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Noah Schafer

Election sealed corporate tax cuts; Canada needs more - The Globe and Mail - 0 views

  • The election determined only that corporate tax rates won’t go up. It did not determine that they won’t go down – as, almost certainly, they will – through the next four years.
  • The average rate in 28 of the member countries of the OECD is 20 per cent.
  • In the campaign, the government asserted correctly that Canada’s corporate tax rate was the lowest in the G7. This, alas, wasn’t saying much. Four of the G7 countries have the four highest corporate tax rates in the world: U.S. (39.2 per cent); Japan (35.5 per cent); France (34.4 per cent); and Germany (30.2 per cent).
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  • Canada’s rate (at this moment, 27 per cent).
  • As Canada trimmed, the world trimmed, too: 75 countries aggressively cut corporate tax rates in the past decade. China’s corporate tax rate is 20 per cent – discounted to 15 per cent for companies that invest in strategically important industries.
  • combined federal-provincial statutory tax rate of 25 per cent, won’t
  • The “Bowles-Simpson Plan,” proposed by President Barack Obama’s commission on fiscal reform, suggests a federal rate of 28 per cent. The Wyden-Gregg Plan, proposed by Democratic and Republican legislators, suggests 24 per cent. The China-OECD Plan, advanced by the non-partisan U.S. Tax Foundation, suggests 20 per cent
  • These rates are federal rates and don’t include corporate rates levied by the states: nominally, on average, 6.6 per cent; in fact, on average, 4.2 per cent. Thus a U.S. federal rate of 20 per cent (the China-OECD Plan) would produce a comprehensive “America rate” of 24.2 per cent
  • Canada’s goal assumed an “America rate” of 39.3 per cent: a competitive advantage for Canada of 14.3 percentage points.
  • when you add the federal rate and the average provincial rate (19 plus 12.5), you have a “Canada rate” of 31.5 per cent – the fourth-highest rate in the world: and twice as high as China’s most competitive rate.
  • The Conservative government took a lot of heat for incrementally lowering Canada’s corporate tax rate.
Dmitri Tkachenko

Surprise: Low interest rates seen sticking around - The Globe and Mail - 0 views

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    "Interest rates have recently being going somewhere unexpected: down. With the United States government bumping up against its debt ceiling, inflation ticking upward, and a growing debt crisis in Europe, most expected interest rates to be increasing.If so, it will mean pain for savers, but good news for borrowers .A drop in interest rates is equivalent to a sale on the price of money, and corporations are already rushing to take advantage of the easy lending conditions, even if they're in no immediate need of funds. Mortgage rates have fallen, too - good news for homeowners looking to refinance. But lower rates have not turned out so well for some of the market's savviest players, including Bill Gross, the founder of Pimco, the world's biggest bond fund. Earlier this year, he sold his U.S. Treasuries, because he thought interest rates were poised to rocket higher, which would drive down prices of bonds. Oil has been trading consistently around the $100-a-barrel level, thereby lifting inflation, another bond-market negative. Investors are getting nervous and growing more willing to buy super-safe government bonds."
Heshani Makalande

Banks trim mortgage rates - The Globe and Mail - 0 views

  • Four of Canada’s biggest banks are once again lowering residential mortgage rates at a time when falling government bond yields are cutting funding costs for financial institutions.
  • Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia and Bank of Montreal are all trimming their posted rates on popular five-year fixed-rate mortgages by 0.1 percentage point to 5.49 per cent among other reductions.
  • The last time they did so was on May 19 when rates for five-year closed mortgages fell by 0.1 percentage point to 5.59 per cent.
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  • RBC, TD, Scotiabank and BMO are also trimming interest rates on Saturday for a number of other residential mortgage products, including various special offers.
  • This latest round of mortgage rate cuts was prompted by falling yields on government bonds across a range of terms, said TD spokeswoman Barbara Timmins in an e-mail.
  • For instance, the yield on the five-year Government of Canada benchmark bond was 2.33 per cent on Thursday, down from 2.58 per cent on May 2 (the first business day of the month), according to data on the Bank of Canada’s website.
  • Banks usually try to match maturities when they use bonds to finance consumer mortgages. As a result, a five-year government bond would be matched up with a five-year consumer mortgage.
    • Heshani Makalande
       
