Worthwhile Canadian Initiative

The legendary editor of The New Republic, Michael Kinsley, once held a “Boring Headline Contest” and decided that the winner was “Worthwhile Canadian Initiative.” Twenty-two years later, the magazine was rescued from its economic troubles by a Canadian media company, which should have taught us Americans to be a bit more humble. Now there is even more striking evidence of Canada’s virtues. Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it’s Canada. In 2008, the World Economic Forum ranked Canada’s banking system the healthiest in the world. America’s ranked 40th, Britain’s 44th.

Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn’t grown in size; the others have all shrunk.

So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1 — compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada’s more risk-averse business culture, but it is also a product of old-fashioned rules on banking.

Canada has also been shielded from the worst aspects of this crisis because its housing prices have not fluctuated as wildly as those in the United States. Home prices are down 25 percent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for overconsumption that the U.S. code does: interest on your mortgage isn’t deductible up north. In addition, home loans in the United States are “non-recourse,” which basically means that if you go belly up on a bad mortgage, it’s mostly the bank’s problem. In Canada, it’s yours. Ah, but you’ve heard American politicians wax eloquent on the need for these expensive programs—interest deductibility alone costs the federal government $100 billion a year—because they allow the average Joe to fulfill the American Dream of owning a home. Sixty-eight percent of Americans own their own homes. And the rate of Canadian homeownership? It’s 68.4 percent.

Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position. The government has restructured the national pension system, placing it on a firm fiscal footing, unlike our own insolvent Social Security. Its health-care system is cheaper than America’s by far (accounting for 9.7 percent of GDP, versus 15.2 percent here), and yet does better on all major indexes. Life expectancy in Canada is 81 years, versus 78 in the United States; “healthy life expectancy” is 72 years, versus 69. American car companies have moved so many jobs to Canada to take advantage of lower health-care costs that since 2004, Ontario and not Michigan has been North America’s largest car-producing region.

I could go on. The U.S. currently has a brain-dead immigration system. We issue a small number of work visas and green cards, turning away from our shores thousands of talented students who want to stay and work here. Canada, by contrast, has no limit on the number of skilled migrants who can move to the country. They can apply on their own for a Canadian Skilled Worker Visa, which allows them to become perfectly legal “permanent residents” in Canada—no need for a sponsoring employer, or even a job. Visas are awarded based on education level, work experience, age and language abilities. If a prospective immigrant earns 67 points out of 100 total (holding a Ph.D. is worth 25 points, for instance), he or she can become a full-time, legal resident of Canada.

Companies are noticing. In 2007 Microsoft, frustrated by its inability to hire foreign graduate students in the United States, decided to open a research center in Vancouver. The company’s announcement noted that it would staff the center with “highly skilled people affected by immigration issues in the U.S.” So the brightest Chinese and Indian software engineers are attracted to the United States, trained by American universities, then thrown out of the country and picked up by Canada—where most of them will work, innovate and pay taxes for the rest of their lives.

If President Obama is looking for smart government, there is much he, and all of us, could learn from our quiet—OK, sometimes boring—neighbor to the north. Meanwhile, in the councils of the financial world, Canada is pushing for new rules for financial institutions that would reflect its approach. This strikes me as, well, a worthwhile Canadian initiative.

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Beware of your source of information

A fellow Realtor & Education Coordinator who was recently enjoying a night out, encountered some typical banter about the real estate market and ubsubstantiated market woes. Here is the story as written by himself...

Real Estate News
Published: February 6-12, 2009 

When out for dinner the other night, I overheard the Manager of the restaurant tell a customer, "Not one house has sold in Mississauga for weeks." I could not let this opportunity pass and told him this is not true, and being in the real estate industry, I was aware of many homes that have sold. His response was, "Not according to the real estate agents who are my daytime bar regulars." [these are NOT the kind of real estate agents you want working for YOU!]

Hmmm! This is how innacurate information cloud's the public's understanding of the current state of the real estate market. Let's look at some real facts provided by the Canadian Mortgage and Housing Corporation that are supported by research.

