Tag Archives: us recession
How Canada Squares Up
By Richard Blackwell – Globe and Mail
The growth may have be meagre, but the 0.4% annualized increase in GDP in the third quarter marked the first rise since the third quarter of 2008. That means, at least by the classic definition, that Canada is out of recession.
At one point, early in 2009, there were fears the downturn might spiral into a lengthy worldwide depression, with a contagion taking the global financial sector down the drain. That didn’t happen, and it is now possible to begin to examine how Canada fared compared with the rest of the world, and relative to previous recessions.
VERSUS EARLIER RECESSIONS
Of the Canadian recessions in the early 1980s and early 1990s, the first was by far the deepest and longest, lasting six quarters. Unemployment spiked to the 13% level.
The 1990s recession lasted four quarters and was about as severe as the one just ended, when measured by the shrinkage of the economy. But unemployment rose as high as 12% and it took a long time for the job market to recover.
This time Canada caught the recession flu from outside, mainly from the United States, and the country was in good shape with a significant federal budget surplus and solid financial institutions. As the recession took hold, quick interest rate cuts and huge stimulus helped turned the tide.
“It wasn’t primarily our fault, and we were fairly well prepared,” said University of Toronto economics professor Peter Dungan.
One reason for the relatively better performance on the jobless front in this recession, he said, is that in the 1980s and 1990s the labour force was growing much more quickly. Higher population growth, and the shift of women and baby boomers into the labour force exacerbated unemployment problems in those days.
Economist Dale Orr points out that it is not clear if the job market in Canada will recover quickly this time. Even though the economy is growing again, signs of employment picking up are still tentative.
“We’re still not home free with respect to employment, so maybe we should not jump to conclusions yet,” he said. Some important sectors – such as automotive manufacturing or forestry – are undergoing structural shifts and jobs in those industries may never return to earlier levels.
COMPARED WITH OTHER COUNTRIES
Canada’s downturn has been about as deep as that in the United States, and lasted roughly the same length of time. One key difference is that the U.S. has seen unemployment numbers jump much more sharply than here.
The credit crunch in the U.S. was worse than in Canada, Mr. Dungan noted, forcing corporations to make more severe job cuts. Housing and real estate problems were also more severe south of the border.
Compared with other countries around the world, Canada is somewhere in the middle of the pack.
Japan and much of the euro zone experienced more severe recessions, said Toronto-Dominion Bank senior economist Richard Kelly, although some of those countries are bouncing back quickly now. Few industrialized countries have actually outperformed Canada, with the exception of Australia, which has already recovered enough to increase interest rates.
The burgeoning economies of India and China slowed during the recession, but still managed to grow at levels that would make much of the world green with envy. China, for example will likely see its economy expand by 8% in 2009, according to the Organization for Economic Co-operation and Development.
AMONG PROVINCES
This recession was unusual, compared with earlier ones, in that every province showed a decline in GDP, Mr. Orr said. “In a lot of other years when Canada’s growth was negative, there was usually some province that wasn’t negative.”
Still, the reasons for the recession weren’t the same in every province. Ontario was hit by a downturn in the auto sector, Alberta was hammered by lower oil prices, while demand for B.C.’s forestry products slumped.
Quebec, which was battered in earlier recessions, fared slightly better this time because its aerospace industry held up better than auto manufacturing.
One common factor that damaged all provinces was the credit crunch, Mr. Orr said. That hurt businesses of every type and contributed to the decline in the housing market across the country.
————————————————————————————————————
Contact the Jeffrey Team for more information - 416-388-1960
————————————————————————————————————
Related posts:
- Transitioning to a slower growth environment From Scotiabank By current metrics, the finances of Canadian households...
- Canada home resales hit record in third quarter Canadian real estate sales closed out the third quarter with...
- Easy credit, soaring prices raise new housing fears Canadians are in the midst of a mortgage binge,...