      Currently it is easy to get a mortgage because the interest rates are low. This is good news for consumers who will continue to enjoy record low interest rates on mortgages and other borrowing.
Heshani Makalande

Canadians to get rate hike reprieve - Moneyville.ca - 0 views

  • The Bank of Canada is widely expected to leave its key benchmark interest rate unchanged next Tuesday — and may even sit on the sidelines until September, economists say
  • Even if the central bank leaves its overnight rate unchanged at 1 per cent next week, it’s likely to again warn consumers that the clock is ticking: interest rates will be going up; it’s just a matter of when.
  • “One per cent is not normal. Everybody realizes that. Rates will go up,”
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  • Late last year, and even at the beginning of 2011, economists were certain that the Bank of Canada would start increasing its overnight rate this spring. That was pushed to the summer amid continuing worries about the health of the U.S. economy.
  • Now more economists are expecting that the central bank will take a pass at its July policy meeting as well, and begin raising rates in the fall.
  • The central bank is nervously contemplating the continuing European debt restructuring, attempts by China to tame inflation, the impact that will have on commodity prices, and the still-fragile recovery in the U.S.
  • In particular, the U.S. may be susceptible to supply chain disruptions as a result of the earthquake and tsunami in Japan, and the resulting nuclear disaster
  • “The second quarter didn’t start well and the earthquake will weigh on the rest of the quarter. For now Q2 is not looking that great, and when the U.S. doesn’t do well, it affects Canada as well,” Rangasamy said.
  • In Canada, the economy is still expected to expand by a healthy 3.2 per cent in 2011 and 3.1 per cent in 2012, according to the Royal Bank of Canada. Inflation also remains tame, thanks in part to a buoyant loonie.
  • The central bank has been anxious to raise interest rates in order to keep a lid on household debt, which has reached record levels in Canada.
Maria Li

Rate hikes okay for most but a 'financial shock' for many - The Globe and Mail - 0 views

  • Most Canadians should be able to handle higher interest rates expected later this year, but many will still see a "financial shock," Toronto-Dominion Bank economists say
  • "The main question is how households will respond to the eventual rebalancing of monetary policy, TD economists Craig Alexander and Diana Petramala write in a new report that looks at indebtedness among Canadian households.
  • Canadians will experience a financial shock when interest rates eventually rise, but the vast majority of households should be able to cope so long as interest rates rise only gradually
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  • Bank of Canada held its benchmark overnight rate steady at just 1 per cent, citing global uncertainty and the impact of the strong Canadian dollar, but said rates must eventually rise
  • Annual personal credit growth slowed to a year-over-year pace of 6.4 per cent in April, compared to an average 10.9 per cent in a period spanning 2004 to 2008
  • The moderation in credit growth has been evident in all measures of debt
  • The debt-service ratio, the interest households must pay on their debt each month as a share of personal disposable income, climbed to a two-year high of 7.6 per cent in [the first quarter of] 2011, despite still record low interest rates.
naheekim

Canada's mortgage debt surpasses $1T for first time - CTV News - 3 views

  • Canadians are carrying more mortgage debt than ever before, with the total crossing the $1 trillion threshold for the first time
  • Canada's total outstanding mortgage debt was $1.0008 trillion as of August 2010.
  • "Over the past 15 years, the volume of outstanding residential mortgages has expanded by 194 per cent, or a growth rate of 7.5 per cent per year,"
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  • From 2004 to 2008 Canada's mortgage debt was growing at a rate of 10 per cent per year, but eased off as a result of the recession and hit 7.6 per cent in the most recent 12 month period
  • The report paints a positive picture of Canada's mortgage market, saying Canadian homeowners are comfortable with their mortgage debt, have "significant equity" and could even handle an increase in their interest rate.
  • In terms of interest rates, the report found that the average rate is 4.22 per cent, down from 4.55 per cent a year earlier. Among those who have financed or renewed a mortgage in the past year, the rate is 3.75 per cent.
  • Accordin g to the survey, 84 per cent of Canadians could afford an increase of $300 per month or more.
  • About 6 per cent of homeowners would have trouble with an increase of less than 1 per cent of their interest rate payment, and a further 5 per cent would have trouble with an increase of between 1 and 1.49 per cent
Heshani Makalande

