Silver Linings of Recovery in Sight
Canada’s housing market is humming along with sales activity increasing 11% from the previous month, the largest monthly gain in more than five years. Low mortgage rates, improved affordability and greater choice of inventory have helped more renters become buyers. With sales activity rising strongly and new listings trending downward, Canada continues to move toward balanced supply and demand conditions. Home building recorded its first broadly based increase since October last year, which is good news as this sector will hopefully cease to be such a drag on the economy.
The housing market was not the only bright spot – the Organization for Economic Cooperation and Development (OECD) said their composite leading indicator showed tentative signs of recovery in Canada. Their data indicates that Canada’s economy may be bottoming out and is likely to start heading up. Consumer confidence has been increasing for the last three months and currently stands at the highest level in 15 months.
The strengthening U.S. and international demand for manufactured and commodity-related products should help lift Canada’s economy. However, a strengthening Loonie could serve as a counterinfluencing factor.
The Numbers That Drive Real Estate
Home Sales (In Thousands)
Sales activity increased 11% from the previous month. This was the largest monthly increase in more than five years. 70% of local markets saw an increase in sales. Calgary, Vancouver, Montreal, and Toronto accounted for most of the increase.
Average Home Price In Thousands
Home prices increased 6% from the previous month but still remained slightly lower than the same time last year. Record home prices were seen in Saskatchewan, Manitoba, Quebec, and Nova Scotia.
Inventory (Sales-to-Listings Ratio )
The supply of homes continued to shrink. There were 21% fewer new listings in the market in April when compared to the same time last year. With sales activity rising strongly and new listings trending downward, Canada continued to move toward balanced supply and demand conditions
Sales-to-listings ratio is an indicator of price pressure in the home market. (Data released on May 15, 2009)
Source: Conference Board, Canadian Mortgage and Housing Corporation, The Canadian Real Estate Association
Mortgage Rates Average for: 25-Year Amortization, 5-Year Term
Mortgage rates stood at 5.25% last month. This was 1.4% lower than the same time last year and .2% below where it stood when the Bank made the latest rate cut on April 21.
It is, of course, important to note that these are the posted rates, and not the deepest discount rates available, which currently run approximately 1.5% below the rates above.
Recent Government Action
Government Rescues General Motors
A comprehensive restructuring plan was approved on June 1 after General Motors failed to get its bondholders on board.
While the additional details on the restructuring gets ironed out, the massive rescue plan by the Canadian and U.S. governments will yield a majority ownership in excess of 70% between the two governments. The $9.5 USD billion in aid from the Canadian government will translate into a 12% stake in the “New GM.” This represents the largest corporate rescue in the history of Canada.
Typically, financial institutions step in to provide a company with funds through the restructuring process, but with the trouble in the financial sector, no institutions took interest leaving it up to the governments to provide $40 USD billion on top of the $20 USD billion the company already received.
The massive intervention bodes well for Canadian interest in the company by ensuring that the interests of Canada receive formal representation, and it protects the company from liquidation, saving numerous Canadian jobs. This action intends to support the auto industry; however, the 12% stake pales in comparison to the 60% majority held by the U.S. government.
Here’s the full presentation (it’s best if you view it in full-screen mode):
