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Bank of Canada maintains overnight rate target at 1 per cent
OTTAWA, Ontario, January 23, 2013 — The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
The global economic outlook is slightly weaker than the Bank had projected in its October Monetary Policy Report (MPR). At the same time, global tail risks have diminished. The economic expansion in the United States is continuing at a gradual pace, restrained by ongoing public and private deleveraging, global weakness and uncertainty related to fiscal negotiations. Despite a marked improvement in peripheral sovereign debt markets, Europe remains in recession, with a somewhat more protracted downturn now expected than in October. Growth in China is improving, though economic activity has slowed further in some other major emerging economies. Supported by central bank actions and by positive policy developments in Europe, global financial conditions are more stimulative. Commodity prices have remained at historically elevated levels, though temporary disruptions and persistent transportation bottlenecks have led to a record discount on Canadian heavy crude.
In Canada, the slowdown in the second half of 2012 was more pronounced than the Bank had anticipated, owing to weaker business investment and exports. Caution about high debt levels has begun to restrain household spending. The Bank expects economic growth to pick up through 2013. Business investment and exports are projected to rebound as foreign demand strengthens, uncertainty diminishes and the temporary factors that have weighed on resource sector activity are unwound. Nonetheless, exports should remain below their pre-recession peak until the second half of 2014 owing to a lower track for foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar. Consumption is expected to grow moderately and residential investment to decline further from historically high levels. The Bank expects trend growth in household credit to moderate further, with the debt-to-income ratio stabilizing near current levels.
Relative to the October MPR, Canadian economic activity is expected to be more restrained. Following an estimated 1.9 per cent in 2012, the economy is expected to grow by 2.0 per cent in 2013 and 2.7 per cent in 2014. The Bank now expects the economy to reach full capacity in the second half of 2014, later than anticipated in the October MPR.
Core inflation has softened by more than the Bank had expected, with more muted price pressures across a wide range of goods and services, consistent with the unexpected increase in excess capacity. Total CPI inflation has also been lower than anticipated, reflecting developments in core inflation and weaker-than-projected gasoline prices. Total CPI inflation is expected to remain around 1 per cent in the near term before rising gradually, along with core inflation, to the 2 per cent target in the second half of 2014 as the economy returns to full capacity and inflation expectations remain well-anchored.
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. While some modest withdrawal of monetary policy stimulus will likely be required over time, consistent with achieving the 2 per cent inflation target, the more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggest that the timing of any such withdrawal is less imminent than previously anticipated.
Central Bank Policy Guidance May Be Most Useful in Extraordinary Times, Says Bank of Canada Governor Mark Carney
TORONTO, Ontario, January 11, 2013 — While transparency is critical to well-functioning capital markets and effective monetary policy, forward policy guidance is best used sparingly by central banks in normal times, Bank of Canada Governor Mark Carney said today. In a speech to the Toronto CFA Society, the Governor discussed where policy guidance can be most effective and when it may be warranted.
“Central banks pursue transparency to be accountable in democratic societies,” Governor Carney said. Clear, open communications also enhance the effectiveness of monetary policy. Success in this regard requires transparency around what policy-makers are trying to achieve and how they go about achieving it, he added.
Over time, the Bank of Canada has become significantly more transparent in discussing the forces affecting the Canadian economy, in order to help households, firms and financial market participants understand how monetary policy will respond over time. This communication not only promotes the appropriate formation of policy expectations, but allows those expectations to evolve efficiently as new information is received.
The Bank of Canada occasionally provides guidance in normal times to give a sense of the imminence and degree of prospective policy action, and the important economic and financial factors influencing policy, the Governor said. “This guidance is never a promise, however. Actual policy will always respond to the economic and financial outlook as it evolves. Expectations of policy should do the same.”
More explicit policy guidance may be most useful in extraordinary times, Governor Carney noted. For instance, in April 2009, when conventional monetary policy had been exhausted, the Bank of Canada provided additional stimulus by committing to hold the policy rate at its lowest possible level, conditional on the outlook for inflation. “Our conditional commitment worked because it was exceptional, explicit and anchored in a highly credible inflation-targeting framework,” he said.
Central banks needing to go further could also publicly announce precise numerical thresholds for inflation and unemployment. If additional stimulus were required, a framework change, such as adopting a nominal GDP-level target, may be worthy of consideration, Governor Carney said. He cautioned, however, that “the benefits of such a regime change would have to be weighed carefully against the effectiveness of other unconventional monetary policy measures under the proven, flexible inflation-targeting framework.”
