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No cause for rate hikes in latest inflation data

May 30, 2012 Miscellaneous, Mortgages and Financial Information

Gordon Isfeld – Financial Post

If the Bank of Canada was looking for justification to finally begin squeezing the trigger on interest rates, it’s unlikely recent inflation numbers brought its target any closer.

While the annual rate of price increases edged up more than expected last month, it was still within the central bank’s comfort zone. The dollar declined after the report’s morning release and closed down 17 basis points at 97.96 cents US.

And despite a string of strong economic numbers – pointing to steady, moderate growth – the latest debt-crisis flare-up in Europe will overwhelm domestic considerations, according to BMO Capital Markets deputy chief economist Douglas Porter. “Look for the bank to maintain its tough talk, but not to act on it any time soon.”

The consumer price index was up 2% in April from a year ago, with increases in all eight of the categories tracked by Statistics Canada.

Last month’s rise put CPI right at the Bank of Canada’s mid-range target of between 1% and 3%. But the 2% reading was slightly higher than the 1.9% average forecast of analysts, which was the same level as March.

The core rate – stripping out volatile items, such as some food and energy products – rose to an annual rate of 2.1% from 1.9% a month earlier. Market expectations were for the core rate to remain at the March level.

“If find it interesting that there is some underlying strength in core inflation, but I don’t think it’s enough to be concerned about at this stage,” Porter said.

Surprisingly, energy costs increased in April at a slower pace than the overall index for this first time since October 2009, with price rises slowing for gasoline, electricity and natural gas.

“Gasoline prices have been rising in recent months, pushing April’s gasoline index to its highest level since July 2008,” StatsCan said. “Nevertheless, the year-over-year increase in gasoline prices in April was the smallest since September 2010, partly due to near-record prices in April 2011.”

In fact, easing energy prices had a dampening effect on the overall number. Once energy costs are removed, CPI actually rose by a slightly higher 2.1% in April from a year ago.

Newfoundland and Labrador had the highest inflation rate last month, at three%. Nova Scotia and New Brunswick were also above the national average, both at 2.6%. The lowest rate was in Alberta, at 0.8%, on falling costs for electricity and natural gas, while British Columbia had an annual increase of 1.6%.

In between were Quebec, at 2.4%, and Ontario and Saskatchewan, both at 2.1%.

Given the uncertain environment coming out the recession, the Bank of Canada has left its trendsetting interest rate at 1%, a near-record low, since September 2010 to help underpin the recovery.

Many economists now expect the central bank to begin gradually raising rates before for the end of the year.

Carlos Leitao, chief economist at Laurentian Bank, said “the reason for those modest rate hikes is purely from a financial stability point of view, not because of inflation and not because the Canadian economy will be so hot that it requires tighter policy, but because the housing market requires some assistance in making sure it does slow down.”

The Bank of Canada’s next interest rate decision will be on June 5.

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Contact the Jeffrey Team for more information – 416-388-1960

Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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ORES Real Estate Index for November 2010

By Brian Madigan LL.B. – Ontario Real Estate Source

Here is the “ORES REAL ESTATE INDEX” which tracks the average resale prices of single family homes and condominiums in the Greater Toronto Area (GTA). it also tracks certain benchmark comparisons such as the price of oil and gold, as well as the Consumer Price Index.

In addition, the stock market indices for Toronto, and the three largest US markets are also compared.

For ease of comparison, everything we look at is worth 100 points on the Index as of 1 January 2005. That time period compares favourably with the five year average used as a standard benchmark comparison in the mutual fund industry.

As of 30 November 2010, here is the Index representing average prices:

Real Estate

135.55 – GTA single family homes
129.38 – All condos in GTA
132.87 – Downtown Central Condos
128.91 – East condos
135.88 – West condos
119.10 – North condos

Other market comparisons

323.44 – gold (price per ounce)
191.36 – oil (price per barrel)
140.73 – TSX index
135.55 – ORES Index single family homes
111.49 – CPI index
121.13 – NASDAQ index
104.92 – Dow Jones index
99.94 – S&P Index

Using the Index

Just a quick note on reading the information. have a look at the ORES Index for Real Estate (single family homes). As of the end of November, the index stood at 135.55. That’s a 35.55% increase in 71 months. That means the increase is 0.501% monthly, or it could also be expressed as 6.01% annually. the performance here is shown without annual compounding for the sake of simplicity.

The other statistics are reported in a similar fashion for the ease of comparison.

Observations (on the Index)

As we use index, there are several notable comments:

• Commodity prices are just commodity prices

• there is no other “extra return” for commodities

• the same is true for the CPI

• the CPI is a benchmark to see whether you are keeping pace with inflation, that number is 111.49 (It has been modest and appears under control)

• For a realistic performance goal, you should aim for CPI plus 3.5% annually

• Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indices

• The stock market indexes only measure the survivors. So, in 2009, both GM and Chrysler would have been dropped due to the bankruptcies

• If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the indexes

• Real estate offers a return in terms of occupancy. you can rent out the property and receive income, or occupy the property and enjoy it yourself

• Actually, I should have mentioned that if you held gold bullion, you could sit in a room, count it, and enjoy that experience too. I’m not quite sure how to measure that. You’ll have to ask King Midas or Goldfinger!