HOUSING MARKET OUTLOOK - Source CMHC - Average home price for 2008 was up by 2.6% to $387,000. By the end of 2009, the average price will reach $394,000, up by 1.8%.

ECONOMIC TREND - Source CMHC - The rate of job growth in the GTA was 1.8% for 2008. For 2009, job growth will remain positive, but the rate of growth will be moderate to 1% as labour market conditions in the GTA remain tight through the end of 2009. Wages and salaries will continue to grow above the rate of inflation. With the unemployment rate around 7%, many employers in the service sector will be offering wages above the rate of inflation.

MORTGAGE RATES - Source CMHC - Posted Mortgage rates will decrease slightly in the first half of 2009. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half of 2009.  [Have a look at the Sutton Member Program for the LOWEST mortage rates available in Canada, available through Blair Armstrong, on this website, or by calling Blair at 416-301-0222.]

Presently there is a change in the rate of sales in the real estate market. That said, people continue to buy and sell their homes [as they always have in the past], determined by [their needs or the] changes in their lives.  My caution - don't belive everything you hear... check the source!!!

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Canada's central bank predicts short recession 

The Associated Press
Published: January 23, 2009 

TORONTO: The head of Canada's central bank said Thursday the country is in a deep downturn, but he predicts it will be shorter than previous recessions.

Bank of Canada Governor Mark Carney said interest rate cuts, a government stimulus package and a weak Canadian dollar could lead to a shorter downturn than recessions in 1981-82 and 1990-92.

The bank is predicting three consecutive quarters of contraction for Canadian economic activity, including a 2.3 percent drop in GDP in the fourth quarter of 2008 and a dramatic 4.8 percent GDP drop in the current quarter.

Carney predicts a 1 percent drop in the second quarter followed by 2 percent growth in the third and 3.5 percent growth in the fourth.

"We expect that this recession won't be as long as former recessions," Carney said.

Carney said the extraordinary easing up of monetary policy will help Canada recover. The Bank of Canada began cutting interest rate as the U.S. economy slowed in late 2007, but Carney only declared Canada in recession this week.

High commodity prices fueled Canada's resource-rich economy in the first half of last year, but the subsequent broad commodity decline has only slowed Canada's economy in recent months.

The Bank of Canada cut its trendsetting interest rate by one-half point to 1 percent on Tuesday, the lowest in history. Canada's central bank has cut 3.5 percentage points off the overnight rate since it began the current easing policy 13 months ago in an effort to stimulate the economy.

"We are entering this recession with effectively zero real interest rates," Carney said. "We normally enter with four or five percent real interest rates coming in. We've been cutting rates for some time, even though there is a lag on monetary policy that impact will start to be felt."

Carney also said he expects Prime Minister Stephen Harper's Conservative government to announce a substantial stimulus package on Tuesday. Opposition parties have vowed to topple Harper's government if the doesn't a significant plan.

Harper has said it will be substantial. An aide to the prime minister said Thursday the government will likely run a $64-billion Canadian deficit (US$51 billion) over the next two years to pay for it. The federal government has run a surplus for more than a decade.

"It is a contributing factor to the recovery we expect," Carney said.

The central bank's optimistic outlook for a recovery this summer, leading to robust 3.8 percent annual average growth next year, differs from many leading private-sector economists and parliamentary budget officer Kevin Page.

On Wednesday, both Page and IHS-Global Insight forecaster Dale Orr said the Canadian economy would not return to full capacity until 2013, two full years later than what the central bank predicts.

The credit crisis and the global sell off of commodities have slowed Canada's commodity-rich economy. Alberta's once booming oil sands sector has cooled as every major company has scrapped or delayed some expansion plans.

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CBC NewsWorld:  Canada's Housing Decline?

December 16, 2008 Is it the right time to buy? Is it the right time to sell? Now is the time for Buyers to find a great home at a great price while rates are low!