Housing affordability getting worse, RBC says - Moneyville.ca - 1 views

  • Despite two quarters of increasing affordability thanks to lower mortgage rates in the second half of 2010, housing affordability will remain an issue for Canadians in 2011, said a report by RBC Economics released Friday.
  • “We believe we have now entered a period of steady increases in homeownership costs, which will act to restrain growth in homebuyer demand in Canada for the quarters to come,”
  • Declining mortgage rates mean that the second half of 2010 showed improving affordability. The first quarter of 2011 saw mortgage rates remain flat, but house prices started to accelerate upward across Canada
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  • In the key Toronto market, housing affordability measures rose by 0.8 per cent for a 1,200 square foot detached bungalow in the first quarter.
  • It now takes 47.5 per cent of household income to service the cost of mortgage payments, property taxes and utilities.
  • The average price of a bungalow in Toronto was $486,900 and the qualifying income needed to purchase was $103,000. But that is light years away from the Vancouver market, where an average 1,200 square foot bungalow is $736,000 with a qualifying income needed of $136,900.
  • Affordability levels are expected to get worse as interest rates get higher this year, said RBC, warning that Vancouver may be “dangerously disconnected from prevailing local housing demand fundamentals.
  • “The risk of a sustained and widespread drop will be limited given our expectation of a positive economic context that will sustain growth in household income and a gradual pace of interest rate policy normalization,” said Hogue. In Ontario, the market looks to be on a “sustainable path” although it is likely to face headwinds in the coming months arising from interest rate increases and a tightening in mortgage regulations, said RBC.
Heshani Makalande

Canadian debt load: $26,000 - excluding mortgages - Moneyville.ca - 0 views

  • Already at record levels, Canadians now owe just under $26,000 on average on their lines of credit, credit cards and auto loans, according to credit rating agency, TransUnion.
  • That’s an increase of 4.5 per cent, or another $1,000, over the same period last year.
  • The fear is that higher rates could push more consumers beyond their ability to repay their loans
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  • Debt growth in Canada is slowing from the double-digit pace seen before the recession
  • And total borrowing, including mortgages, typically the biggest household loan, is slowing, major Canadian banks said recently in their quarterly reports.
  • The Bank of Canada’s trend-setting overnight lending rate is just 1 per cent. But with inflation running at 3.3 per cent, above the central bank’s ideal range, Carney is under pressure to start raising lending rates to dampen demand.
  • Total debt per consumer increased to $25,597 in the first three months of this year,
  • Among types of loans, TransUnion said credit card debt, usually the most expensive to carry, barely budged from a year ago, falling $25 to an average of $3,539.
  • In a sign some borrowers may already be struggling, the national credit card delinquency rate rose 11 per cent. The rate measures the ratio of consumers who take 90 days or more to pay their bill.
  • The average line of credit, the most popular loans for their low cost and high flexibility, rose 5.9 per cent to $33,762 compared to last year. However, total line of credit debt declined for the first time in five quarters.
  • One noticeable shift was the decreased use of lines of credit, Higgins said. The category is the largest among consumer loans, making up 41 per cent of the total, and even more in Ontario, at 57 per cent
  • The study found debt loads rose in all provinces, led by Quebec and Newfoundland and Labrador. British Columbians had the highest load at $36,649.
  • Lines of credit are the most popular form of consumer debt, excluding mortgages, accounting for more than 41 per cent of outstanding debt at the end of the first quarter. Debt on lines of credit stood at an average $33,981, up 5.9 per cent from $31,867 in the first quarter of 2010.
Ilia Merkoulovitch

'Wall of taxation' keeping businesses small, study says - 0 views

  • Small business tax incentives are keeping businesses in Canada small, hindering business efficiency and disproportionately benefiting the wealthy
  • Canada has a special small business deduction that allows companies with less than $500,000 in revenue to be taxed at a rate of 11%, less than the standard 16.5% corporate rate.
  • only 12% of small businesses grew from having less than five employees to 5-19 employees, and only 1% grew to having more than 20 employees from 1985 to 1992
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  • the small business tax rate has led to an abundance of small businesses in Canada that have no intention to grow
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    Incentives on taxes for small businesses keeps them small and benefits the wealthy disproportionately. Companies with less than $500,000 in revenue are only taxed at 11%, instead of 16.5%, the standard rate.
naheekim

