Key Points From Benjamin Tal, CIBC Economist

• The U.S. housing collapse won’t rebound anytime soon.
• Tal predicts it will take until 2017 for U.S. home prices to rise enough to bring the average person with negative equity back to even.
• That matters because America’s housing market is driving its economy, which in turn impacts Canada’s economy and interest rates
• M1 velocity of money is the “most important indicator” that Canada’s mortgage market should be watching because it’s the top signal of U.S. inflation. U.S. and Canadian inflation are closely linked. Higher inflation leads to higher interest rates.
• Tal says rising M1 velocity of money will be the “#1 signal” that mortgage rates will rise. When this happens, the U.S. Fed’s Bernanke will need to "remove liquidity from the system very quickly"
• 5-year yields will “have to” increase in the next few years because the market is under-pricing inflation.
• “The Chinese consumer will be the most important force in the global economy for the next 10 years.”
• The Chinese are “starting to demand quality.” That’s positive for North America because the Chinese will increasingly buy our goods.
• China’s demand for commodities (like oil) significantly influences financial markets. Oil has a 93% correlation with the S&P 500, for example.
• If China expands, oil (and other commodities) will rise and 5-year mortgage rates “will go up.”
• China will slow in the next 12 months, predicts Tal. But after that, it will resume growth and put pressure on 5-year rates.
• “I’m almost positive the (U.S. Federal Reserve) will not change rates until mid 2012,” Tal said.
• The BoC won’t “take chances” and raise our rates significantly above the U.S.
• “The next few quarters are safe” from BoC rate hikes.
• Consumers are “exhausted” due, in part, to a 146% debt-to-income ratio. As a result, it won’t take many rate hikes to slow the economy.
• The “forward curve” (i.e. implied interest rates based on derivatives pricing) implies that 5-year fixed mortgages will be slightly cheaper than variable mortgages over the next five years. Tal put up a chart to this effect and 2011 is the first year in 10 years that this is expected to be true. (Take that for what it’s worth.)
• When rates rise we may see mortgage defaults drop. That’s because rising rates imply rising employment, which influences defaults more than anything.
• Only 4.1% of households have less than 20% equity and total debt ratios over 40%.
• The quality of mortgage debt is improving says Tal. Specifically, the ratio of mortgage holders who are 35+ years old and making over $50,000 (adjusted for inflation) has steadily risen in the last 5-10 years.

Maritz Research

• Overall broker market share was 26% in 2010.
• Industry projections over the next five years are for a 9% point increase.

*CAAMP Forum 2010 Winds Down- Canadian Mortgage Trends – November 24, 2010

Month-over-month price drop brings properties to 2009 housing price levels

Edmonton, November 2, 2010: Although the all-residential average price dropped 3% in October, average prices are almost exactly what they were a year ago. Single family dwellings were sold on average for $365,691 which is just $1,434 less (-0.39%) than October 2009. Condos sold in October for about $2,000 less (-0.9%) than a year earlier at an average price of $235,893.

“Stability is the key word for the Edmonton housing market,” said Larry Westergard, president of the REALTORS® Association of Edmonton. “Prices this fall are matching almost dollar for dollar with prices for the past two years. But I am pleased to report that the inventory dropped 10.6% in October, and as it returns to a more normal level, prices will start to move.”

The average* all residential price in October was $317,422 as compared to $327,235 in September. It was less than one percent lower than the October 2009 price of $320,184. Listing activity continued to slow with just 2,269 residential properties added in October. There were 1,077 residential sales for a sales-to-listing ratio of 44.5%. Total residential inventory was 7,689 properties at the end of October as compared to 8,602 the month prior. The average days-on-market went up to 60 days from 56 last month.

The all-residential median price rose from $306,500 in October 2009 to $308,000 last month. “This rise in the median price stretched the range of the lower end of the market,” said Westergard. “Yet REALTORS® still found 529 properties priced under $300,000 for buyers with smaller budgets or modest housing needs in October. There is still a home suitable for every buyer in this market.” There were 32 sales of residential properties priced at over $750,000 during the same month.