BANK OF CANADA HOLDS OVERNIGHT TARGET AT 0.25% AND NOTES POSITIVE PROSPECTS FOR LATTER-2009

Grant Bishop, Economist
September 2009

• Bank holds overnight target at 0.25%, reiterating
conditional commitment to hold interest rates until
Q2/2010.

• Notes prospects for better-than-expected rebound
during latter-2009 and expects return to inflation
target by mid-2011.

In its scheduled announcement, the Bank of Canada maintained the overnight target at 0.25%, consistent with its conditional commitment to maintain the rate at
its current effective lower bound until at least Q2/2010.

The announcement was largely a re-iteration of previous announcements, with certain minor changes. The Bank observed signs that recovery has commenced and deemed
that Canada’s growth in the second half of 2009 could be stronger than the Bank anticipated in its July Monetary Policy Report (MPR). Nonetheless, while a stronger-than expected rebound would represent an upside risk to the inflation
outlook, the Bank still views that, “as a consequence of operating at the effective lower bound, overall risks to its inflation projection are tilted slightly to the downside.”

That is, if prices weaken, monetary policy has limited room to manoeuver without moving to quantitative easing (QE). The Bank noted the factors supporting domestic demand in Canada, observing a rebound in confidence and firmer commodity prices, as well as stimulative policy and improving financial conditions. In particular, the Bank pointed to inventory adjustments and automotive production as positive indicators. While manufacturing inventories were still contracting as of June and inventory to- shipment ratios remained high, the pace of draw-down has slowed and manufacturing shipments appear to have stabilized. Motor vehicle production has rebounded from its nadir in May.



We will be upgrading our projections in our forthcoming Quarterly Economic Forecast and foresee positive growth in the latter half of 2009, slightly stronger than that forecasted by the Bank of Canada in their July MPR. However, we anticipate much more tepid recovery during 2010 and 2011. While the Bank expects a return of total CPI inflation to its 2% target in Q2/2011, our lower growth projection implies a prolonged negative output gap and continuing downward pressure on core prices. We do not foresee closure of the output gap until latter-2012. As a result, we project that the Bank will be more likely to go slow than to rapidly hike rates after its conditional commitment expires.

The Bank has flagged persistent strength of the loonie as a potential risk to growth in its last two announcements, as well as in speeches by Bank staff. A higher dollar could be a net drag on growth if it results from purely speculative inflows. However, if a higher dollar is in response to relative macroeconomic strength or rising commodity prices, the appreciation partially offsets upward pressures
on prices. In all of its announcements, the Bank has added the boilerplate that it “retains considerable flexibility” in the “conduct of monetary policy at low interest rates.”

However, we do not consider it at all likely that the Bank would intervene directly in the foreign exchange market or would undertake QE in direct response to a persistently high dollar. The Bank has made clear that any additional loosening in policy would be in response to a substantial downside deterioration of inflation against its baseline projection. That is, monetary policy responds to prices,
not the exchange rate. And, even if the dollar does place a drag on recovery, the Bank would be more likely to signal the maintenance of low interest rates for longer, rather than to move to QE.

BUY NOW! HST is on the Way!!

Ontario and B.C. homebuyers face a big tax hike

Garry Marr, Family Man, Financial Post
Published: Friday, September 04, 2009

The new harmonized sales tax being proposed in British Columbia and Ontario may end up being an overall wash for some consumers but anyone buying a new house is about to get dinged. Canwest News Service The new harmonized sales tax being proposed in British Columbia and Ontario may end up being an overall wash for some consumers but anyone buying a new house is about to get dinged.

The new harmonized sales tax being proposed in British Columbia and Ontario may end up being an overall wash for some consumers but anyone buying a new house is about to get dinged.

The HST met with some resistance from the real-estate sector in Canada's largest province when it was first proposed earlier this year but the government agreed to some concessions.

New homes in Ontario currently just face a 5% goods-and-services tax, which builders have buried in the price of the home since the tax was introduced 19 years ago. Starting on July 1 of next year, new houses would face a combined HST which would be 13% in Ontario.

With new-home sales slowing after a seven-year bull run, the last thing the industry needed was something that would curtail activity further.

There was a sigh of relief when the government agreed to grandfather from the tax any deals signed prior to the date the announcement was made - June 18, 2009. Deals closed before July 1, 2010 would also not face the tax.

Everybody else was in trouble. So the government came up with an exemption from the added tax on the first $400,000 of any new home, meaning consumers outside of Toronto were for the most part unaffected.

Despite the government's "generosity," about 40% of people buying a new home in Toronto are going to face a major tax hit. That's the percentage of new homes that sell for more than $400,000.