December 2012 Housing Starts in Canada
OTTAWA, Ontario, January 09, 2013 — Housing starts in Canada were trending at 212,282 units in December, according to Canada Mortgage and Housing Corporation (CMHC). The trend is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR)1 of housing starts. The standalone monthly SAAR was 197,976 units in December, down slightly from 201,376 in November. The actual housing starts for 2012 are being verified and will be reported in the January edition of Monthly Housing Statistics, which will be available before the end of the month.
“As expected, housing starts remained below their recent trend in Canada. The decrease recorded in December was due to a decline in rural starts, while urban starts remained stable. Housing starts were below their trends in all regions except Ontario,” said Mathieu Laberge, Deputy Chief Economist at CMHC.
CMHC uses the trend measure as a complement to the monthly SAAR of housing starts to account for considerable swings in monthly estimates and obtain a more complete picture of the state of the housing market. In some situations, analyzing only SAAR data can be misleading in some markets, as they are largely driven by the multiples segment of the markets, which can be quite variable from one month to the next.
The seasonally adjusted annual rate of urban starts remained relatively stable in December (-0.1 per cent), reaching 178,870 units. Single urban starts rose by 8.6 per cent to 67,419 units, while multiple urban starts fell by 4.7 per cent to 111,451 units.
December’s seasonally adjusted annual rates of urban starts decreased in the Prairies (-23.9 per cent), Quebec (-11.8 per cent) and British Columbia (-8.2 per cent). Urban starts remained relatively unchanged in Atlantic Canada (-1.6 per cent) and increased in Ontario (+33.4 per cent).
Rural starts2 were estimated at a seasonally adjusted annual rate of 19,106 units in December.
Preliminary housing starts data is also available in English and French at the following link: Preliminary Housing Starts Tables.
As Canada's national housing agency, CMHC draws on more than 65 years of experience to help Canadians access a variety of high quality, environmentally sustainable and affordable housing solutions. CMHC also provides reliable, impartial and up-to-date housing market reports, analysis and knowledge to support and assist consumers and the housing industry in making informed decisions.
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1 All starts figures in this release, other than actual starts and the trend estimate, are seasonally adjusted annual rates (SAAR) — that is, monthly figures adjusted to remove normal seasonal variation and multiplied by 12 to reflect annual levels. By removing seasonal ups and downs, seasonal adjustment allows for a comparison from one season to the next and from one month to the next. Reporting monthly figures at annual rates indicates the annual level of starts that would be obtained if the monthly pace were maintained for 12 months. This facilitates comparison of the current pace of activity to annual forecasts as well as to historical annual levels.
2 CMHC estimates the level of starts in centres with a population of less than 10,000 for each of the three months of the quarter, at the beginning of each quarter. During the last month of the quarter, CMHC conducts the survey in these centres and revises the estimate.
Information on this release:
Brief, Mild Correction Forecast for Canada's Housing Market in First Half of 2013, According to Royal LePage
2012 closes with modest year-over-year national house price gains
TORONTO, Ontario, January 08, 2013 — The Royal LePage House Price Survey and Market Survey Forecast released today showed the average price of a home in Canada increased year-over-year between 2.0 and 4.0 per cent in the fourth quarter of 2012. Compared to 2012, fewer homes are expected to trade hands in the first half of 2013, which should slow the pace at which home prices are rising. However, by the end of 2013, Royal LePage expects the average national home price to be 1.0 per cent higher compared to 2012.
While home sales volumes slowed in the second half of 2012, house prices, for the most part, held firm. Some consumers delayed their entry into the market during 2012, faced with economic uncertainty as governments in both the U.S. and Europe struggled with debt management plans and as homes in some regions became less affordable. In the fourth quarter, standard two-storey homes rose 4.0 per cent year-over-year to $390,444, while detached bungalows increased 3.6 per cent to $356,790. National average prices for standard condominiums increased 2.0 per cent to $239,374.
“More home buyers moved to the sidelines as 2012 progressed, as economic uncertainty abroad and reduced affordability became a drag on the market, however house prices proved resilient,” said Phil Soper, president and chief executive of Royal LePage. “Our sturdy domestic economy and encouraging employment trends have emboldened sellers, and some have opted to let market conditions adjust before listing. Simply put, fewer home owners listed their properties in the second half of the year, which kept inventory levels lower, and supported home values.”
