Rising unemployment, a local manufacturing sector on life support and a collapse of housing starts across the region will all combine to create a 5.6 per cent decline in Windsor’s gross domestic product by the end of the year, according to a report released by the Conference Board of Canada.Photograph by: File photo, The Windsor StarWINDSOR, Ont. — Despite rising unemployment, a local manufacturing sector on life support and a collapse of housing starts across the region, the vice-president of the WindsorEssex Development Commission believes there’s light at the end of the tunnel.

“I’m cautiously optimistic because there’s been a significant increase in inquiries about investment in the region, and I believe we are becoming better positioned to take advantage of advanced manufacturing opportunities in such sectors as nuclear power, alternative energy and aerospace,” said Patrick Persichilli. “But the economic realities we’re living in are pretty clear and these are difficult times.

“I do see some growth opportunities, particularly when credit begins to loosen up, which should spur additional investment,” said Persichilli.

The 5.6 per cent decline in Windsor’s gross domestic product projected for 2009 is the largest among 14 similar-sized cities, according to a report released Tuesday by the Conference Board of Canada.

“It’s disappointing, but not altogether surprising,” said Persichilli. “I do think, however, that once the Big Three issues are dealt with, you’ll see some more investment because it’s hard to justify investment as a supplier if you’re not sure where the major players will be a year from now.”

The report also projects that Windsor’s GDP will begin to show slow growth beginning in 2011. Transportation, tourism and infrastructure initiatives, combined with a modest manufacturing rebound, are expected to boost GDP growth to about three per cent a year from 2011 to 2013.

An increase of that size would place Windsor in the middle of the 14 cities in its comparison group.

“An expected recovery in 2011 hinges on a stabilizing auto sector and a bad surprise here could derail our forecast,” says the report.

Layoffs and plant closures in the automotive sector have combined to slice manufacturing jobs from an average of 50,000 in 2000 to just 36,000 last year and a further drop to 30,000 is projected this year.

“This is critical since manufacturing accounted for 23 per cent of all Windsor jobs in 2008 compared with just 13 per cent Ontario-wide. Unfortunately, manufacturing is expected to shrink to 26,400 by 2013,” says the report.

Diversification by local manufacturers into solar, wind and nuclear power supply sectors is viewed as a potential life raft by authors of the report.

Persichilli said that infrastructure spending across the region, especially on the lands surrounding Windsor Airport, will help spur growth and attract investment once those lands are ready to accept additional investment.

“We can attract a great deal more investment in the logistics and maintenance, repair and overhaul sectors once that work is completed,” said Persichilli.

Construction, which has been hard hit by a slumping new housing market, is expected to benefit in the short run by almost $200 million in recently announced infrastructure spending by the three levels of government, as well as a new border crossing and the access roads leading to it.

Despite those signs of life, construction output in the Windsor area is expected to decline for the seventh straight year.

Tourism, meanwhile, has been hit by a rising Canadian dollar, the recession’s affect on Americans and new border identification initiatives.

© Copyright (c) The Windsor Star

 The Bank indicated that economic and inflation outlooks are unfolding largely as it expected when it last cut its benchmark interest rate on April 21st, 2009.  At that time, it forecast the Canadian economy would continue contracting until the fourth quarter of 2009.  It also forecast that inflation would to climb back to the two per cent midpoint of its target range between one and three per cent in the third quarter of 2011.

 The Bank also reiterated its pledge to hold interest rates at current levels until the end of the second quarter of 2010, conditional on its inflation outlook. 

In April, the Bank assessed the overall risks to its inflation projection as tilted slightly to the downside.  It reiterated this assessment in its interest rate announcement on June 4th. 

 The Bank acknowledged significant improvements in financial conditions and commodity prices, and modest recoveries for consumer and business.  However, it expressed concern that these positive economic factors could be fully offset if “unprecedentedly rapid rise in the Canadian dollar proves persistent.”

The Bank’s benchmark overnight lending rate was dropped in April to what it described as “the effective lower bound for that rate.”  If it needs to boost economic growth now that interest rates are as low as they can go, the Bank reiterated that it may resort to unconventional means of loosening monetary policy conditions.