On a $500,000 home in Toronto, the HST will mean $6,000 in new taxes. Here's how it works. The HST means an additional $40,000 in new taxes on that home, based on 8%. Builders get an estimated 2% tax credit on supplies, lowering the bill to $30,000. Minus a $24,000 tax break on the first $400,000 and you get to $6,000.

So who is going to pay for that $6,000? As the price goes up, the tax bill gets higher. It's $36,000 for a $1-million home.

"I don't know this for a fact but I don't think any builder will make [the HST] an extra closing cost because they imbedded the GST for so long," says Stephen Dupuis, chief executive of the Toronto-based Building & Industry Land Development Association.

Maybe that extra tax is not added on to the sticker price, but at some point the consumer is going to pay. Maybe through a higher price, cheaper materials or fewer finishings thrown in.

"A tax like this is going to be passed on to the consumer over time and the consumer is going to lose," says Brian Johnston, president of Monarch Corp., one of Toronto's largest home builders.

Economist Benjamin Tal, of CIBC World Markets, predicts the tax will have an impact on housing sales. "It's not like something you can brush under the carpet," says Mr. Tal. "There will be reduced demand."

He predicts the industry will build more houses without all the finishings. That will leave the consumer to do work on the black market with contractors to avoid the HST. That's what happened in the Maritimes, where the HST has been in play for years, said Mr. Tal.

"This will give a boost to the under-the-table transactions. Is that an optimum thing?" says Mr. Tal.

It's no wonder British Columbia's housing industry is fighting the HST tooth and nail. It's not interested in the Ontario compromise of an exemption on the first $400,000 of a home. B.C will provide a $20,000 tax break on the first $400,000 of a purchase, the amount being lower because the province has a 7% sales tax.

"There is no single family home here you can buy at that price," says Peter Simpson, chief executive of the Greater Vancouver Home Builders' Association. "They've taken what happened in Ontario and thought it would fly here. They underestimated the pushback on HST out here."

The provincial budget released this past week gave few hints the province might back down on taxing the industry, other than a throwaway line that it would work with industry groups to minimize the impact of the HST.


Mr. Simpson says he's not interested in any compromise, including any compromise that might grandfather housing now under construction from the new tax.

"I won't even talk about that. It will mean we've given in and we're not," says Mr. Simpson.

Good luck. Something tells me the cost of housing in B.C. is going to rise.

Is your current Mortgage still your Best Option??

With interest rates still low it's time for a mortgage check up to see if your mortgage is still beneficial to you. With a quick call to your existing mortgage provider you can find out your outstanding balance, maturity date and amount of your pre-payment penalty.
With that information Lawless Brown Mortgage Team can give your mortgage a "health check" compared to today's rates and terms. In today's changing markets and your long term goals, your existing mortgage could no longer be in your best interest financially.
Call us to find out if changing your Mortgage is financially beneficial to you.
Lawless Brown Mortgage Team
250-656-0855

Recession finally over, but recovery won't give Canadians much to celebrate

JULIAN BELTRAME, THE CANADIAN PRESS
THE CANADIAN PRESS, 2009

OTTAWA - Politicians and economists are warning of tough times continuing despite data released Monday that signal Canada's short and sharp recession ended in June and the current summer quarter will produce the first quarterly growth since last fall.

June's 0.1 per cent output gain was lower than consensus expectations, and other indicators suggest the economy is still not poised for the kind of bounce-back that would set champagne corks popping, analysts noted.

More worrisome, several economists said a double-dip slump was still a possibility for next year once extraordinary U.S. government spending peeters out.
The sobering outlook served to pour cold water on what a few months ago would have been considered shockingly good news - that after almost a year of contraction, output actually increased, and is likely to continue to grow throughout the year.
Technically, the recession will not be declared over until complete numbers on third quarter activity, the July to September period, are known later this year.
But economists say that is a formality, since enough is known about how the economy fared in July and August to make growth in the third quarter a foregone conclusion.
Technically a recession is defined as two successive quarters of economic shrinkage. Canada's economy began contracting in the 2008 fourth quarter and continued the stagnation in the first and second quarters of this year.

Merrill Lynch chief economist Sheryl King said the rebound could actually hit three per cent in the third quarter, far higher than the Bank of Canada's call for a 1.3 per cent annualized advance.

For Transport Minister John Baird, any sign of growth was a welcomed, but he too cautioned that the recovery remains "tentative and fragile.""
"This is and will continue to be a difficult year for the Canadian and global economy ... we are not out of the woods yet," Baird told reporters in Ottawa, warning the opposition parties against triggering an election that would disrupt needed government spending on construction.

Going forward, economists expect output to experience a spurt during this quarter, in part because the second quarter was weaker than expected, and in part because of the auto sector restart in July.

But most agree any fast sprint from the stand-still of the past 11 months will be illusory, and that growth will be sluggish the rest of this year and through much of 2010.