- Housing sales bounce back nationwide Almost 150,000 sales of existing houses and condominiums were tallied...
- First timers weigh benefits, risks The best way for first-time buyers to assess whether they...
Carney sees recovery on the horizon
Canada’s central bank says pace of GDP growth likely to pick up through rest of 2009
Kevin Carmichael – Globe and Mail
The evidence supporting a global economic recovery is gathering force faster than governments and economists were expecting.
Canada’s central bank said Thursday that the country’s gross domestic product likely will grow at a faster pace over the second half of 2009 than the 2.2% annualized rate it predicted in July.
Bank of Canada Governor Mark Carney’s revised outlook, based on an array of positive indicators ranging from rising consumer confidence to fresh demand for automobiles, was bolstered by government reports in Ottawa and Washington that showed North American trade sprang back to life in July.
Imports and exports jumped in both the United States and Canada, amid demand for automobiles, automotive parts, and energy, signalling that the $2-trillion (U.S.) that governments have pumped into the world economy to reverse the financial crisis is having the desired effect.
“Following a deep, synchronous recession, recent indicators point to the start of recovery in major economies, supported by aggressive policy stimulus and the stabilization of global financial markets,” the Bank of Canada, which demurred from making a new GDP forecast, said in its latest policy statement.
The North American trade figures were echoed in France, where the government said international shipments by the world’s sixth-largest exporter soared 9% in July. Stock markets in New York, Toronto, Sao Paulo, London and Frankfurt all rose on a general sentiment that a global recovery is afoot.
“Compared to where we were a few months ago, it should be celebrated,” Andrew Tilton, an economist at Goldman Sachs Group in New York, said of the mounting evidence that the world economy is mending quickly. “Momentum has turned in terms of growth.”
But the potential celebrants in the finance ministries and the central banks of the world’s major economies – who have demonstrated uncommon unity in fighting the financial crisis – are showing considerable restraint in claiming victory.
Instead, they are digging in to ensure they finish the job.
Despite faster growth, the Bank of Canada retained its extraordinary pledge to leave its benchmark lending rate at a record low of 0.25% until June, 2010, barring an unforeseen burst of inflation. Policy makers also warned that “persistent strength” in the Canadian dollar could derail the recovery by making Canadian exports less competitive.
In updating the Canadian government’s fiscal projections yesterday – which include a revised forecast for a budget deficit of $55.9-billion in the current fiscal year – the best Finance Minister Jim Flaherty said about the economy was that it is in the “early stages of a fragile recovery,” telling an audience in Victoria that he would push ahead with his stimulus program.
That cautionary note is echoing among policy makers around the globe.
U.S. Treasury Secretary Timothy Geithner said yesterday in Washington that the recovery would feature “more than the usual ups and downs” and that he would proceed carefully in unwinding the Obama administration’s stimulus measures.
Federal Reserve Bank of Atlanta president Dennis Lockhart predicted the rebound would be “lacklustre,” while Reserve Bank of New Zealand governor Alan Bollard said it would be “patchy.”
The reason for such wariness is to push back pressure to reverse spending programs that are piling up debt.
“When the economy is walking solely with the aid of fiscal and monetary crutches, it’s not advisable to whip them away,” said Axel Weber, Bundesbank president and European Central Bank council member, in Ploen, Germany.
The economic data isn’t universally strong. As the North American economy showed signs of life in July, Japanese machinery orders fell to a record low, a government report said yesterday. In Rome, new figures showed that Italian exports fell 3.7% in the second quarter.
A sense of confidence also was apparent in a survey of 1,153 of Royal LePage Real Estate Services Ltd.’s real estate agents. When asked if they thought the real estate market recovery was sustainable, 61 per cent said “yes”.
The number surprised Royal LePage’s chief executive, Phil Soper, who said he expected something closer to unrestrained enthusiasm among his agents because Canada’s housing market has rallied so strongly this summer.
