Consumer price index eases to 2.7 per cent for July, Statistics Canada says  the first time that inflation has been below a pace of three per cent since February which will give BoC some wiggle room to keep rates low.

OTTAWA – The pace of inflation eased in July as increases in the price of gasoline slowed, giving the Bank of Canada room to keep interest rates at their exceptionally low levels.

Statistics Canada said Friday that the consumer price index rose at an annual pace of 2.7 per cent in July, down from a 3.1 per cent rate in June.

It was the first time that inflation has been below a pace of three per cent since February. TD Bank deputy chief economist Derek Burleton said the “inflation genie” appeared to remain tucked in the bottle.

“It will give the Bank of Canada some wiggle room to keep rates low during this period of global uncertainty,” Burleton said.

“The thinking has shifted now to the fact that economic growth is probably going to slow and the fact that core inflation is still below the Bank of Canada’s target (of two per cent) means that inflation really isn’t a major risk at the moment.”

The core index, which is used by the Bank of Canada to help guide its decision on interest rates, gained 1.6 per cent following a 1.3 per cent gain in June. On a month-over-month basis, the core index was up 0.2 per cent in July, in line with economist expectations.

Bank of Canada governor Mark Carney told the House of Commons finance committee that the latest read on inflation was consistent with the central bank’s expectations.

Finance Minister Jim Flaherty and Carney testified before the committee on Friday following nearly two weeks of volatile trading on stock markets around the world due to fears of a sovereign debt crisis in Europe and worries that the United States may slip back into recession.

As the Canadian recovery has progressed, the central bank has emphasized that it would be prudent with respect to the possible withdrawal of any degree of monetary stimulus, Carney said.

“This is particularly important in the current environment of material external headwinds. To state the obvious, if the outlook for growth and inflation changes, the path for monetary policy will be affected accordingly,” he said.

BMO senior economist Sal Guatieri noted that the core rate appeared to be on track to fall short of the Bank of Canada’s estimate of 1.9 per cent for the third quarter.

“While Canadian inflation has been more volatile than usual of late, core inflation looks to settle just below the two per cent inflation target, providing an anchor for the headline rate to gravitate toward,” Guatieri wrote in a note to clients.

“The tame core reading will buy the Bank of Canada time to remain on the sidelines and is clearly no obstacle for rate cuts should global recession risks intensify.”

Energy prices were the main driver of the increase, gaining 12.9 per cent compared with a year ago. However, that was down from a 15.7 per cent increase in June. Gasoline prices were up 23.5 per cent compared with a year ago, compared with a 28.5 per cent increase in June.

Food prices were up 4.3 per cent, matching the increase in June.

Excluding food and energy prices, the consumer price index increased at a pace of 1.2 per cent in July, compared with a 1.4 per cent increase for June.

July was the first month to compare prices with a year ago that included the introduction of the harmonized sales tax in Ontario and B.C. as well as a two percentage point increase in the tax in Nova Scotia.

Last week, the U.S. Federal Reserve said it would look to keep its key interest rate near zero through the middle of 2013. The low rates in the United States will put more pressure on the Bank of Canada to keep borrowing costs on hold north of the border as well.

There had been recent speculation that the Canadian central bank would begin raising rates this fall to curb inflationary pressures in the Canadian economy, which has been growing faster than the United States.

However, economists say the recent stock market turmoil and fears of a double-dip recession in the United States have made it likely that rates won’t rise in Canada until next spring at the earliest.

http://ca.finance.yahoo.com/news/Consumer-price-index-eases-2-capress-1368143771.html

The debt problems in the US and Europe have taken the pressure off Canadians with mega-mortgages and credit lines that are over the line.

Remember how Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty were warning not too long ago that high personal debt levels could become unmanageable when interest rates moved higher? Well, interest rates aren’t going anywhere for now.

That’s the view of economists following the worsening of the debt crisis in some European countries and the continuing difficulties the US economy is having.

Click here to read more in the Globe and Mail.

While there are similarities, 2011 is not 2008. And it’s unlikely that we’re in for the same sort of market collapse we saw three years ago.

First of all, the fuel of the 2008 meltdown was an overleveraged US economy, and the match that started the fire was the collapse of the investment bank Lehman Brothers. The financial institutions were full of the now-famous “toxic assets” – basically, rotten debt. And because of the interconnectedness of the global financial system, no one wanted to lend anyone any cash. Credit dried up for almost everyone, including the Mom-and-Pop businesses on Main Street. Soon, even perfectly solvent businesses couldn’t access credit… or pay their bills and the recession was born.

