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Bank's key rate cut to record low

by Manoj Kumar 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.

2,500 GTA Housing Resales in December, 74,000 in 2008

by Manoj Kumar Arora

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.

Read the complete Market Watch Report

Canadian homebuilders deny market headed for meltdown

by Manoj Kumar Arora

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.

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Photo of Manoj Kumar Arora, Broker of Record Real Estate
Manoj Kumar Arora, Broker of Record
Ace Team Realty Inc., Brokerage
77 City Centre Drive, East Tower, Suite 501
Mississauga ON L5B 1M5
905-488-3101
1-888-355-3155
Fax: 1-888-443-3155

Contact Information

Photo of Manoj Kumar Arora, Broker of Record Real Estate
Manoj Kumar Arora, Broker of Record
Ace Team Realty Inc., Brokerage
77 City Centre Drive, East Tower, Suite 501
Mississauga ON L5B 1M5
905-488-3101
1-888-355-3155
Fax: 1-888-443-3155