Housing market coming out of 'hibernation': Scotia
Financial Post
OTTAWA — The Canadian housing market seems to be “emerging from its winter hibernation,” says a report released by Scotia Economics on Tuesday.
The Bank of Nova Scotia’s economic-research division said existing-home sales strengthened in February and March, and preliminary reports indicate this trend continued in April.
The report said a rise in demand and drop in new listings has resulted in the housing market moving closer to being “balanced.” The listings-to-sales ratio averaged 2.2 in March, Scotia said, down from its peak of 2.7 in November. A ratio of 2 is considered balanced.
Scotia said home prices “steadied” in February and March, but still remain down almost eight per cent from a year earlier, or about five per cent when adjusting for heavy sales fluctuations in certain regions.
Adrienne Warren, senior economist with Scotia Economics, said it now seems that housing prices will not fall the full 10 per cent this year she had anticipated, and the drop in resales should be at the low end of her forecast for a 15 to 20 per cent decline.
“Nonetheless, we still feel there is more downside than upside risk to home sales and prices,” she said, in a statement. “The significant deterioration in domestic labour markets in recent months suggests little prospect for a major resurgence in demand near-term.”
In contrast to the resale market, Scotia said in its report Tuesday that the retrenchment in the housing-construction industry is happening quicker than anticipated. It said builders are adjusting to the lower-pricing environment and rising inventories.
Scotia said there was an annualized rate of 139,000 housing starts in this year’s first quarter, the lowest in a decade. It downgraded its overall forecast for this year to 140,000 housing starts from 155,000.
Monday, May 11, 2009
Quantitative easing: What is it?
CBC News
What is quantitative easing?
Quantitative easing is a term used to describe a process whereby central banks "print" more money (money is generally created electronically these days) and use it to buy assets such as government and corporate bonds held by commercial banks and other financial institutions. Buying the bonds decreases their supply in the market and pushes up prices, which in turn drives down yields or interest rates. Since bond yields are used to set long-term interest rates for mortgages and most business lending, this should have the effect of reducing the cost of borrowing. By selling the bonds, the financial institutions get an infusion of cash that enables them to lend more money and help generate economic activity.
Why is quantitative easing being used?
Normally central banks try to increase the amount of lending and economic activity by cutting interest rates. But with central bank rates at historic lows — 0.25 per cent in Canada and 0 to 0.25 per cent in the U.S. — the availability of credit remains tight and demand relatively weak. So policy makers find themselves having to come up with other ways to boost lending and spending.
Bank of Canada Governor Mark Carney has expressed reservations about quantitative easing.Bank of Canada Governor Mark Carney has expressed reservations about quantitative easing. (Sean Kilpatrick/Canadian Press)Who is using the process?
The U.S. Federal Reserve and the Bank of England are both engaged in quantitative easing, with the U.S. central bank indicating it will buy up more than a trillion dollars worth of debt. The Bank of Canada is not and has expressed reservations about the process, which economists view as an experiment.
Will it work?
It's too early to say. Reducing central bank rates practically to zero was supposed to unlock credit and spur borrowing, but that hasn't happened to the degree policy makers feel is necessary to revive the economy. Whether it can be accomplished by buying up bonds remains to be seen.
Are there risks involved?
Quantitative easing is seen as risky because creating money out of thin air and pumping it into the economy could lead to a higher rate of inflation than is deemed desirable and devalue the currency. At the same time, if the strategy isn't pursued aggressively enough, it won't have the desired effect. Banks will remain reluctant to lend and spending will remain weak.
CBC News
What is quantitative easing?
Quantitative easing is a term used to describe a process whereby central banks "print" more money (money is generally created electronically these days) and use it to buy assets such as government and corporate bonds held by commercial banks and other financial institutions. Buying the bonds decreases their supply in the market and pushes up prices, which in turn drives down yields or interest rates. Since bond yields are used to set long-term interest rates for mortgages and most business lending, this should have the effect of reducing the cost of borrowing. By selling the bonds, the financial institutions get an infusion of cash that enables them to lend more money and help generate economic activity.
Why is quantitative easing being used?
Normally central banks try to increase the amount of lending and economic activity by cutting interest rates. But with central bank rates at historic lows — 0.25 per cent in Canada and 0 to 0.25 per cent in the U.S. — the availability of credit remains tight and demand relatively weak. So policy makers find themselves having to come up with other ways to boost lending and spending.
Bank of Canada Governor Mark Carney has expressed reservations about quantitative easing.Bank of Canada Governor Mark Carney has expressed reservations about quantitative easing. (Sean Kilpatrick/Canadian Press)Who is using the process?
The U.S. Federal Reserve and the Bank of England are both engaged in quantitative easing, with the U.S. central bank indicating it will buy up more than a trillion dollars worth of debt. The Bank of Canada is not and has expressed reservations about the process, which economists view as an experiment.
Will it work?
It's too early to say. Reducing central bank rates practically to zero was supposed to unlock credit and spur borrowing, but that hasn't happened to the degree policy makers feel is necessary to revive the economy. Whether it can be accomplished by buying up bonds remains to be seen.
Are there risks involved?
Quantitative easing is seen as risky because creating money out of thin air and pumping it into the economy could lead to a higher rate of inflation than is deemed desirable and devalue the currency. At the same time, if the strategy isn't pursued aggressively enough, it won't have the desired effect. Banks will remain reluctant to lend and spending will remain weak.
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