Comparative Observations Using the New Index

• Gold was the best performer

• Oil was the most volatile, (yes it dropped in half over our measurement period)

• Real estate was the most stable, with solid predictable returns at about 6.01% annually

• Single family homes continue to show a better overall return than condos

• Our own stock market posted reasonable gains, and is now slightly ahead of single family homes over the measurement period, however, don’t forget that the TSX is still well off its highs

• Two of the three US stock market indicators now show positive numbers, with the S&P being the only one to show negative numbers.

Conclusion

For steady, predictable, measured gains pick real estate. It’s a solid performer with lower risk (less volatility) and generally moving in a positive direction.

And remember, when it comes to real estate, it’s never “wiped out” completely, like GM or Chrysler stock. So, unless you’re sitting on the edge of a tsunami, you’ll still own something when the storm is over.

For a benchmark of success, there’s 1,000 years of history to point to a rate of return in real estate being about the equivalent of 5% per annum, simple interest (non-compounded). That means that real estate doubles in value every 20 years. There are a lot of companies (now bankrupt, including CanWest Global, and many US Banks) that would have been happy with that return.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage | 905−796−8888 | www.OntarioRealEstateSource.com

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Contact the Jeffrey Team for more information – 416−388−1960

Some catch a break on mortgage

February 20, 2009 Buying Real Estate, First Time Buyers, Mortgages and Financial Information, Toronto Real Estate

James Daw – Toronto Star

In an effort to dispel his darkest fears, a friend in the renovation and construction business turned last week to the Internet.

His search was not particularly fruitful, perhaps because he was in Italy using a borrowed computer with German instructions.

But yesterday, from a computer in Toronto, I found the Google search engine was able to turn up 69 million pages with the words “good economic news,” including some recent news stories.

Today there will be one more.

Mortgage rates and the cost of home ownership are falling. And, so far as economists are able to predict in this uncertain world, rates will stay low for many months to come.

That will leave at least some extra spending money in the pockets of consumers who will renew their mortgages or who negotiated a floating rate mortgage at a discount to the prime lending rate.

Combine that with savings on numerous other items that economists expect will lower the overall consumer price index in 2009, and with a new 15% federal tax credit on home renovations costing $1,000 to $10,000, surely some folks will see an opportunity to hire a home renovator.

Economist Will Dunning, a specialist in the housing market, says the savings on mortgage debt will not be large for home owners renewing mortgages this year, as little as $50 a month in some cases. But, he says, “it could be worse.”

The 5.79% rate that all major banks now have posted for a five-year closed mortgage is the lowest it has been since the fall of 2005, although only a hair lower than the rate posted in February five years ago.

The Bank of Nova Scotia was the last to join the crowd cutting its five-year rate by two-thirds of a percentage point, but it only charges 4.49% for five-year loan arranged through a mortgage broker, a rate that is as low or lower than other discount lenders, says John Cocomile, president of GreedyMortgage.com.

Mortgage rates would be even lower if banks were enjoying the same reduction in their cost of raising money as the federal government, which can now borrow at about 2% over five years. It will take a recovery in confidence in the world economy to cut the near three-percentage point premium in borrowing costs that corporations with an AA credit rating must pay.

“If there is an improvement in financial conditions for the banks, we could still see lower mortgage rates,” says economist Beata Caranci of TD Bank Financial Group.

No matter what, some homeowners can expect savings within weeks.

Anyone who has a variable-rate mortgage that changes with the prime lending rate will see a further decline in their rate next month if, as expected, the Bank of Canada chops its key overnight lending rate to banks by a further half a percentage point.

If banks follow and cut their prime lending rate to 2.5%, there are some homeowners who negotiated variable-rate mortgages more than a year ago who could be paying as little as 1.5% interest per year, Caranci points out.

Aron Gampel, an economist with the Bank of Nova Scotia, says the global recession triggered by the failure or near failure of U.S. investment banks will likely mean that “interest rates will stay low for quite a long period of time.”

Now, whether that will be enough to get people spending on things like home renovations will depend on their prospects for holding a job.

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Contact the Jeffrey Team for more information – 416-388-1960

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Laurin and Natalie Jeffrey are Toronto real estate agents. We would be happy to help you find your new Toronto home — be it house or condo or loft. We would also be more than pleased to help you sell your current Toronto property.

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The vast majority of content on this blog is not written by Laurin or Natalie Jeffery. It is written by many different authors, for many different publications and websites.

We re-print these articles here as a collection of Toronto real estate news and information. We aim for this blog to be a one-stop shop for people looking for information on Toronto real estate.

We do not claim any of the information we did not write as our own. We do not work for any publication, nor any builder. We are Registered Real Estate Sales People working for Century 21 Regal Realty Inc. Brokerage.