Household debt continues to rise - Business - CBC News - 2 views

  • Household liabilities grew by 6.5 per cent in the fourth quarter, compared with the same period a year ago, the slowest annual growth rate since the fourth quarter of 2002.
  • The average debt-to-personal disposable income ratio edged down to 146.8 per cent in the quarter, but only because a 1.8 per cent gain in average personal disposable income outpaced a gain in credit market debt.
  • But the rate at which Canadians piled on debt slowed, with nonmortgage credit, such as credit cards, slowing the most, at 5.8 per cent from a year ago.
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  • Overall household liabilities grew by 6.5 per cent from the same period a year ago levels.
  • Household net worth per capita increased from $178,200 in the third quarter to $181,700 in the fourth quarter.
  • The rate of growth in net worth, after rebounding from the recession, has stayed in a range of between five and six per cent. That compares with a pace of between nine to 10 per cent in the five years leading up to the recession.
  • "Once interest rates start to rise over the latter half of 2011, the debt-service ratio is expected to climb substantially."
  • Measuring all debt — government, business and family — national net worth edged up 0.3 per cent to $6.3 trillion in the fourth quarter, the slowest quarterly growth of the year.
Dmitri Tkachenko

As Canadians get older, economy gets weaker - The Globe and Mail - 0 views

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    "Statistics Canada projection shows a sharp decrease that will continue for at least the next 20 years. Employment growth since 1976 has averaged 1.6 per cent a year, while the population grew at a rate of 1.1 per cent. That extra half a percentage point added roughly 0.3-0.4 percentage points to the average growth rate of real per capita income above what it would have been otherwise. Not only is this source of growth about to disappear, demographic aging is going to start being a negative contributor to economic growth: fewer workers mean less output. One of the first places we'll see the effects of population aging is its effect on the government budget balance. Higher output per worker would help compensate for a reduction in the number of workers, so productivity will become an increasingly important policy priority. But in the short and medium term, there is no quick fix. "
Carolyne Wang

Is income inequality just business as usual? - The Globe and Mail - 0 views

    • Carolyne Wang
       
      The visuals in this link show the distribution of wealth among the highest income earners in Canada.
  • international statistics show that poverty rates are lowest where income inequality is lowest too. That can be because of culture -- the wage spectrum is compressed, as in Japan, where it is unseemly to get too far ahead of others in pay -- or through active redistribution programs, where taxes and the services they buy redistribute incomes and opportunities to try to level the playing field a bit more.
  • For most of the 20th century inequality in Canada - and in virtually all developed nations, actually - had been declining. By the 1980s that long term trend reversed. First because of recessions (where the bottom end of the spectrum lost ground) then because of rowth (when the top part of the income spectrum zoomed ahead). So for the past generation inequality has grown in Canada, in good times and bad.
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  • There are two reasons for hope. One is, oddly, the result of an aging population and the consequent shrinking pool of workers, which may push up wages for workers producing basic goods and services, not just those at the top of the skill spectrum. The other is a culture shift, where a growing number of boomers understand what is at play and start working with others to come up with ways to ensure there will be a resilient middle class for the next generation.
  • When the cost of something goes up, we tend to consume less of it. So, since living wages are higher than minimum wages, employers are likely to hire fewer workers. A living wage campaign is part of the effort to raise the visibility of a sorry development in Canada. The saying that "the best social policy is a job" is in many ways true; but a new reality has developed over the past decade or so - that you can't necessarily escape poverty by working. Working full-time full-year at a minimum wage job, as many adults do, condems you to poverty.
  • Professor Richard Wilkinson just finished a tour of Canada, discussing his research findings from the past 30 years or so. A social epidemiologist, he has gathered international data showing the very tight correlation between life expectancy and income inequality, between literacy and income inequality, between rates of incarceration and income inequality, etc. etc. Over and over again he shows a range of issues that have a strong social gradient which reveal that almost everybody is better off in a society with greater income equality, including the rich. You can see his presentation in Vancouver at this link. http://i.sfu.ca/TmyYCh
  • The Mincome experiment in Manitoba in the mid 1970s, the MacDonald Commission i n the mid 1980s, and the House Report from Newfoundland and Labrador in the early 1990s all had proposals for providing a basic income. Only Manitoba tried it, as a pilot project, for a few years. The problem with the guaranteed income idea is at what rate you set it, and at what rate you tax it back. It could remove the stigma of income support programs, but it could just as easily be a costly experiment that, essentially, guarantees poverty. Also, as Dr. Wilkinson has suggested, at some point on the GDP per capita curve, income inequality is no longer about material deprivation, but rather one of psycho-social responses. We are, after all, pack animals.
  • We can redress some of the vagaries of the market through public policies, but the root cause of growing inequality is how different peoples' work is valued. IN a slow growth environment, which seems to be the foreseeable future for Canada, it will become harder and harder for those at the top of corporate structures to take the types of increases they have been commanding in the marketplace and expect unionized workers to be happy about losing their pension, benefits and wage increases, and expect low-end workers to essentially stay put or lose more ground. Two things can happen - those at the top start moderating their increases; or those in the middle and the bottom start seeing solid increases, particularly as the wave of retirements starts accelerating. The problem with rising incomes, generally, is that usually goes along with rising prices; and we're about to host the largest cohort of retirees we've ever had in history, a group that lives on fixed and low incomes, to whom rising prices are toxic. So how will the highest priced workers get away witih demanding more in that context I wonder?
  • Historically, increasing economic growth first deliver rising inequality, then lowering inequality (Simon Kuznets' famous work back in the 1950s). That's still true of developing nations - economic growth is first badly distributed, then leads to demands for greater equality.
  • We can raise our kids more equitably - but it will take more taxes. We can have less of a winner take all society - but it will require some people at the top to trim their expectations. We can beat this in small ways, but we also need leaders to express the way forward. In the US they have Warren Buffett, Bill Gates and politicians leading the way. We're waiting for more people like Ed Clarke, the CEO of TD Bank, to weigh in on how to make Canada fairer (his suggestion is higher taxes on the rich).
Steven Iarusci

