Econowatch: January 2012

A monthly scorecard on the state of the economy in North America and beyond

by Colin Campbell

Nathan Denette/The Canadian Press

Canada’s big banks offered homebuyers a big fat incentive last week when, led by the Bank of Montreal, most dropped their five-year fixed mortgage rates to an unheard of 2.99 per cent. Like the failing Detroit auto industry of the early 2000s, with its zero per cent financing, no-money-down offers, Canada’s banks appear willing to sacrifice some profit to keep the mortgage market booming. They’re still making money—and certainly won’t go bankrupt like two of the Big Three automakers did—but there is a similar whiff of desperation here at a time when the housing market appears to be cooling. Even in once hot markets like Calgary, prices have flattened.

These ultra low rates are bad news for Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney, who’ve been warning Canadians for years to stop taking on record debt loads in this era of easy money. BMO’s rate does come with a few catches, like a maximum 25-year payment period. But that doesn’t mean buyers won’t find themselves in trouble five years from now if rates rise.

Maybe the bigger concern is what happens if the housing market really does head south, and what that means for the Canadian economy. Over the past decade, construction was the second-fastest growing industry, creating one million jobs. It now accounts for an incredible one-tenth of Canada’s GDP. Rising house prices have also made Canadians feel richer and insulated from economic troubles. As the U.S. showed, when housing is stripped from the equation, things can quickly go from bad to worse. Record-low mortgage rates might help keep the economy chugging along, but let’s just hope we’re not now running on fumes.

Brought back down to Earth

After watching their parents get burned, 52 per cent of young people say they will never be comfortable investing in the stock market (29 per cent of all ages say the same thing), according to a survey by MFS Investment Management. So much for the recovery.

Gander, Nfld., once famous as a European stopover until the advent of long-range jets, has briefly reprised its old role thanks to extraordinarily strong headwinds over the Atlantic. The unexpected visits are good for the local economy, too, bringing in tens of thousands in additional landing fees.

Apple is used to being loved by consumers. But one of its Beijing stores was instead pelted with raw eggs after a botched iPhone 4S launch in China. Customers who waited overnight in frigid temperatures were furious when the store didn’t open.

Taco Bell has decided to go upscale to better compete with the Chipotle restaurants of the world. The chain, which built its business on dirt-cheap tacos and talking dog commercials, plans to offer such ingredients as black beans, cilantro rice and corn salsa.

By The Numbers

66 per cent Americans who believe there is a “serious conflict” between rich and poor, according to a recent Pew Research Center survey

710 ml The size of the new Tim Hortons “extra large” cup—roughly the equivalent of four average-size coffees

20,000 The number of new technology products on display last week at the annual Consumer Electronics Show in Las Vegas

24 million Customer accounts hacked in a cyberattack at Zappos, a U.S. retailer owned by Amazon.com

$413 million The price of Lions Gate Entertainment’s acquisition of Summit Entertainment (maker of the Twilight film series)

$100 billion The estimated value of Facebook based on its much-anticipated initial public offering, expected this spring

Good News

  • Canadian exports will grow this year by six per cent, boosted by a strengthening U.S. economy, according to Export Development Canada. Thanks Uncle Sam.
  • Saskatoon will lead the country in growth this year, with its economy expanding four per cent, says a Conference Board forecast. A Prairie uprising.
  • Consumer sentiment in the U.S. rose to an eight-month high in early January. Happy New Year.
  • Tourism spending in Canada rose 0.8 per cent in the last quarter—the ninth consecutive gain. It was largely due to Canadians travelling at home. Long live the staycation.
  • Luxury automaker Rolls-Royce sold the most cars in its more than 100-year history in 2011, with sales up 31 per cent from the year before. The one per cent strike again.
  • Business trips in the U.S. rose 2.1 per cent last year and business-travel spending jumped 7.6 per cent, according to a trade group report. It’s the return of the salesman.

Bad News

  • Standard & Poor’s downgraded the debt rating of nine European countries, including France, the eurozone’s second-biggest economy. The continent inches closer to recession.
  • China, the world’s second-biggest economy, experienced its slowest growth in 10 quarters at the end of 2011, raising concerns about a wider global slowdown.
  • Average home prices in Canada rose just 0.9 per cent in December compared to a year earlier—the smallest increase since October 2010.
  • Orange juice futures hit an all-time high this week as some imports to the U.S. were halted on fears of a fungicide. Your breakfast could soon get a lot more expensive.
  • Sweet snack-maker Hostess Brands filed for bankruptcy—its second restructuring effort in three years. The Twinkie may be indestructible, but the company behind it sure isn’t.
  • The value of building permits in Canada fell 3.6 per cent in November. Not as bad as economists had expected, but still a potential dark cloud looming over the economy.



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Econowatch: January 2012

  1. If BMO led the way, which mortgage providers followed?

  2. Thirty year fixed rate mortgage rates are now under four percent. I can remember years back when housing was king long before the housing bust. Everybody had the expection that home prices would always increase. Even myself as far as that go’s almost believed in this fairy tale. And it was just that a fairy tale as long as it lasted. I don’t have the data in front of me but I think their was only one or two years from 1945 to the early 2000′s that national home prices declined. Their were pockets of weakness in texas during the oil bust of the 1980′s but over all prices increased steadly from 1945 to about 2006. One giant bubble. I believe that now is the time to start shopping for a home. I also believe that if anyone out their is concerned about home prices rising anytime soon they need not be concerned because theirs plenty of homes on the market which will keep prices down for a long time I also don’t believe that interest rates on mortgages will be increasing anytime soon.

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