But the trigger that started last week’s market mayhem was a downgrade of US government debt. Lehman had no money to pay its bills, while the US government does. The debt-ceiling story in July and early August was not a financial problem, it was a political one. The US economy is perfectly able to pay its debtors, either through cuts to spending, or through raising taxes. There are options on the table, but US politicians can’t agree on which bad medicine it wants to swallow. Lehman Brothers, on the other hand, had no options, and no medicine. It was bankrupt.

Secondly, leading up to 2008, enormous bubbles in both the US housing market and global equity markets were building. No one wanted to spoil the party, especially in the housing market where everyone was getting rich! But, looking back, it’s plain to see that problems were brewing. Typical for market bubbles, the bigger the bubble the more painful and spectacular is the bust. In 2011, however, there aren’t really any bubbles to burst. The US housing market is still DOA from the collapse it suffered three years ago. Stock and commodity prices, while having recovered significantly from the lows in 2009, are less out of line with reality than they were in the summer of 2008. Today, only gold is showing classic signs of a price bubble.

Click here to hear more from Todd Hirsch, Senior Economist for ATB Financial

Just as British Prime Minister David Cameron used Canada as a model when assessing Britain’s troubled economy, Americans are noting that Canada faced many of the same problems in the 1990s and dealt with them successfully.

Click here to read more in the National Post.

Canada’s real estate market is now expected to grow this year rather than decline, as buyers take advantage of continued low interest rates that are intended to offset recent economic turmoil, economists said Tuesday.

 The comments came after the Canadian Real Estate Association revised its 2011 national forecast for home resales, citing stronger than expected sales and higher prices in the second quarter.

 An earlier CREA forecast called for a 1% dip in sales this year from 2010. But the association said Tuesday sales should grow this year – albeit less than 1% above 2010.

 CIBC Deputy Chief Economist Benjamin Tal said recent stock market uncertainty due to the European debt crisis and the US credit downgrade is actually helping boost sales in Canada’s real estate market.

 Click here for the full article from The Canadian Press.

Bank of Canada Governor Mark Carney is expected to confirm the obvious Friday when he speaks for the first time in almost a month: Canada’s economy is slowing down.

A lot has happened since July 20th, the last time Carney spoke publicly. Then, on the heels of his latest economic forecast, he said Canada’s recovery was picking up steam.

In the weeks since, Washington narrowly escaped a debt-limit crisis, markets fluctuated wildly over European debt squabbles and the US Federal Reserve promised low interest rates through to 2013 shortly after Standard & Poor’s downgraded the US’s AAA credit rating.

This rush of negative economic news is the reason why MPs on the House of Commons finance committee have scheduled a special meeting Friday in Ottawa to hear from Carney and Finance Minister Jim Flaherty on what all these developments mean for Canada.

Click here to read more in the Globe and Mail.

The Pitfalls of Adding Parents or Children to the Title of your Home

in order to qualify for a mortgage

Here is an article on of our private lenders forwarded over to me I thought I would share. Tune into The Mortgage Show Saturdays at 7pm on CKNW AM980 with 2009 AMP of the Year Angela Calla to learn more or call 604-802-3983 acalla@dominionlending.ca to review your mortgage options.

 Adding parents or children to title in order to qualify for a mortgage may seem like a reasonable request.  After all, helping the family in need is a noble undertaking. However, before making changes to title, it is important to understand the unintended consequences.   Read More

The upside in a global stock market rout may ironically be a healthier housing market – at least in the short term, say economists.

“The housing market has nine lives. Every time interest rates are supposed to go down, something happens and it helps to keep the market going,” said Benjamin Tal, senior economist at CIBC World Markets.

Interest rates were supposed to be headed up before the crisis of terrorist attacks in New York on 9/11, and the last crash in 2008. But that didn’t happen. And it looks like rates will be staying down for a while, says Tal.

The market is already betting that Bank of Canada Governor Mark Carney’s plans to hike interest rates as soon as September will have to be put off until the end of next year.

South of the border, the Federal Reserve said Tuesday that it expects “exceptionally low levels of the federal funds rate at least through mid-2013.”

And ironically, while the U.S. has experienced a downgrade in its credit rating from Standard & Poors, investors have continued to pile into the Treasuries market.

The U.S. dollar remains the global reserve currency as investors head for shelter as they find few safe haven options out there.

The demand for treasuries means that yields have gone even lower. Which means there is downward pressure on longer-term interest rates. Long-fixed term rates are affected by a variety of factors such as competition for funds in financial markets and to prices in the bond market. Short-term rates are more affected by the key overnight central bank rate.

“The interest rate environment will continue to be very attractive for homebuyers for both short term and longer term borrowing costs. With the safety of U.S. bonds that’s keeping longer term rates low,” said Scotiabank economist Adrienne Warren.

Industry groups are warning, meanwhile, that during an already tough recovery, any sudden move upward in rates could have dire consequences on real estate sales.