Ottawa resale market to cool in 2011; sales to fall 8%: CMHC - Residential - Real Estat... - 0 views

  • local sales of existing homes listed on the Multiple Listing Service are anticipated to fall to an estimated 13,750 units from 14,923 in 2010, a 7.9-per-cent drop, before picking up again to approximately 14,100 units in 2012.
  • Higher anticipated mortgage rates have resulted in a pull-forward effect on housing demand
  • sales were higher in late 2010 and early 2011 as buyers rushed to avoid rising interest rates and new mortgage rule changes
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  • still at historic lows, moderate raises in mortgage rates will impact carrying costs negatively, thus slightly subduing housing demand
  • Average resale prices are expected to rise by a brisk 11.5 per cent to $340,000 this year, but the growth rate will slow significantly in 2012, to 2.9 per cent
  • that segment falling 20.1 per cent to 1,975 units
  • 5,950 total housing starts forecast for 2011, up 2.3 per cent from the previous year
  • single-detached market is anticipated to be the hardest-hit
  • result of an ongoing shift towards more affordable housing types
  • New home construction is also expected to cool down this year
  • first-time homebuyers and downsizing empty-nesters at the forefront of Ottawa's housing market
  • raising the popularity of more affordable housing types such as condominium apartments, townhouses and semi-detached homes
  • soaring gas prices and lengthening commute times will push up interest in homes in the core
  • Elsewhere in the country
  • MLS sales, meanwhile, are expected to be between 429,500 and 480,000 units, with 2012 sales anticipated to be in the range of 410,000 to 511,900 units
  • slowdown affecting both single-detached homes and multi-family housing
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    A few numbers pertaining to supply of housing in the Ottawa market. Talks a little of why demand is changing in the market.
Noah Schafer

Jobless rate, global uncertainty to test Tories' economic strategy - thestar.com - 0 views

