Manoj Arora

`Half-hearted' response may stymie effort to aid economy, critics charge

The Bank of Canada slashed its key interest rate yesterday by three-quarters of a percentage point to the lowest level in half a century and confirmed Canada's economy is "entering a recession" because of the deepening global economic slump.

But chartered banks refused to match the deeper-than-expected cut, dropping their prime rates by only half a percentage point, the second time in the past few months some have balked at passing on the full savings to consumers and businesses.

Canada's benchmark overnight rate now stands at 1.5 per cent, the lowest since 1958, as the Bank of Canada tries to revive the flagging economy and restore confidence by making it cheaper to borrow money.

The rate reduction was the single-biggest cut since the aftermath of the 2001 terrorist attacks in the United States.

"The outlook for the world economy has deteriorated significantly and the global recession will be broader and deeper than previously anticipated," the central bank stated, adding that global financial markets "remain severely strained."

It also hinted more rate cuts may be in the offing and some economists now expect the overnight rate to fall to 1 per cent early in 2009.

"Clearly the bank is signalling that they want to address the downturn in the economy much more aggressively and much more quickly," said Douglas Porter, deputy chief economist at BMO Capital Markets.

But the "half-hearted" response of the chartered banks raised concerns they may be undercutting the Bank of Canada's efforts to stimulate the economy at a time when worries are growing that some central banks are running out of room to cut.

Toronto Dominion Bank, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal and the National Bank of Canada all lowered their prime lending rates - the rates they charge their most creditworthy customers - from 4 per cent to 3.5 per cent.

In early October, the TD Bank and CIBC declined to fully match a half-point rate cut by the Bank of Canada, citing soaring funding costs. Both lenders later moved to fully match their rivals when another quarter-point cut was delivered two weeks later.

Erin Weir, an economist with the United Steelworkers union, said the issue goes beyond "consumer outrage." He argued the chartered banks' latest rebellion poses a serious "existential threat" to monetary policy.

"If the chartered banks don't respond to the Bank of Canada's rate, then monetary policy is completely ineffective."

If banks require more capital, Weir argues the federal government should look at buying equity stakes in those lenders as other governments have done.

Tsur Somerville, a professor at the Sauder School of Business at the University of British Columbia, noted that spreads have been increasing between conventional five-year mortgage rates and corresponding government bond rates. But he noted this is "not inconsistent" with the major recessions of the early 1980s and mid-1970s.

"It does limit the immediate effect of monetary policy, but the flip side of that is when people are extremely paranoid, even if interest rates are low, they're not borrowing," Somerville said. "If I'm being laid off my job, the fact that mortgage rates have come down 50 basis points - you know what, I'm probably still not going to go out and buy a house."

Last week, Canada's six biggest banks wrapped up their latest earnings season. Their combined annual profits tumbled to slightly more than $12 billion from a record $19.5 billion last year, largely because of debt-related writedowns. More flexible accounting rules, however, helped them avoid even bigger losses.

Still, their latest prime rate decision outraged some Members of Parliament.

Liberal consumer affairs critic Dan McTeague said the move amounts to poor optics given all the support Ottawa has provided to shore up lending. The federal government has tripled the size of its mortgage purchase program to $75 billion and has agreed to backstop more than $200 billion in interbank lending.

"This is not about bank bashing. This is about recognizing the pivotal role they play in terms of securing our strong economy in very difficult times," McTeague said.

NDP finance critic Thomas Mulcair said he informed the Canadian Bankers Association that he would call for an investigation under federal competition laws, as he questioned why all six banks dropped their prime rates by exactly 50 basis points.

"Canada's banks are governed by the laws of Canada," the CBA said in a statement. "Canada's banks take compliance with those laws very seriously. Decisions about prime rates are proprietary in nature and are made following individual bank internal procedures."

TORONTO, December 04, 2008 -- Greater Toronto REALTORS® recorded 3,640 transactions last month, from 7,313 sales in November 2007, Toronto Real Estate Board President Maureen O'Neill announced today.

Year-to-date sales figures for the Greater Toronto Area show 72,086 transactions in 2008, from 88,695 sales recorded in the same January to November period a year ago. By contrast, the 2008 year-to-date average price in the GTA is $379,489, from $375,445 in 2007.

"Its important for the public to understand that while sales activity has moderated in 2008, due to current economic conditions, the average price of homes has increased from 2006 still making real estate a solid long term investment," said O'Neill.