“The very recent global economic news demonstrates the Bank of Canada needs to consider any future rate hikes with extreme caution, as the recovery may be more fragile than believed,” said Ontario Home Builders’ Association President Bob Finnigan.

Some investors may also be looking at real estate assets for a place to park their money because of the volatile stock market, said Tal.

Lance Dore, a member of the U.S.-based Royal Institution of Chartered Surveyors, says investment in real estate may be a beneficiary from those looking for safe haven.

“The sell-off of stocks is a clear signal that people are not confident in the future and want safety now.  What has also happened in the past declines in the stock market is a flight to quality,” said Dore. “Real estate tends to be the recipient as part of this flight. Real estate values are at all-time lows with returns at all-time highs.  The convergence of excess cash due to stock sell-off and corporations flush with cash for investment will push these excess funds into the inevitable diversification to real estate.”

While the future for the stock market looks shaky, the real estate sector is improving due to improving fundamentals based on increasing rents, absorption of distressed supply and increased interest for diversification, said Dore.

However, if the stock market continues on a downward path, housing will not escape unscathed. While lower interest rates are a huge mitigating factor, the losses on the market may eventually translate into job losses.

For one thing, it takes confidence to plunk down that down payment for a home. It usually means that you’ve got a job, some savings, and hope for the future.

But confidence is not in abundance in global stock markets this week as concerns over sovereign debt have panicked investors. Without confidence, the housing market – the biggest ticket item on the consumer checklist will suffer no matter how low rates go, say economists.

In the United States, where more than a quarter of borrowers have negative equity – meaning they owe more than their homes are worth – this could mean another setback for the already beleaguered market.

In Canada, where markets have been stable, and have been forecast to cool down next year, this could mean that sales and valuations may come down to earth quicker than expected.

“Assuming the volatility and uncertainty continues in the markets it will have negative implications for both potential home buyers and for builders,” said Scotiabank economist Warren. “There is still a big difference between Canada and the U.S. But it certainly reinforces our view that growth in Canada and internationally will be on the soft side.”

So far, economists have not changed their outlook on the Canadian housing market. Most expect the market to flatline or correct slightly by next year. But that could change if the rout continues.

“If this is the precipitation of a larger more protracted slowdown for the economy it will certainly affect housing,” said Peter Norman, chief economist real estate consultancy Altus Group.” If we get into a soft patch with slower employment growth then we will see slower home sales. For investors who are speculating on future events this adds another layer of uncertainty in the market. So this would cause them to sit on the sidelines.”

In separate reports on Tuesday, Canadian housing starts surprised by rising unexpectedly in July, climbing to a 15 month high, up 4.3 per cent to 205,100 units according to the Canada Mortgage and Housing Corporation. And U.S. home values actually had the smallest drop in four years in the second quarter according to figures released by Zillow Inc.

But this was before the impact of the stock market drop which will affect confidence as consumers suffer from a declining wealth effect. During a recession, the high end of the market, of purely discretionary purchases such as cottages and luxury condos might be the first to feel the impact. But a lack of confidence will affect all sectors of the market.

“We continue to hold that new home construction will start to cool in the second half of the year, but this may come more slowly than anticipated as rates remain low for longer,” said Arlene Kish, principal economist for IHS Global Insight. “On the other hand, if the recent slide in financial markets remains persistent, consumers will become less optimistic and will likely stay away from home purchases.”

http://www.moneyville.ca/article/1037106–market-chaos-could-help-housing-sector

What do falling rates mean for borrowers?

This clearly falls into the 88% of the time where borrowers get significantly ahead by having a variable-rate mortgage. With the mess in the US expected to take several years to get sorted out, we’re in an unprecedented time where we can safely assume rates will remain low.

Where did this come from?

This specifically came from the US and its debt ceiling. When it was announced the US could be a risk to investors and it was downgraded, investors from the stock market moved to safe investments – Canadian Government Bonds. When everyone moves to a safe investment, their return goes down (less risk = less return). This means that fixed interest rates go down. This is déjà vu from 2008.

Although Prime is based on the Bank of Canada and unemployment in both Canada and the US has gone down over a half of a percent, the probability of a rate decrease has gone up significantly for September and again at year’s end. This comes just weeks after the Bank of Canada almost guaranteed we would see a hike before year’s end. On a variable-rate mortgage or line of credit, with every 0.25 decrease, you will see a $14 decrease for every $100,000 mortgage.

Fundamentals never go out of style. Don’t wait! If you have a mortgage above 3.5%, redo it. And if you don’t own, it’s your time to buy.

Will real estate follow?

Real estate does not follow the stock market and it’s not as volatile. You have a basic need to live somewhere so if the payment is affordable and fits into your budget, it’s in your best interest. When people stop migrating to BC and people are leaving BC that’s what you have to watch.