Soper noted that in the absence of a serious economic event, many Canadians would adjust their short-term buying or selling timing according to prevailing market conditions, but that it was rare for engaged, qualified families to hold out for very long. Buyers are much more likely to make purchasing decisions based on trigger events such as marriages, growing families, salary or wage increases or the need to relocate for a new job. Royal LePage expects the trend towards slower sales volumes seen in the second half of 2012 to continue through the first half of 2013. Expectations are that year-over-year comparisons will begin to show improvement in the third quarter 2013, with sales volumes that are relatively flat versus 2012, and return to growth in the final quarter of the year.
“Canada is a realm of sizable, fairly independent regional economies. Some housing markets, such as those in Alberta and Saskatchewan, are poised to expand significantly in 2013. We will see a decline in unit sales and a flattening of home prices in our largest urban markets of Vancouver and Toronto and that will have a significant dampening effect on reported national averages,” said Soper.
Soper noted that the housing market is well into a cyclical correction and that fears of a sharp or drawn out collapse are unwarranted. Home prices have risen faster than salaries and wages for three years and the market requires time to adjust.
“A helpful comparison is to reflect on the beginning of 2009 when the country was in the grips of a very grim global recession,” he said. “It was a bleak time, with plunging consumer confidence driven by rapidly spreading unemployment. The meltdown of the American banking and finance sector had sent their housing market into a downward spiral and our own real estate market saw home sale transactions fall dramatically. Price appreciation in Canada ground to a halt, but home values dropped only slightly. With economic fundamentals such as employment levels improving, we expect this cyclical correction to be short-lived.”
While some first-time buyers have been sidelined by new federal mortgage insurance rules introduced in 2012, the cost of mortgage financing remains at historical lows and the desire to own property has not diminished. First-time buyers are adjusting to the new requirements by opting for cheaper homes or saving longer.
Soper concluded, “The silver lining in every real estate market correction is that there is a balance shift. After an extended period of frustrating bidding wars in key, supply-constrained regions, and spring-markets characterized by price increases that make financial planning difficult, Canadian home buyers will see momentum shift in their favour this spring. They should be met with more choice – and stable prices.”
Royal LePage expects that very modest home price appreciation will be the norm for the next two years, as North American economies gradually improve and family incomes climb slowly. Improving, but still tepid growth, in the United States should allow central banks in both countries to sustain the current low interest rate environment, which is very supportive of housing market activity.
Regional Market Summaries
In Halifax, low inventory led to healthy year-over-year price appreciation for all three housing types surveyed. Average price gains ranged from 3.5 to 7.3 per cent for the housing types surveyed. At the end of 2013, average house prices in Halifax are forecast to be 1.5 per cent higher than 2012.
Average home prices in Montreal were up year-over-year in the fourth quarter of 2012, as higher end units being sold to an active move-up buyer demographic skewed average prices upward, while first-time buyers adjusted to meet new mortgage regulations. At the end of 2013, average house prices in Montreal are forecast to be 3.8 per cent higher than 2012.
Good employment and affordability resulted in healthy year-over-year price appreciation in Ottawa with gains ranging from 3.0 to 4.6 per cent. At the end of 2013, average house prices in Ottawa are forecast to be 1.3 per cent higher than 2012.
A healthy local economy and low interest rates produced strong year-over-year price appreciation in Winnipeg’s real estate market with average price gains ranging from 4.7 to 9.9 per cent. At the end of 2013, average house prices in Winnipeg are forecast to be 1.0 per cent higher than 2012.
For the second year in a row, two-storey homes in Regina posted the largest average price increases across all housing types surveyed in Canada rising 16.8 per cent. Detached bungalows and standard two-storey homes also posted gains rising 5.3 and 5.9 per cent. At the end of 2013, average house prices in Regina are forecast to be 4.0 per cent higher than 2012.
Increased demand and low inventory resulted in healthy year-over-year price gains for standard two-storey homes and detached bungalows in Calgary and Edmonton, while price appreciation for standard condominiums were relatively flat in both cities compared to the fourth quarter of 2011. At the end of 2013, average house prices in Calgary are forecast to increase 2.5 per cent, while Edmonton house prices are expected to increase by 0.6 per cent compared to 2012.