As the Bank of Canada has warned, the resurgent loonie, if the strength persists, will weigh down on the export sector. As well, household indebtedness in the U.S., and to a lesser extent in Canada, will keep consumer demand in check.
Meanwhile, the back-up of unsold goods in factories remain high, which is expected to keep employment and production growth weak even if demand picks up.
Since October, 414,000 net jobs have vanished in Canada, and by some estimates, another 100,000 could well be lost through the rest of the year before employment begins to revive.

"The rise in GDP in June and a lot of other indicators we have do indeed suggest the recession ended around mid year," said Douglas Porter, deputy chief economist with BMO Capital Markets.

The bigger issue is how robust and sustainable the recovery is. This could be a very halting recovery that's not going to feel a whole lot better than where we were a few months ago," he added."

Scotiabank's Derek Holt added a new caution, that stock markets may trend lower because they had expected a bigger bounce back.
"Even the most bullish forecast has been priced in much more aggressively into markets than is justified," he said
Most global markets retreated sharply Monday, including the Toronto exchange, which fell more than 100 points. The loonie also traded lower as the price of oil decline US$3.10 to just over US$69.
Holt believes a double-dip recession next year remains a risk, since U.S. consumers, hung over from years of debt and spending, won't have the cash to sustain demand once government stimulus is exhausted.
If the recession is indeed over, the data shows it was among the most precipitous falls since the Great Recession, but also relatively short, lasting just over three quarters.

Statistics Canada revised the first quarter contraction from 5.4 per cent to 6.1 per cent, making it the steepest three-month plunge in output on record, beating the 5.9 per cent fall-off of the early 1990s. The second quarter decline also came in lower than expected at negative 3.4 per cent annualized.

But because of its short duration, the downturn was not the worst since the Second World War, as it has been in many advanced countries.

From peak to trough, the Canadian economy contracted by 3.3 per cent, less than the 4.8-per-cent plunge of 1981-82, according to the TD Bank.
It was also predominately a recession imposed on Canada by the more massive retreat in global markets, which not only depressed demand for Canadian exports of autos, parts, wood products and oil and other commodities, but also prices.
Statistics Canada put the decline in exports in the second-quarter at 5.2 per cent, after falling 8.7 per cent in the first quarter. They have shrunk about 30 per cent since the start of the U.S. economic downturn at the end of 2007.
As TD economist Diana Petramala noted, the impact on Canadian business has been profound, with business investment in structures, machinery and equipment dropping about 17 per cent in the second quarter alone.

By contrast, the domestic economy only saw a modest slump and actually showed renewed signs of life as early as the spring, with both consumer and government spending, as well as personal income, turning positive in the second quarter.
"The big story in the second quarter was that the economy was still facing extreme weakness imposed on it from abroad. We had this deep decline in exports and we had businesses responding to that by really cutting back on capital spending and inventories," said Porter

5 Signs a Canadian Housing Recovery is On the Way

Housing starts, home sales and building permits are starting to pick up again (although, in the case of housing starts, it's a stuttering start). Here's a look at some of the numbers that, economists say, indicate Canada's housing market is on the mend

1. Housing starts expected to rise

Canada Mortgage and Housing Corp. reported yesterday that the seasonally adjusted annual rate of housing starts decreased to 132,000 units in July from 137,000 units in June after two months of gains. CMHC said the starts statistics - which mark the actual beginning of construction - are expected to improve throughout 2009. The reason? "Over the next several years, housing starts will gradually become more closely aligned to demographic demand ... currently estimated at about 175,000 units per year," CMHC said.

How solid is this foundation? Economists' opinions are mixed. BMO Nesbitt Burns economist Robert Kavcic said July results indicate a rain delay, rather than a reversal. Unseasonably soggy weather caused "a puddle on the road to recovery," he said.

However, Toronto-Dominion Bank economist Pascal Gauthier noted that the July results, which were dragged down by fewer starts in the condominium sector, were below expectations. Starts rose in May and June, and economists had anticipated a third consecutive monthly increase. "The latest data for July is yet another warning that extrapolating the bounce back from [the earlier] extreme lows ... can be overly optimistic," he wrote.

2. Building permits have bounced higher

"Building permits not only held on to the big bounce in May, they were revised higher (to 15.5 per cent) and they rose again in June (up 1 per cent) in another sign that construction is recovering from the extreme lows earlier this year," Bank of Montreal said in a research note. In June, the value of building permits was $5.2-billion, 1-per-cent higher than the revised $5.1-billion measured for May. Residential permits rose 0.5 per cent to $2.7-billion, marking the fourth month in a row in improvement.

3. Existing home sales soar

Nowhere has the turnaround been more apparent than in July sales of existing homes in Canada's biggest cities, BMO reports. "[S]ales in Greater Vancouver were up a massive 89 per cent year over year, a world away from a 70-per-cent drop last November. Toronto is a little less frenetic, but managed to post a 28-per-cent year-over-year gain in July."