 The Bank’s Monetary Policy Report published on April 23rd included information about additional monetary policy tools it may use to further inject liquidity into the financial system in its ongoing attack against the continuing credit crunch. 

When the Bank cut interest rates on June 4th, the advertised five-year conventional mortgage rate stood at 5.45 per cent. This is down 1.2 per cent from one year earlier, and unchanged from where it stood when the Bank made its previous interest rate announcement on April 21st.

The information contained in this report has been prepared by The Canadian Real Estate Association drawn from sources deemed to be reliable, but the accuracy and completeness of the information is not guaranteed. In providing this information, The Canadian Real Estate Association does not assume any responsibility or liability.

Source:  The Canadian Real Estate Association.

Ottawa — Globe and Mail Update, Friday, Jun. 19, 2009 06:37PM EDT

It looks like a miraculous resurrection.

In the midst of recession, the average national price of Canadian resale homes hit a record level in May, and sales activity increased for the fourth consecutive month. While U.S. residential real estate prices have been falling for almost three years, Canada seems to have stumbled and picked itself up again in a span of 12 months.
To some real estate agents, the market looks as good as it did before the global financial crisis began to bite last summer.

“Without getting nitpicky, yes it does,” said Toronto real estate agent Laurin Jeffrey. “I just lost out on a multiple offer last night on a house, and my client asked me to have a look at what’s going on with that sort of a house. In that price range and style of home, 14 out of 19 sales in the past 30 days have been at or above the asking price.”

The average national resale home price in May reached a record $319,757, up a tick from the previous record set in May, 2008, the Canadian Real Estate Association (CREA) reported this week. The group noted that the sales activity behind this increase was skewed by expensive markets such as Vancouver, Calgary and Edmonton, but it nevertheless declared that the “national resale housing market activity returned to prerecession levels in May 2009.”

Crisis averted in the housing market? Forget it. Prices may be climbing in some markets, but so are the interest rates that have fed the recent rise in sales. Meanwhile, incomes are stagnant, and jobs are disappearing in bunches.

If you’re thinking of getting into the housing market right now, mind the cracks in its foundation.

The house that Mr. Jeffrey’s client failed to get was a semi-detached, two-storey, all-brick home in the leafy mid-town neighbourhood of Leaside. With three bedrooms, one bathroom, a detached garage and a mutual drive, it was listed at $529,900 – and went for $551,000. According to Mr. Jeffrey, houses in that price range have sold for an average of 105 per cent of their asking price in the past 30 days.

And Toronto, where the number of homes sold rose 1.9 per cent last month, wasn’t even one of the hottest markets in terms of sales activity. CREA figures show that sales in Victoria, Vancouver, Calgary and Edmonton were up between 11.3 and 18.7 per cent.

It would be reasonable to expect that housing sales would be in a slump during a recession. But strangely, the economic downturn has actually helped to propel the real estate market higher.

For one thing, many people were too unnerved by the global financial crisis to buy late last year. So pent-up demand for housing in the first several months of 2009 played a role in the spring numbers.

“The kind of month-over-month increases we’ve seen in the last four months can’t go on forever,” said CREA chief economist Gregory Klump.

The Bank of Canada has also helped to juice the market, though inadvertently. By ratcheting interest rates lower to stimulate economic growth, the central bank has cleared the way for mortgage rates that remain at historically cheap levels even after recent increases.

Fixed-rate mortgages with a five-year term can be had for about 4.25 per cent with a top discount right now, compared with 5.5-to-6 per cent in spring, 2008. A couple of months ago, five-year mortgages were less than 4 per cent.

But low rates are also one of the reasons analysts are worried about the surprising surge in the housing market. “It’s all happening because of the crack cocaine of housing, which is rock-bottom interest rates,” said Garth Turner, author of Greater Fool: The Troubled Future of Real Estate . “They’re so irresistible, especially to inexperienced first-time buyers. That’s what’s propelling the market.”

Mr. Turner’s concern is that rising rates will eventually propel the market lower by making houses less affordable. His level of confidence that the boom will last? Zero.