Low market activity resulted in modest price declines across all three housing types in Vancouver ranging from 1.3 to 3.6 per cent. At the end of 2013, average house prices in Vancouver are forecast to further decline 3.0 per cent compared to 2012.
Royal LePage’s quarterly House Price Survey shows the annual change of prices for key housing segments in select national markets.
About the Royal LePage House Price Survey
The Royal LePage House Price Survey is the largest, most comprehensive study of its kind in Canada, with information on seven types of housing in over 250 neighbourhoods from coast to coast. This release references an abbreviated version of the survey which highlights house price trends for the three most common types of housing in Canada in 90 communities across the country. A complete database of past and present surveys is available on the Royal LePage web site at www.royallepage.ca. Current figures will be updated following the complete tabulation of the data for the fourth quarter of 2012. A printable version of the fourth quarter 2012 survey will be available online on February 6, 2013.
Housing values in the Royal LePage House Price Survey are Royal LePage opinions of fair market value in each location, based on local data and market knowledge provided by Royal LePage residential real estate experts.
GTA REALTORS® Release Monthly Resale Housing Figures
TORONTO, Ontario, January 04, 2013 — Greater Toronto Area REALTORS® reported 3,690 sales through the TorontoMLS system in December 2012 – down from 4,585 sales in December 2011. Total sales for 2012 amounted to 85,731 – down from 89,096 transactions in 2011.
“The number of transactions in 2012 was quite strong from a historic perspective. We saw strong year-over-year growth in sales in the first half of the year, but this growth was more than offset by sales declines in the second half. Stricter mortgage lending guidelines resulted in some households postponing their purchase of a home. In the City of Toronto, the dip in sales was compounded by the additional Land Transfer Tax, which buyers must pay upfront,” said Toronto Real Estate Board (TREB) President Ann Hannah.
The average selling price in December 2012 was up by 6.5 per cent year-over-year to $478,739. The average selling price for 2012 as a whole was up by almost seven per cent to $497,298.
“Robust annual rates of price growth were reported through most months of 2012. Price growth was strongest for low-rise homes, including singles, semis and townhouses. Despite a dip in sales, market conditions remained tight for these home types with substantial competition between buyers,” said TREB’s Senior Manager of Market Analysis Jason Mercer.
Toronto's multi-channel economic engine once again tops the nation in CIBC rankings
TORONTO, Ontario, January 03, 2013 — For the second year running, Toronto has taken the top spot among the country's major cities in CIBC World Markets' latest Canadian Metropolitan Economic Activity Index rankings.
"What's so impressive about Toronto's performance is that the city has topped our ranking for more than a year," says CIBC Deputy Chief Economist Benjamin Tal in his latest Metro Monitor report. "Given that our index measures momentum as opposed to a level of activity, Toronto's ability to maintain momentum for such a long period is impressive. Also note that Toronto ranked in the top five for more than seven consecutive years, with the only exception being the 2009 recession when the city's ranking slipped to 7th place."
While Toronto did not lead the pack in any of the bank's sub-measures of economic momentum, it ranked high enough in many categories to place it in top position overall. "Simply put, the multi-channel nature of Toronto's economic engine is the secret not only behind its current top position, but also behind its ability to maintain a relatively high grading over the past two years. This can be easily seen in the robust activity of the city's economy during the economic recovery, with the city outpacing the national average by a wide margin."
Over the past year, Toronto has benefited from a recovery in the manufacturing sector, helped by the positive spin-off of the improvement in U.S. auto demand. The construction sector, spurred on by activity in both the residential and non-residential segments of the industry, also played an important role in the city's consistent outperformance.
As of the third quarter, housing starts in the city rose 30 per cent year-over-year with 99 per cent of this growth coming from the condominium market. Population in the city is rising at a strong pace of just over two per cent on a year-over-year basis, while employment growth is hovering around its strongest showing in more than a decade.
"The coming year, however, will pose a major challenge to the city's ability to maintain its current economic momentum," notes Mr. Tal. "A softening housing market, the end of many federal and provincial governments' infrastructure stimulus projects, a projected slower growth trajectory in the manufacturing sector and softer retail trade activity will work to slow overall economic momentum in the city in 2013."
