Home Builder Canada Readers survey
newsletter
NP_lineHome Builder Magazine New Products Online
NP_line
Computers, Educational
&Technology

NP_line
Electrical & Mechanical
NP_line
Exteriors
NP_line
Finishes & Surfaces
NP_line
Kitchens & Baths
NP_line
Landscape & Design
NP_line
Speciality Products
NP_line
Structural
NP_line
Tools & Equipment
NP_line
Windows & Doors
NP_line
New Products home
NP_line



External Links: Associations & Governments . Builders & Renovators . Manufacturers & Suppliers
Home . About Us . Subscribe . Advertise . Editorial Outline . Contact Us . Current Issue . Back Issues . Jon Eakes

© Copyright 2007 Work-4 Projects Ltd.

A Strong U.S. Economy

By Dr. Peter Andersen

The U.S. economy is turning out to be a lot stronger than expected. It advanced at an annual rate of 3.5 per cent in real terms in the fourth quarter, measured from the previous quarter. Consumer confidence, an important leading indicator for spending, was running in January at its highest level since May 2002.
The January purchasing managers index for the services sector points to even stronger first-quarter GDP growth. Chain stores such as Wal-Mart report stronger-than-expected January same-store sales. This rules out the March Fed rate cuts that the financial markets had been hoping for. They are now worried that the Fed might actually have to begin raising rates again in 2007.
Relative to the U.S., Canada's housing market shows remarkable stability. Homeowner finances are not being threatened by rate increases and falling prices. Mortgage rates are still relatively low at the five-year maturity. In addition, it is hard to find any markets in Canada with falling house prices.
This time around, Canada has been able to avoid the speculative frenzy that drove U.S. prices so far above sustainable levels. The latest house price information shows new house prices in Toronto and Oshawa up by only 3.4 per cent from a year ago. The double-digit percentage increases are all west of the Ontario-Manitoba border and are the result of true demand stemming from inter-provincial migration.

High levels of immigration
Canada plans to admit between 240,000 and 265,000 new permanent residents in 2007. This is the highest target range in the past 25 years. The final figure for 2006 is expected to be close to the previous target of 255,000. There were 262,236 new permanent residents admitted to Canada in 2005.
These are big numbers and they are fuelling the demand for rental accommodation. This is one of the reasons why Canada's rental vacancy rate has remained relatively low and has actually declined since 2005. Approximately 52 per cent of the people immigrating to Canada go to Ontario. Ottawa is planning an increase of 15,000 in skilled immigrant admissions this year.

Strong job markets a positive factor
Good employment growth has always been a key prerequisite for healthy housing markets. The recent performance in Canada's job markets has been very positive. Canada's seasonally adjusted national unemployment rate stood at a 30-year low of 6.1 per cent in December, indicating a tight job market. At year-end, total employment was up by 345,000 from 12 months earlier - an increase of 2.1 per cent. This is the strongest annual increase since 2002.
Alberta accounted for 31 per cent of the national employment increase last year. It showed the strongest year-over-year percentage employment gain of any province - an increase of six per cent. Other provinces with above-average percentage employment gains were Saskatchewan (4.8 per cent), Newfoundland (3.8 per cent) and British Columbia (2.4 per cent).
Full-time jobs accounted for 80 per cent of the national employment gains in 2006. In contrast to the national trend, almost two-thirds of Ontario's 2006 employment gain was in part-time work. This is not a good sign for Ontario new home builders.

Possibility of Bank of Canada Rate Cuts
The latest figures show the Canadian economy growing at approximately half the rate of the United States. This divergence in growth performance between Canada and the U.S. is reviving expectations of a Bank of Canada rate cut. With a slow economy and a lack of government borrowing, there is room for Canadian interest rates to move lower, provided that energy price inflation does not reappear.
The attitude in financial markets has turned negative toward the Canadian dollar. It has slipped to a 14-month low against the USD, despite the jump in oil prices. The CAD has severed its link with oil prices for now and is responding to the Canada-U.S. economic growth gap. We expect this gap to continue as Canadian consumers appear to have lost their enthusiasm and exports of manufactured products are struggling as a result of a loss of international competitiveness.

Outlook for Housing Starts
Most forecasts show national starts declining modestly in 2007 by 8 to 10 per cent from 227,395 units last year. That was the second highest level for starts since 1988. However, under the surface there are pockets of serious weakness. Single-detached starts in Ontario are expected to decline by close to 20 per cent in 2007 to a level about 35 per cent below their peak in 2004. Quebec faces a problem in the multiple unit sector, where starts are expected to decline by about 15 per cent.
HB

Peter Andersen, a CHBA economist, is president of Andersen Economic Research Ltd. of Toronto. The firm specializes in economic research and forecasting for the Canadian home building industry.

homeBUILDERcanada.com | Home BUILDER Magazine | Canada's #1 Information Source for Residential Home Builders and Professional Renovators

HB house ad sub
Home Builder Magazine Ask Jon Eakes
Home Builder current issue