Interesting article in today’s Calgary Herald.  I tend to agree with the writer on all points, but certainly a good read

What a day.  In the second highest gain on the US stock market today we saw it go up almost 900 points or a total of 11%.  This all stems on speculation the the federal reserve will drop rates by .50%.  This is welcome news and is early signs we are coming back…but yes we have a ways to go 

How would you like to live in Iceland.  The central bank hiked their benchmark interest rate to 18% and economists are predicting inflation to top 75% this year…WOW. 

What did you think I meant ? Your office window?  All kidding aside despite some challenging times ahead for credit markets one very big thing happened today to bring more stability to our markets.  The government of Canada announced that they will guarantee interbank lending.  This has been called upon by economists all week and the government complied.  What this does is allow the banks to have confidence in lending to each other which has the immediate effects of the banks matching the bank of Canada rate reductions on their bank prime rates. This makes it so that jumping now to a fixed rate mortgage is not advised.  Particularly for anyone who was fortunate to get a Prime – .90% interest rate from last year.  We foresee the Bank of Canada continually dropping the bank rate into 2009 and then likely flat for some time throughout 2009.  Assuming the bank starts to see inflation peak up in late 2009 we may see it edge up then. Soooo, hold on and keep that attractive Variable rate mortgage. 

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CIBC World Markets recent weekly insight written by Senior Economist Benjamin Tal has some indications that although it is bad right now, we are closer to the end of the crisis then at the beginning…whew!Here are the reasons Mr. Tal gives for his theory: First, US house prices—the trigger of the current crises—are still falling, but the pace of the decline is 

moderating. Earlier in the year house prices in the US were falling by more than 2% a month. Today they are 

falling by 0.5% a month. And at this rate, US real estate prices will stop falling altogether by early next year. 

That realization will provide the market with the necessary injection of confidence that the housing crisis is 

indeed about to reach bottom. 

Second, what distinguishes the current situation from previous crisis is the speed and determination at which 

policy makers have been reacting to ease the credit crunch. The policy steps taken since early September were 

designed to achieve three key goals: to shore up capital position of financial institutions; to provide liquidity to 

money markets; and to support business and household confidence in the financial system. By far the most 

significant step was that the US Treasury will use $250 billion of the $700 billion authorized in the Trouble 

Asset Relief Program (TARP) legislation to take equity stakes in the nation’s banking sector. This should notably 

improve banks’ ability to borrow from each other and extend credit to households and businesses. 

To be sure, the next six months will be difficult. The economies in both the US and Canada are probably in 

recession, and we probably will not see a sustainable recovery before mid-2009. However, current market 

valuations and credit spreads price in even a more severe scenario. To the extent that policy steps to date will 

work to stop the bleeding in the credit market, the recession might end up being milder than currently 

discounted by the market. In such a case, look for some recovery in equity markets at one point in early to mid- 

2009. 

Yes the overall stock market is down around 40% so if you recently got into a Smith Manoevre then you may not be happy that your line of credit is higher then your portfolio.  That is of course understandable BUT remember that when you started down this path it was a long term investment strategy.  Leveraging is a risky venture no question about it, but it will still prevail as a good strategy long term, history proves us that.  WHATEVER you do don’t jump out now.  

Ok, I will buck the trend.  Despite the overall malaise felt by many consumers in the past two weeks due to the over stimuli of “crisis” this and “recession” that the underlying fundamentals of the Canadian Real Estate Market and more specifically the Calgary real estate market are pointing to a balanced market historically speaking.The problem we faced earlier this year was that there was  sharp and sudden drop in sales, BUT new listings kept coming into the market, the proverbial “Johnny come lately’s”  who were trying to “Cash in” on the boom.  That trend has continued to drop for the past three to four months.In the past four months the overall inventory has dropped over 20%…this is good.  New listings added is dropping every month in the past three…this is good.  We are headed for a statistically slower time for new listings added…this is good.  This all points to overall inventory levels reaching a more historically balanced level.Put another way, at the end of September 2008 we had YTD sales to listing inventory at around .43.  Historically we know that when that ratio is between .4 and .6 we are in a statistically balanced market.Here is a great article on it as well which looks more at Canada as a whole, I have captured a few quotes from the article as well in case you don’t want to read the whole thing. Fewer Canadian homes were sold in the third quarter and the number put on the market also dropped — signalling a slide in housing prices is beginning to slow, says the Canadian Real Estate Association.“We had a sellers’ market for several years and now we have a much more balanced market,” Alexander said in an interview.A drop in new listings helped to moderate the decline in prices, said BMO Capital Markets economist Doug Porter.“With fewer sales and fewer listings, it’s a built-in stabilizer as far as the extent to which you can expect to see prices to decline,” Klump said in an interviewAs the oil boom eases, Edmonton and Calgary led the decline in the number of new listings, posting year-over-year drops of 19.8 per cent and 11.7 per cent respectively.But Canadian homeowners shouldn’t expect to see the kind of price crash that their neighbours south of the border have experienced, Alexander added.“In the Canadian context, this is very much a cyclical event. The housing market is cooling down after a very hot run but the tide will turn when economic conditions improve and that will probably be late 2009 into 2010.” 

CMHC announced today that they have purchased $5 billion of a promised $25 billion of mortgages.  This is wonderful news.  Couple this with the government guaranteeing interbank lending and we will see considerable declines in rates for mortgage consumers.  Couple this with drops in real estate values in Calgary, makes now a great time to buy a home. One thing to be sure, CMHC DID NOT buy bad assets.  These were good assets, to be sure the Canadian mortgage market really does not have “bad” assets.  Are current defaults and foreclosures are still well below historical averages.Keep in mind the sub-prime mortgage market in Canada was around 5% of the total market, compared to 20% dow south.  

Sherry Cooper is a well respected economist that is certain, and when she talks people do listen.  In a recent article she says the federal government must intervene in the Canadian financial markets even if…GASP we have to engage in deficit financing to do it.  On the surface she is probably right.  The easiest thing they could be doing that i am told they likely will is guarantee interbank lending.  Most other central banks have done this at a minimum and we should to.  She points out that if that was to happen then the banks would match the cuts to the prime interest rates that the bank of Canada has been doing and is expected to cut again on Tuesday by a further .50%.  If this cut happens and the government comes through with the guarantee then you will see prime rate drop likely 1% next week.   This will of course be welcome news for consumers, particularly mortgage consumersStay tuned