“Clearly, there is a concern that interest rates are driving so much of the current strength that a change in policy could bring the current good times to an end rather abruptly,” Mr. Soper said in an interview. “This will be a steady, slow recovery.”
————————————————————————————————————
Contact the Jeffrey Team for more information - 416−388−1960
————————————————————————————————————
Related posts:
- Carney urges ‘prudence’ in housing market Bank of Canada Governor Mark Carney is warning consumers not…
- Easy credit, soaring prices raise new housing fears Canadians are in the midst of a mortgage binge,…
- Irresistible rates drive Canada’s recovery In the midst of recession, the average national price of…
- Global Real Estate Recovery Continues Nourished by exceptionally low borrowing costs, direct government purchase incentives…
- Canada’s rate hikes will be tied to the Fed As economists and investors debate with increasing vigour about when…
What goes up doesn’t always come down
Toronto finds itself in a surprising situation: The economy stalled, but house prices didn’t
Tony Wong – Toronto Star
What happens if you had a recession and housing prices didn’t really go down?
That’s the scenario Toronto could be in by the end of 2009, as economists scramble to revise forecasts.
Comment: Could find ourselves in? But prices are up 6% over last year, sales volume is up 27% and year-to-date sales are up 2%. Are we not already in a position where the Toronto real estate market did not go down?
Toronto housing economist Will Dunning is forecasting that the average price of an existing home in the Greater Toronto Area will be $378,700 by the end of this year. His previous forecast was for prices to decline to $358,100, or about 5.6% from 2008. That’s in line with the estimates of about a 5% decline from most major housing analysts.
“The forecast has been raised substantially,” Dunning says. “For the past three months, resale activity has been much stronger than I had been anticipating.”
A $378,700 price is spitting distance of the $379,347 average price recorded at the end of 2008. Dunning says this year’s average price could surpass last year’s.
Comment: It already has. As of mid-August, the average sales price was $385,603 for the year to date. That is 1.6% higher than the 2008 average and 1.8% higher than the estimate. Guess the “experts” need to revise upwards yet again…
Under that scenario, prices would have increased every year since 1996 – a total of 13 straight years.
Comment: So small growth every year for 13 years… isn’t that the very opposite of a bubble? I remember when everyone said there was a Toronto real estate bubble. Boy were they ever wrong. Calgary and Vancouver were bubbles – and look what happened there! We did not have one here – and what do you know? Not a single negative year since 1996. If that is not testament to the strength of the Toronto real estate market, I do not know what is. And people call me a booster…
Not bad, considering that consumers have been repeatedly told this is the biggest economic downturn in North America since the Great Depression.
Comment: Guess that turned out not to be true, as well, eh? And where that even came from, I have no idea. The Great Depression started in 1929 and lasted for years, into the 1930s and even 1940s in some places. We had 9 months of rough times. Hardly comparable. I would think that those who persevered through that horrible time would be greatly offended that we even attempt to compare this to what they went through.
“These kinds of price increases are not what we expected at all,” says Sal Guatieri, senior economist with BMO Capital Markets. “Given the economic backdrop, no one expected housing to bounce back the way it has.”
Comment: I expected it. I predicted it. But I am not an “expert” so it didn’t matter.
Those who remember the previous recession won’t soon forget a housing downturn that lasted for seven years. Average prices plummeted from $273,698 in 1989 to $198,150 at the bottom in 1996.
Comment: Seven years? And we had a few months? Again, where the hell do people get off making these comparisons? Here we are, about a year after everything went wonky, and prices are up 6%. Last time, prices fell 38% over 7 years. Not quite the same scenario, ya think?
It is almost inconceivable to think this recession may not see even one year of retreating prices. But it’s possible.
Comment: Possible? It has already happened. Unless the bottom falls out in the next couple of months – which it most certainly will not.
“I guess if you make things affordable enough, it will generate demand.
