Manoj Arora

OTTAWA - The Bank of Canada has chopped its key interest rate by another half percentage point to its lowest level ever, and warned that the Canadian economy will contract by 1.2 per cent this year.

The central bank's target for the overnight lending rate now stands at 1 per cent - lower than in 1958, when the most-watched policy rate was 1.12 per cent.

"The outlook for the global economy has deteriorated since the bank's December interest rate announcement, with the intensifying financial crisis spilling over into real economic activity," the bank said in its gloomiest statement yet.

In separate announcements, Toronto-Dominion Bank and Bank of Montreal responded by announcing they have cut their prime lending rates by 50 basis points to 3 per cent. BMO said it is cutting key mortgage rates by 30 to 50 basis points. Canadian Imperial Bank of Commerce and Royal Bank of Canada announced a few minutes later that they, too, have cut their prime rate to 3 per cent from 3.5 per cent.

Toronto Real Estate Board Members reported 2,577 sales in December 2008, compared to the 4,646 recorded during the same month in 2007, and the 4,447 recorded in December 2006, TREB President Maureen O'Neill announced today. "Sales for the whole of 2008 were 74,552, compared to the 93,193 recorded in 2007, and the 83,084 recorded during 2006."

The average price in December of 2008 came in at $361,415, compared to $394,931 in 2007, and $336,217 in December of 2006. For 2008 as a whole, prices averaged $379,347, compared to the $376,236 recorded in 2007, and the $351,941 average recorded in 2006.

The City of Toronto (416) recorded 1,105 sales in December, compared to 2,302 in December 2007 and 1,827 in December of 2006. For all of 2008, there were 29,878 sales, compared to 39,052 in 2007 and 34,404 in 2006.

The average price in the city was $387,482 compared to the $425,842 recorded in December of 2007 and the $350,139 recorded in December 2006. For all of 2008 the average was $410,271. In 2007 the comparable figure was $412,480, and in 2006 $378,776.

The 905 area saw 1,472 sales in December, from 2,344 in December of 2007 and 2,620 in December of 2006. For all of 2008, there were 44,674 sales in this region, versus 54,141 in 2007 and 48,680 in 2006.

The average price in the 905 was $341,847 in December, compared to $360,307 in 2007 and $326,509 in 2006. For all of 2008, the average was $358,665, as compared to $350,092 in 2007 and $332,976 in 2006.

Breaking down the total, 993 sales were reported in TREB's 28 West districts and averaged $338,855; 473 sales were reported in the 14 Central districts and averaged $479,095; 491 sales were reported in the 23 North districts and averaged $381,975; and 620 sales were reported in TREB's 21 East districts and averaged $291,488.

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No parallels with U.S.

Eric Beauchesne, Canwest News Service Published: Monday, January 05, 2009 Brett Gundlock/National PostSold signs on house in Toronto.

OTTAWA - The Canadian housing market is cooling but is not facing a U.S. style meltdown, builders here say.

"A few commentators have drawn a parallel between the Canadian housing situation and the extreme difficulties in the housing market in the United States," the Canadian Homebuilders say in a report Monday that dismisses such comparisons.

"There is absolutely no merit in drawing such a parallel," it said in a report that contends the pace of housing construction in Canada is merely returning to a level that is consistent with underlying housing requirements following the boom of recent years.

"The housing situation in Canada is totally different from that of the U.S.," it said. "There will be some price moderation in some markets, but there is nothing to suggest that housing markets in Canada are vulnerable to the oversupplies and plunging prices that characterize many markets in the U.S.

"We did not experience the same housing boom conditions that occurred in the U.S., and there is no reason to expect that we are in for the serious pain they are currently suffering," it said.

The moderation of house prices will improve affordability and create opportunities for first-time home buyers, it said. Meanwhile, existing homeowners have little to fear.

"For those selling a home and buying another, the moderation of housing prices should be relative - there should be no significant gain or loss from the easing of house prices," it said.

"For those who have owned a home for some period, their equity will be substantial, given the rising prices of the past few years," it said. "For those who purchased their home recently, there should be few worries about a modest temporary reduction in value."

To support its argument that the Canadian housing market is not going the way of the U.S. market, it cited a variety of differences:

• Unlike in the U.S., underwriting standards for qualifying mortgage borrowers in Canada have been maintained at prudent levels resulting in mortgage borrowers here being much more creditworthy;

• Canadian mortgage lenders never offered low initial ‘teaser' rate mortgages that led to most of the difficulties for mortgage borrowers in the U.S.;

• Most mortgages in Canada are held by their original lender, not packaged and sold to third parties as is typical in the U.S., and consequently, Canadian mortgage lenders have a vested interest in ensuring that their mortgage borrowers are creditworthy and not likely to default;

• Only 0.3% of Canadian mortgages are in arrears versus 4.5% in the U.S. and what even before the start of the U.S. housing meltdown two years ago was 2%;

• Canadians tend to pay down their mortgage faster than in the U.S. where mortgage interest is deductible from taxes, which encourages U.S. homeowners to take equity out of their homes to finance other spending, a difference that is reflected in the fact that in Canada mortgage debt accounts for just over 30% of the value of homes, compared with 55% in the U.S.

In Canada, home prices are down 9.8% from a year earlier, compared with an 18% drop in the U.S. from what were already deeply depressed prices a year ago, the latest real estate industry figures show.

Most analysts here agree that Canada should avoid a U.S. style housing market meltdown.

Michael Gregory, senior economist with BMO Capital Markets, said recently that "we won't even come close" to what is happening in the U.S. thanks to stronger employment and income growth here as well as banking system that "continues to make mortgages" available to Canadian consumers.

But he cautioned that if unemployment rises in Canada, there will be a larger fallout for the domestic housing market.

"Anyway you slice it, if you don't have a job, you can't get a mortgage and you can't buy a house," Mr. Gregory said.

`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."

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