Edmonton also reported a 28-per-cent increase in the number of homes that changed hands year over year and, in Calgary, the level of resale activity was up 22 per cent year over year.

4. It's still a buyers' market, but prices are firming up

Economists expect that when the Canadian Real Estate Association reports on the overall national picture Friday, the data will show that average prices are up about 4 per cent year over year - skewed upward by sales in higher-priced markets. The Toronto Real Estate Board, which has already published its July results, reports that the average price for July transactions was $395,414, up 6 per cent from the same month last year.

BMO reports new home prices "are a bit slower to turn, and we believe [today's] report on that front will show a 3.2-per-cent year-over-year decline for June."

5. Affordable mortgages

"We're probably at the best point of [mortgage] affordability right now," said Bank of Nova Scotia economist Adrienne Warren in a Let's Talk Investing video posted on globeandmail.com, noting that interest rates are starting to drift up again. She cautioned, however, that job-loss fears are keeping a lot of consumers on the sidelines.

VIRGINIA GALT
Globe and Mail
Wednesday, Aug. 26, 2009 03:25AM EDT

Please call if you would like a free evaluation of your financial situation as home ownership may be closer than you think.

Cheers
Krista and Sherri
Lawless Brown Mortgage Brokers
Victoria BC

Economic signals turning green as consumer confidence, home sales rise

OTTAWA - Canadians are starting to believe that better times are just around the corner, and that's good news for the economy, analysts say.

The August consumer confidence survey from the Conference Board of Canada shows optimism returning to Canadian households, with the index rising for the sixth consecutive month to the highest level since April 2008, when the economy was firing on all cylinders.

And in a separate report, the Canadian Real Estate Association reported that sales of existing houses rebounded so strongly during the spring and into July that the housing group was dramatically revising upwards its forecast for the year.
"The difference in the resale market now, compared to the beginning of the year, is night and day," said president Dale Ripplinger, in increasing CREA's projection for sales this year to 2008 levels, from a previously thought 14.7-per-cent decline.
As well, the real estate body forecasts the general prices of homes across Canada will rise 1.5 per cent this year, a stark contrast to the situation south of the border, where both prices and sales have collapsed.

Both indicators were below levels that existed in 2007 when the economy was booming and the horizon contained few warnings of forthcoming turbulence, but they do support the general view that the sharp economic slide of the winter and spring has stopped.

They also coincide with the recent slowdown in job losses and steady growth in the retail sector, including June's surprise one per cent increase in sales.
Since October, 414,000 jobs have vanished in Canada, but the majority of the losses occurred in December, January and February.

Economists don't often get excited about consumer confidence surveys, mostly because they often reflect the economic news rather than predict future behaviour.
Douglas Porter of BMO Capital Markets said the latest survey is worth noting, however, because of its timeliness, and its track record in accurately predicting last winter's consumer spending slump.

"Given that the consumer confidence survey is the first piece of data we have from August, it's at least a hint that maybe some of the other indications we're going to see later on - spending, perhaps even employment - are going to be better than expected," he said.

The survey, conducted between Aug. 6 and 16, raised the consumer confidence index by 5.5 points from July to 88.4, the highest reading in almost a year and a half. Confidence has risen 18.2 points since the beginning of the year.
Another good sign was that all components of the survey showed gains: more respondents were upbeat about their near-future financial prospects, fewer were pessimistic about job prospects, and a plurality said it was a good time to make big purchases, such as a car or home.

On the critical jobs question, 25.6 per cent of respondents said there will be fewer jobs available in the next six months, a huge improvement from the 54.5 per cent who felt gloomy about jobs prospects six months ago. Twenty-one per cent felt there would be more jobs six months from now, an increase of over six percentage points from July.

"In general we see this as good news," said Todd Crawford of the Conference Board. "In terms of going forward, as people become more optimistic and they go out and spend more money, that is good news for the economy."

By Julian Beltrame, The Canadian Press

If you want to get into the market, call us for a free evaluation of your financial status. You may be closer to home ownership than you think.

Cheers

Krista and Sherri
Lawless Brown Mortgage Brokers
Mortgage Depot

Our September Newsletter!

Every month we publish a newsletter for our clients full of interesting tidbits and real estate news. It's free and a good read. Please don't hesitate to go to our website and sign up for your copy. Thanks to Carmena Consulting for assisting us with creating our newsletter.

Here is a downloadable copy. Enjoy.

http://www.mediafire.com/?hxol0my2zqr

Call us for any of your mortgage questions. We're also landladies and real estate investors so if you have any questions about how to take advantage of the equity in your home and purchase a rental home....call us.

Respectfully

Krista and Sherri

Lawless Brown Mortgage Brokers
Mortgage Depot