Just on the back of the Government helping out with an unprecedented purchase of insured mortgage assets designed to help out banks with liquidity and allow them to make profitable loans to consumers and corporate customers, they then jack interest rates and tighten policies on their credit cards. This is bad timing and really bad form for the banks.  The government should step in as a condition of these mortgage purchases they have to keep their credit cards the same.  Heading into the very important Christmas season the banks just sent a message to the public, slow your spending when the governments and our overall economy depend on consumers bringing their spending to normal levels during the holiday season.  

This from the National Post this morning;“In this round, CMHC said it would hand over $7-billion in cash to Canadian financial institutions, which agreed in return to pay a minimum interest rate of 2.78% (this is the rate at which the government was able to raise the cash through the sale of Treasury bonds and bills). The government eventually received an average rate of 3.78% in return for taking on the mortgage-backed securities — a 1% profit for the government. Estimates suggest that if demand from the banks remains strong for the remaining auction rounds, Ottawa could net $750-million in profit. ”

I have a few comments on the response from some economists who are trying to find something bad out of the governments decision yesterday to purchase good mortgage assets from the banks in an effort to grease the wheels of commerce and give the banks some liquidity to lend to consumers and businesses.“The quid pro quo here has to be the banks have to keep lending to households and businesses at low interest rates, and as long as that happens, I don’t think there’s much risk,” said Jim Stanford, an economist with the Canadian Auto Workers union.Duhh? Wow this is truly earth shattering, of course the banks have to keep lending to consumers and businesses, he suggests that instead of purchasing the mortgages the banks just need to go lend?? With what money genius?  That is why the government is doing this.  Could it be sour grapes?  He works for the Canadian Auto workers union…aren’t they looking for a bailout of an industry that likely should not be kept alive in our country…we can’t compete with global labour rates.Alan White, the Mitchelson Professor of Investment Strategy at the Rotman School of Management at the University of Toronto, said “the whole objective here is to prime the pump – to get the banks to lend money.”White said the moves are “probably a necessary thing.” But, he warned: “I’m always cautious about these things because people in the financial markets think very carefully about this and I’m sure they’re thinking of some way to unload the worst quality stuff they can on the government. And the government’s job is to try to ensure that doesn’t happen, that they get reasonable quality debt passed on to them.”First of all remember that the government of Canada and therefore taxpayers already guarantee these mortgages so purchasing them adds no ADDITIONAL risk, second of all the overall delinquency rate in Canada is lower then .25% of all mortgages outstanding, so how likely is it that all the mortgages sold to the government will be toxic.Here is the last word on this…the government stands to make a moderate profit on these purchases as well.  So here it is again…The taxpayer is purchasing assets that they already insure, using money that does not come from government coffers, but rather CMHC’s war chest, and finally the tax payer stands to actually make money on this.  The end result allows the banks to get through the liquidity crisis without massive bailouts from the government and therefore the tax payer that our unlucky neighbours to the south.Stop looking for the glass to be half empty…it is not.  

Here are some highlights from a press release today promoting CMHC’s issue of their Observer publication: Strong employment and income growth continued to bolster homeownership

      demand in Canada. The rate of homeownership in Canada rose to 68.4 per       cent in 2006, the largest increase between censuses dating back to 1971. 

In 2007, housing-related spending contributed close to $300 billion to

      the Canadian economy.

Mortgage arrears in Canada remain low. In 2007, slightly more than a       quarter of one per cent of Canadian households (0.26 per cent) fell

      three or more months behind in their mortgage payments.

This is a sentiment that has been going through the market lately following a significant drop in activity in October for sales.  Technically according to the data prices are stable.  We have seen over 25% drops in prices since the peak in July 2007, but have only seen a 5% drop in the past four months.  Why is this happening?  I think simply many homeowners are giving up selling and will refuse to sell their homes at the lower numbers that the current market is telling them.  This is again supported by the data as new listings added in the past four months has dropped 12% and overall inventory has dropped 15%.What is going to happen you ask…the next 60 days will likely continue to see low buying activity as buyers wait out the market troubles and try to gain some confidence in the system.  In that same time we predict that inventory levels will continue to drop which will be a positive measure for the market.The other shoe to drop though is if all these people who have taken their homes off the market come back in droves in the new year.  My suggestion and quite frankly my hope is that people if they are coming back to the market to sell that they come back in a measured pace as opposed to all at once and flooding the market.My guess is that sellers need to see the market coming back and showing some life before they come back, which would suggest that they will come back in a measured pace.Buyers, don’t blame me when the market starts to rebound in spring and “the deals” that are here to day are getting snapped up, and furthermore if you still wait around until fall 2009 you will find interest rates starting to climb as inflation becomes a concern causing you mortgage payments to come up.  I would hate to have to say “I told you so” but the deals that are here now, particularly in the new construction industry, will be fading away.  

Price Waterhouse Coopers and the Urban Land Institute jointly released a survey on emerging trends related to all Real Estate in Canada.  The highlights include good news that the slumping real estate market in the US has bottomed out, and that players in the Canadian Real Estate industry are approaching with caution but that they are positive.”According to report respondents, they remain positive about sidestepping any serious impacts of a possible US correction. Western provinces showcase the strongest growth trends and lowest vacancies in North America. All property sectors share positive prospects, especially industrial and retail.”“The report shows that compared with the US, capital has remained disciplined in Canada with a handful of large institutions and development companies dominating the country’s five primary real estate markets: Toronto, Montreal, Vancouver, Calgary, and Edmonton. For 2009, survey respondents anticipate steadying capital volumes, with pension fund investors still eager to increase portfolio holdings.”“Calgary is Canada’s “resource” capital and people are moving there in droves, although recent reports suggest this may be slowing. Survey respondents expect strong buys in 2009 for almost all sectors. For instance: 53.5% for hotels, 52.7% for industrial, 49.1% for office property, 48.1% for apartment buys and 48.1% for retail.”