  • The new Conservative government’s business-friendly economic strategy will be tested by uncertain global conditions and a stubbornly high jobless rate in Canada. One of the first items on Prime Minister Stephen Harper’s agenda when Parliament re
  • The new Conservative government’s business-friendly economic strategy will be tested by uncertain global conditions and a stubbornly high jobless rate in Canada.
  • n February, Canada’s output sank by 0.2 per cent, the worst monthly performance since May 2009.
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  • One of the first items on Prime Minister Stephen Harper’s agenda when Parliament returns will be reintroduction of a $278 billion budget that includes a sprinkling of social and economic spending and a plan to slay the budget deficit in several years. And the government will continue with a $6 billion corporate income tax cut.
  • “The risks still lie outside the Canadian border, which as we’re well aware can have a spillover effect on Canada,” said Royal Bank chief economist Craig Wright.
  • “We’re seeing continued uncertainty and concerns still with respect to the Eurozone and where it’s headed,” he said. Uncertainty on economic growth is also being fanned by volatile energy markets and the questionable U.S. business rebound, Wright said.
  • Prospects for Canada are also complicated by expectations that spending by debt-burdened consumers could slow in 2011 and by the shut-off of the Conservatives’ two-year, $47 billion emergency stimulus program.
  • With government spending slowing, the Conservatives have staked a great deal on their view that the business community will pick up the slack and stimulate the economy with expansion-minded investments.
  • Besides phasing in corporate income tax cuts worth $14 billion by 2012, the Conservatives in recent years have provided a wide range of investment incentives for business, including easing taxes on small business and manufacturers. In all, tax cuts for business by the Conservatives total an estimated $60 billion by 2013.
  • both Flaherty and Bank of Canada Governor Mark Carney have pointedly talked about the urgent need for more spending on machinery and equipment by companies.
  • But many are not convinced, with some Canadians saying the government would be smarter to tie tax incentives directly to company investments to ensure that corporations don’t just pocket the extra profits.
  • Speaking of corporate tax cuts, Canadian Association of Social Workers spokesperson Fred Phelps said it would be one thing “if corporations turned around and invested those funds into the economy.” But he said that hasn’t been happening in recent years. “What really has driven us out of the recession,” he said, “is spending by households and government, not business.”
Joey Keum

New Canadians missing jobs recovery - The Globe and Mail - 2 views

  • As of last month, the unemployment rate for Canadian-born people was 6.2 per cent, down from the same month a year earlier when it was 6.7 per cent. The jobless rate for all immigrants declined to 8.8 per cent from 9.9 per cent in April of last year, according to numbers crunched by the Toronto Immigrant Employment Data Initiative.
  • he unemployment rate for recent immigrants (landed within the last five years) is 13.9 per cent compared with 14.3 per cent last year. And it’s been consistently above the 12-per-cent mark since early 2009.
Mike Seo

Jobless rate to be at or above 7% through 2014, TD warns - The Globe and Mail - 1 views

  • Canada's jobless rate is projected to be 7.7 per cent this year, down from the 2010 level, and will ease gradually to 7.4 per cent in 2012, 7.2 per cent in 2013, and 7 per cent in 2012, Toronto-Dominion Bank economists said Tuesday in a new forecast.
  • Noting Canada's stronger-than-expected economic growth to date, TD economists said in a new quarterly report that they expected more modest growth for the rest of this year and next. "The end to federal government stimulus remains a wild card to the outlook in the second half of 2011," they said.
  • "We have incorporated a moderate drag on growth as stimulus programs are set to expire in March of this year. However, there is a risk that government spending could contract much more significantly in the second half of 2011."
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  • the share of mortgage in arrears 90 days or more continued to climb through 2011.
Linda Lei

A warning for Canadian consumers, household debt could spark 'made in Canada' recession... - 1 views

  • “One scenario is that interest rates rise, house prices drop, and more people begin defaulting on their credit card debt and mortgage obligations. An equally worrying – and perhaps more likely scenario – is that interest rates go up a little, and more of people’s disposable income goes to repaying their debt, leading to a significant reduction in consumer spending. Since personal spending on consumer goods and services accounts for 58 per cent of the Canadian gross domestic product, this decrease would provoke a ‘made in Canada’ recession.”
  • Total household debt in Canada now tops $1.5-trillion, or three times the national debt, MIT said in a statement outlining the paper by Mr. Dunfield and his colleagues in the Action Canada fellowship. That means that while Mr. Flaherty is being fiscally responsible, many of us may not be following suit.
  • “Canada has also avoided the wide regional performance differences seen in the U.S., where states such as Nevada, California and Florida suffered significantly larger declines than the nation overall,” Mr. Goldin added. “In Canada, house prices in Calgary and Vancouver fell further than those across the nation, but the variance was relatively minor by comparison
Steven Iarusci