In the 416 area, 1,523 transactions took place last month, from 3,426 sales recorded in November 2007. From a year-to-date perspective, there have been 28,806 sales in the 416 area this year, from 36,804 transactions a year ago.

In the 905 Region 2,117 homes changed hands last month, from November 2007's 3,887 sales. The 905 Region's year-to-date figures show 43,280 transactions this year, from 51,891 sales recorded during the same period in 2007.

"Homeownership in the Greater Toronto Area continues to be an affordable, stable and secure investment," said Ms. O'Neill. "Home buyers and sellers should be confident about their bricks and mortar investment which provides shelter and a place to raise a family."

"Home prices are affordable, interest rates are at historical low levels and the supply of homes for sale is good providing additional reasons for buyers thinking of entering the market," added O'Neill.

The average price of a home in the GTA last month was $368,582, from $393,747 noted in November 2007. In November 2006 the average price was recorded at $355,727.

In the 416 area, last month's average price was $390,225, from $433,859 noted in November 2007. The average price recorded in November 2006 was $381,188. From a year-to-date perspective the 2008 average price in the 416 area is $411,155, from last year's $411,640.

In the 905 Region, the average price recorded last month was $353,012, from $358,391 recorded in November of 2007. In November 2006 the average price was $335,522. The year-to-date average price in the 905 Region this year is $359,245, from $349,774 in 2007.

The average number of days a home currently remains on the market in the GTA is 41, from an average of 32 days last November. There are currently 27,037 homes listed on the TorontoMLS system compared to 18,309 available properties in November 2007.

"While homeownership offers immediate benefits and long term value by way of equity, it also provides tax benefits over time," said Ms. O'Neill. "If you bought a house five years ago, it would be worth more than 20 per cent more today."

"As REALTORS®, we help build communities and will continue to do so even during challenging economic times," added Ms. O'Neill. "It's important to consult with a REALTOR® to get accurate local market information."

Read the Complete Market Watch Report on my Blog at

http://www.aceteamrealty.com/Blog

Recovery linked to economic stability next year

Global economic uncertainty weighed heavily on residential real estate activity in most major Canadian centres during the latter half of 2008. Although the forecast for 2009 promises more of the same, most markets are expected to weather the storm, says RE/MAX.

Housing market performance will clearly be contingent on economic performance at a local, provincial, and national level in 2009. Issues affecting the overall economy are impacting housing markets across the country and the situation is not expected to be remedied until consumer confidence is restored. If inventory levels remain stable, pent-up demand kicks into gear, and lower interest rates stimulate home-buying activity, we could see a bounce back as early as spring.

The RE/MAX Housing Market Outlook for 2009 examined residential real estate trends in 22 markets across the country and found that average price held up remarkably well in 2008, despite 13 centres reporting double-digit declines in home sales. Solid gains earlier in the year likely served to prop-up housing values at year-end. The prognosis for housing activity in the first six to nine months of 2009 is somewhat static, given continued volatility in financial markets and the threat of recession, but as stability returns, housing markets are expected to recover.

Read the complete report at my Website Blog at

http://www.aceteamrealty.com/Blog

October 17, 2008 -- Activity in the Greater Toronto Area resale housing market moderated considerably during the first half of October with 2,700 homes changing hands, Toronto Real Estate Board President Maureen O'Neill announced today.

Sales volumes in the GTA decreased 18 per cent compared to the first half of October 2007, when 3,297 transactions were recorded and are down 10 per cent compared to the same period in 2006 when 3,007 sales took place.

In the City of Toronto 1,140 sales took place in the first half of this month. This represents a 21per cent decline from the 1,446 sales that took place in the same period a year ago and a 13 per cent decrease from the 1,312 transactions recorded in the first half of October 2006.

In the 905 Region there were 1,560 sales in the first two weeks of this month, a 16 per cent decrease from the 1,851 transactions that took place during the same timeframe in 2007 and down eight per cent from the 1,695 homes sold during the first half of October 2006.

Read The complete Storey at my Website blog at

http://www.aceteamrealty.com/blog.asp

CMHC Financial assistance takes the form of loans, forgivable loans or non-repayable contributions, and can be used to fund repairs, renovations, accessibility modifications, the creation of low-income rental units, and home adaptations. Programs are available for low-income households, seniors, and persons with disabilities.

For more details, check CMHC website at

http://www.cmhc-schl.gc.ca/en/co/prfinas/index.cfm