Helping you understand the market

Angela Calla, AMP Mortgage Expert

Dominion Lending Centres-Angela Calla Mortgage Team

Host of “The Mortgage Show” CKNW AM980 Saturdays @7pm

Phone: 604-802-3983 Fax: 604-939-8795

Email: acalla@dominionlending.ca  

www.angelacalla.ca

By David Olive Business Columnist

How to put this politely? While not a deadbeat, the U.S. is no longer among the world’s most creditworthy nations. America now has a lower credit rating than Liechtenstein. And the Toronto-Dominion Bank.

Mind you, that’s a matter of opinion.

On Friday, U.S. credit rating agency Standard & Poor’s for the first time in 70 years stripped the world’s largest economy of its top, triple-A rating on America’s $14.3 trillion in government debt. S&P dropped its rating a notch, to AA-plus.

But the two other members of the U.S. ratings oligopoly, Moody’s Investors Service and Fitch Ratings, earlier in the week reconfirmed their top rating on U.S. debt.

Just 16 of the 126 nations whose debt is rated by S&P earn its coveted triple-A rating, Canada among them.

For S&P, last week’s panicky, acrimonious budget-cutting deal that narrowly averted a first-ever default by Washington was a factor in its U.S. debt downgrade.

“(S&P’s) conclusion was pretty much motivated by all of the debate about the raising of the debt ceiling,” John Chambers, chairman of S&P’s sovereign ratings committee, told The Wall Street Journal Friday.

“It involved a level of brinkmanship greater than what we had expected.”

A furious Obama administration pleaded with S&P to hold off on its announcement for a few weeks of further assessment, arguing that such a historic decision should be free of political considerations. But S&P was having none of that.

In S&P’s view, the intransigence of hard-right U.S. deficit hawks, notably the so-called Tea Partiers, is highly relevant in determining a nation’s ability or willingness to honour its debt obligations.

“The kind of debate we’ve seen over the debt ceiling has made us think the United States is no longer in the top echelon on its political settings.” That’s Chambers’ gentle way of saying that America’s political class can no longer be relied upon to expertly manage the nation’s finances.

China’s central banker, Zhou Xiaochuan, was a little blunter, depicting the Americans as a threat to the world economy. “Big fluctuations and uncertainty in the U.S. Treasury market will influence the stability of international monetary and financial systems, thus hurting the global economic recovery,” the chief of the People’s Bank of China said last week.

China, the world’s largest creditor nation, holds about $2 trillion worth of U.S.-denominated securities.

For years, the U.S. has been hectoring Beijing on everything from its allegedly overvalued currency to human rights abuses to intellectual property theft.

You can sense Zhou relishing this moment to return fire: “We hope that the U.S. government and the Congress will take concrete and responsible policy measures . . . to properly deal with its debt issues, so as to ensure smooth operation of the Treasury market and investor safety.”

Stop playing with matches, is Beijing’s humiliating admonition to the U.S. And really, there’s no snappy comeback to that, although the state Xinhua News Agency was piling it on in labelling the recent Washington budget debate a “madcap farce” (we know, we know) and U.S. debt a “ticking bomb.”

Typically, a lower debt rating means steeper borrowing costs, for consumers, business and government. Debt issuers must offer a higher rate of interest to attract buyers of higher-risk securities.

But hold on.

As noted, S&P is an “outlier” in banishing the U.S. from the triple-A club. Also, the U.S. owes most of its debt to itself. Less than one-third of U.S. government debt is held by foreigners, while most of crisis-stricken Greece’s debt is owed to offshore lenders. And U.S. Treasurys are still unmatched as a safe store of value for investors worldwide.

Yet for many economic observers, S&P’s move is overdue.

Across a range of factors — including anemic GDP growth, still-declining house values, a 9.1 per cent jobless rate, stagnant middle-class incomes and recent inflation in food, gasoline and apparel prices — the U.S. economy has been underperforming for years. Layering unmanageable debt atop that plethora of sickly leading indicators made a U.S. debt downgrade inevitable.

Felix Salmon, the top economics analyst who blogs at Reuters, expects the U.S. has lost its triple-A rating forever. “If we came that close to defaulting,” Salmon writes, “there’s no way that our securities can be risk-free.” The downgrade, he says, is “merely a late-to-the-party recognition of that fact.”

I don’t know about forever. But it will take a lot of convincing for S&P to restore America’s membership in the triple-A fraternity. We should know. S&P downgraded Canada in 1992, when we seemed blasé about a record $43 billion deficit.

Not until Canada was well into its 11-year run of consecutive budget surpluses — unmatched by any G8 nation — did S&P deign to restore our triple-A status, in 2002.

Elapsed time: nine years and nine months. http://www.thestar.com/news/world/article/1035722–olive-u-s-will-take-a-long-time-to-dig-out-of-this-hole