robust corporate profits and more than 200,000 new jobs every month this year, it all means a tailwind for America.

One or two more quarters of surging economic growth there and the Fed will begin the inevitable process of raising rates.

That might not matter a whole lot if you just bought a nice house in Buffalo for $110,000 in cash. But it sure does when you borrowed $600,000 for a tract home in Mississauga.

At least everyone can bitch about their lousy hockey teams.

Bank of Canada warns house prices are overvalued by up to 30 per cent

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

The Bank of Canada released its Financial System Review Wednesday, 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%.

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 . . . But if it did, the effect on the economy would be severe

“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.”

more...

[jk]

Re: A Seriously Unbalanced Economy...

who is holding all those canadian mortgages? were/are they securitized? in risk tranches or just bundles? are the issuing banks holding them? is there a canadian federal agency which has been hoovering them up? inquiring minds want to know.

[LazyBoy]

Re: A Seriously Unbalanced Economy...

This disparity is made all the more interesting because the Yanks can write off mortgage interest from their taxable incomes (a huge advantage), plus they can lock in an interest rate for an entire 30 years (currently about 4% ),while we have to play rate roulette every five.

Yikes! I didn't know about that.
They're betting that house values never go down and interest rates never go up?!?