Calgary ranked second in the analysis, up from ninth last year. This reflects strong population growth and a healthy labour market. Calgary enjoys one of the lowest unemployment rates in the nation (5.1 per cent as of the third quarter of 2012) while the quality of employment is relatively elevated (ranked 2nd among all cities). "As a result, consumer spending in the city has been relatively strong, with retail sales rising by an estimated nine per cent over the past year," says Mr. Tal. "As opposed to Toronto, the residential housing market is playing only a marginal role in supporting activity in the city."
The city of Regina also showed strong growth moving up to third from eighth a year ago. Momentum is helped by very strong population growth (ranked 4th in the nation) and a healthy labour market, with the city experiencing the second lowest unemployment rate among the country's 25 census metropolitan areas (CMA). "The city's robust population growth has spurred housing market activity, with housing starts rising by a strong 80 per cent year-over-year in the third quarter. Regina is also supported by an improving manufacturing sector, with activity in 2012 estimated to outpace the national average for the second year in a row."
Winnipeg's fourth place ranking reflects strength in both the construction and the manufacturing sectors. Housing starts in the city rose by 50 per cent in the year ending September 2012 while non-residential activity rose at a rate second only to Saskatoon. At the same time, some improvement in demand for transportation equipment has boosted activity in the manufacturing sector. Consumer fundamentals in the city are also in good shape with a relatively healthy labour market and the nation's second lowest personal bankruptcy rate.
CIBC Metropolitan Economic Activity Index (2012 Q3)
About the CIBC Metropolitan Economic Activity Index
The macro variables used to develop the index are:
The complete CIBC World Markets report is available at:
CIBC Poll: New Year, Same Plan - Pay Down Debt
TORONTO, Ontario, January 02, 2013 — Canadians have named paying down debt as their top financial priority entering 2013 - the third year in a row that debt has topped the list of financial priorities across the nation. The annual poll conducted for CIBC by Harris/Decima also shows that retirement planning has fallen out of the top three priorities nationally, as age groups traditionally focused on retirement planning have turned their focus to debt repayment and other priorities in 2013.
Over the last three years of this CIBC poll, Canadians identified the following as their top financial priorities:
"These results highlight that Canadians are well aware of the importance of good debt management and remain focused on reducing debt in the year ahead," commented Christina Kramer, Executive Vice President of Retail Distribution and Channel Strategy for CIBC. "Having been named the top priority three years in a row, there is an opportunity for more Canadians to turn awareness of debt management into action and outline some clear steps towards paying down their debt in 2013."
One of those steps could involve seeking advice about how to accelerate debt repayment. About half (46 per cent) of Canadians surveyed said they had met with an advisor in the last year, however only 6 per cent of those surveyed thought about debt management as a topic of conversation with an advisor.
"Many Canadians are missing an opportunity to get advice about debt management as part of their broader financial plan," noted Ms. Kramer. "As you repay debt, you reduce interest costs which can free up some of your income to be directed towards other goals, such as building up your savings account or having a better monthly cash flow."
Some are Delaying Retirement Planning to Focus on Debt
A key finding of the poll is that age groups where retirement planning was traditionally a top priority have now shifted to a focus on debt reduction.
"While it is important to address immediate financial needs such as debt reduction, it is equally important to keep long term goals such as retirement in sight," commented Ms. Kramer. "Even small contributions today can make it easier in future years to reach your retirement savings goals."
While it can be challenging to keep multiple financial goals top of mind, Ms. Kramer added that getting advice can help to keep the two in balance.
"It is possible to make debt repayment a priority while still keeping up regular investments into your retirement plan, and that can be made easier by having a clear plan with an advisor that outlines the steps you can take each month to get closer to your goals over time," added Ms. Kramer.
Advice on Delivering on Financial Priorities
KEY POLL FINDINGS
Percentage of Canadians, by age, who named either paying down debt or retirement planning as their number one financial priority entering 2013:
Top Financial Priority entering 2013, by region:
Percentage of Canadians who have met with an advisor in the last year, by region:
Each week, Harris/Decima interviews just over 1000 Canadians through teleVox, the company's national telephone omnibus survey. These data were gathered in a sample of 2,009 Canadians between October 25th and November 4, 2012. A sample of this size has a margin of error of +/-2.2%, 19 times out of 20.
CIBC is a leading North American financial institution with nearly 11 million personal banking and business clients. CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada, and has offices in the United States and around the world. You can find other news releases and information about CIBC in our Press Centre on our corporate website at www.cibc.com.
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