In his book, published in early 2008, Mr. Turner warned that the Canadian housing market was in a bubble just like its U.S. counterpart. After a peak-to-valley decline of almost 14 per cent in Canada’s national average price, he’s predicting another plunge for home prices that will be triggered in large part by rising interest rates.

“We’re now into the housing bubble, Part Two,” said Mr. Turner, a former member of Parliament who now gives financial seminars and promotes his books. “I think this bubble is going to burst later this year. It’s going to be short and intense.”

In the near term, though, he sees rising rates being used to get buyers to jump into the market immediately. “People are being told, ‘Your affordability is going down if you don’t buy now, you’re going to be forever shut out of the market.’ It’s the eternal siren song of real estate.”

Many economists doubt that the prime rate – the rate banks use as a base to calculate other lending rates – will increase before next spring, but it’s a different story with the longer-term rates that influence fixed-rate mortgages. They’ve already bounced off the lows they hit in the depths of the global financial crisis, and more increases are expected.

Rising rates make houses less affordable, but this can be offset if housing prices are falling and incomes are rising. In many cities, though not all, prices are actually rising. As for income gains, they’re constrained by the recession.

Robert Hogue, senior economist at Royal Bank of Canada, said wages are still creeping higher, but many families have been affected by job losses. “Over all, household income has at best increased very slowly, if not kind of stalled for a bit,” he said.

For Mr. Hogue, rising rates and house prices are a threat to a housing market that appears to be stabilizing. But his outlook isn’t all negative. When the job market improves, he believes that household income will rise and help make houses more affordable.

“The moment we have the labour market picking up, to me that would be the sign that says we’re in the clear now.”

If you think interest rates are going to rise within the next four months — and experts predict they will — you can apply to get pre-approved for a refinance.Photograph by: Getty Images, Getty ImagesJohn and Jennifer Viner bought a home last August for $350,000 with a fixed-rate mortgage at 5.25%. A few months later, interest rates plummeted, hovering at a 50-year low.

The Viners, like many homeowners, started kicking themselves. And now that those low rates are starting to rebound — big banks have already announced hikes in interest rates — the Viners want to take advantage before they disappear completely. They want to refinance at 3.79%, which would save them $19,960 in interest.

The problem is, breaking their contract early comes with an expensive penalty that is made worse by low interest rates: The Viners would pay a penalty of $19,300.

When you do the math, refinancing just doesn’t seem worth the trouble.

There is a way to take advantage of today’s low rate tomorrow, says Julie Cooper, an accredited mortgage professional and associate for The Mortgage Group in Edmonton.

If you think interest rates are going to rise within the next four months — and experts predict they will — you can apply to get pre-approved for a refinance, Ms. Cooper says.

This comes with 120 days of rate protection. Your interest rate is locked in until the time period expires. If rates rise during that time, the homeowner gets to refinance at the lower rate. But the penalty for breaking the contract is calculated using the bank’s current, higher rate. The penalty, known as the Interest Rate Differential (IRD), calculates the difference between your mortgage rate and the current rate set by your bank, multiplied by the remaining months of the term and the outstanding principal.

“Penalty is an emotionally charged word that makes the lenders seem like bad guys for charging it,” Ms. Cooper says. The lender made a deal with the borrower, she explains, promising to lend you money without raising the rate for five years. So, the “penalty” covers the lenders’ shortfall.

The Viners applied for protection at 3.79%. Ms. Cooper heard rumours that rates were rising, so the Viners held tight. Sure enough, two weeks later, their bank’s rates rose to 4.24%. Their penalty shrunk to $14,400, which will net them $5,565 in interest savings.

The couple refinanced for $362,000 (including the penalty) with a 35-year amortization. At the lower rate, their mortgage payments decreased by $180 to $1,552 a month.

If they choose to keep the same mortgage payments and redirect the extra cash flow directly against the principal, they will pay their mortgage off 10.5 years faster.

Bottom line, you are playing the market by refinancing early. Rate protection gives you some leeway to wait for the right moment to pay the smallest penalty for the biggest savings. After all, interest rates have nowhere to go but up.

© Copyright (c) National Post