“And all that impact on affordability has been on the backs of lower mortgage rates,” says Guatieri.
Comment: Not quite. If the economy is not good, mortgage rates go down. As the economy improves, rates go up. But if the economy is doing well, that means people have jobs and money. Which means they can afford higher mortgage rates. Heck, 20-some-odd years ago, mortgage rates were close to 20% (as people like Garth Turner like to keep reminding us) yet people were still buying houses. So why would a small jump to 8% kill everything? Rates were at 8% 10 years ago and people still bought houses. Higher rates will simply not hurt the real estate market, history proves it.
According to a Desjardins Bank report released yesterday, affordability is deteriorating as average prices rise in Ontario.
Still, the provincial market remained affordable despite the increase in prices. The bank warns, however, that “if this trend holds, the market’s journey into affordable territory will be short lived.”
Comment: What journey into affordable territory? Houses have always been affordable, that is why we have a real estate market. People didn’t just discover buying and selling houses last Tuesday.
Guatieri calls the housing climate “bizarre” and worries that some consumers may be stretching themselves to get into the market.
Comment: Why is it bizarre? Maybe the “recession” was just not as bad as we were told by all the doomsdayers and naysayers. If everyone was broke and unemployed, they would not be buying houses, simple as that.
“You have to wonder (if) in two or three years mortgage rates go back to normal levels whether they will still be able to afford the properties,” says Guatieri.
Comment: I hear this all the time, what exactly is a “normal” mortgage rate?
The rebound’s strength is even more surprising, since the year began with sales down by 50% in January. The market started to show positive territory in May, with a 2% increase, then posted two consecutive records, a 27% increase in June and 28% in July.
Comment: And then another 27% in August. Funny, though, the pattern above is the usual one. Sales are low in the winter and then get better through the spring, peaking in the summer. Just like what we saw. But since there was a “recession” going on, we had to read something sinister into it. Could also be that people were scared by all the bad news and bad spin on normal news, thus they waited. When they saw that things were being blown completely out of proportion, they came out into the sun and started acting like normal again. A lot of the sales increases came from the months with lower numbers. I bet if we move some numbers around, we would have a pretty normal year.
Data for the first two weeks of August show that this year’s cumulative existing home sales have surpassed last year’s sales at the same time.
Guatieri says the bubble of the 1980s was driven partly by speculators, while affordability with double-digit interest rates was “stretched to ridiculous levels.”
Comment: That was a bubble. Prices pretty much tripled in some areas, in about a year. And with mortgage rates in the double digits, it was a recipe for disaster. But with low rates and prices rising a bit more than inflation, there is simply no danger now.
This time housing prices are still growing faster than income levels, but affordability was not as stretched thanks to a low-interest-rate policy by the central bank.
Most economists think the party will have to slow at some point.
“Over longer periods, growth of employment is the critical factor, as it generates a need to expand the housing stock,” says Dunning. “With employment having fallen since last fall, there is limited need for new housing activity.”
Comment: Except for immigration and migration. Toronto gains around 100,000 people a year from other countries. Never mind people moving within Canada. Those people all need somewhere to live. And kids grow into adults and want to buy houses and condos. It is not just jobs that drive the housing market!
Comment: Just remember, the main point is that the news is good. Sales are up, prices are up. And there is no foreseeable reason for that to change any time soon.
————————————————————————————————————
Contact the Jeffrey Team for more information - 416−388−1960
————————————————————————————————————
Related posts:
- 2010 will see Toronto MLS listings rise In the latest month end report, the Toronto Real Estate…
- Irresistible rates drive Canada’s recovery In the midst of recession, the average national price of…
- Toronto home sales mark best June yet The Toronto Real Estate Board said yesterday that 10,955 homes…
- Toronto real estate sees more listings in 2010 It is important to look back on the events that…
- Toronto real estate sales exceed 2008 Well, it’s now official: this year’s cumulative existing home sales…