Report cautions that over-indebted consumers can't drive economy - 0 views

  • a rate hike may come in the fall
    • Steven Iarusci
       
      Interest rates
  • the main message is that consumers cannot be the main engines of economic growth over the next couple of years,” the authors conclude. “Instead, the economy will have to rely on other sources of growth, such as exports and business investment.”
  • Canadians have “eased off the debt-accumulation throttle,”
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  • still net borrowers, meaning they borrow more than they save
  • consumer spending will not be the engine of economic growth in the coming quarters and the inevitable future rebalancing of monetary policy will be a shock to many households
  • some of the drop in household indebtedness is explained by strong income gains, not by debt repayment per se
  • sustainable personal growth is likely in a range of 4.0-4.5 per cent. Credit continues to grow at a pace that is two percentage points above that
  • the level of Canadian household debt — which in December officially surpassed those of our neighbours to the south — is unsustainable
  • total consumer debt load is reported to be about $1.5 trillion
  • Data released late last year suggested Canadians owed on average $112,000 — a figure that includes all kinds of debt, including mortgages — and a debt-to-income ratio of 150 per cent means they were spending $1,500 for every $1,000 in take-home pay
  • Factors that will moderate credit growth over the short term include spending fatigue, a soft landing in the housing market, stricter mortgage rules and Canadians preparing for the higher interest rates that are sure to come as the economy recovers.
naheekim

Housing prices to drop 25%, forecaster predicts - thestar.com - 2 views

  • House prices in Canada will fall over the next several years by as much as 25 per cent, creating a massive impact on the economy and possibly pushing the country into recession, says a forecast
  • predicting house prices will fall by a cumulative 25 per cent over the next several years
  •  Madani says the effects on consumer spending and housing investment could be significant and perhaps strong enough to “push the economy into another recession
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  • “If house prices are to fall, there needs to be a mechanism — an excess of supply relative to demand,”
  • Last year, the Canadian Real Estate Association modified its forecasts at least four times. After initially predicting housing prices would increase in 2011, it now says prices will fall by 1.3 per cent — far below the eye-catching 25 per cent forecast by Capital Economics.
  • Financial agencies such as the Canadian Mortgage Housing Corporation, which provides mortgage loan insurance, could also be exposed to significant losses
  • The Capital Economics forecast is not the first to predict a bubble in the Canadian market. Gluskin Sheff & Associates chief economist David Rosenberg has also predicted a 25 per cent drop in Canadian housing prices, as has The Economist magazine.
  • As in the U.S., financial innovation and very low interest rates have allowed Canadian consumers to take on more debt, and house prices are high relative to income
  • However, consumers have remained complacent because low rates are keeping mortgage payments low.
  • The historical home price-to-income ratio is 3.5, but now it's hovering around the 5.5 mark, meaning average house prices are more than five times the income of workers
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    The economists and forcasters are predicting that housing prices will decrease over the next several years by 25%.
naheekim

TheSpec - Average Canadian family $100,000 in the red - 0 views

  • The average Canadian family has joined the $100,000 club, but it’s one they most likely don’t want to belong to.
  • Average Canadian household debt has hit $100,879. That’s close to twice as much as we owed 20 years ago, according to a study by the Vanier Institute for the Family
  • At the same time, the rate at which Canadians save has dropped
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  • In 2010, that savings rate has dropped to 4.2 percent — about $2,500 per household.
  • the recession has shaken out the labour market. “We’re experiencing a gain in jobs, but people are now in jobs that paid less than what they did.
  • Mortgages account for about two-thirds of the $100,879 owed by the average household, or about $63,126 per household, with 55 per cent holding mortgages and 45 per cent mortgage-free. The other third is consumer debt, which includes credit cards and personal loans.
  • “The debt-to-income ratio is concerning … but recently, (mortgage) credit demand has slowed and consumer credit demand has slowed considerably as well. It’s now at less than 5 per cent, which is half of what we saw in the previous five years on average.”
  • Personal debt consolidation and restructuring expert Jim Ferguson said the most common reason people are getting into overbearing debt is the ease of availability of credit
  • Canadian debt levels, relative to income, are still meaningfully below peak U.S. levels, but that a further sizable increase would be worrisome.
  • “Household financial assets are also growing fast due to the strong stock market, which dampen concerns about the debt, but assets can vanish more quickly than debts.”
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