Canada

From 2020 to 2030, when the older baby boomers will be 64 to 74, America’s elderly are projected to face an income shortfall of at least $400 billion, including at least $45 billion in 2030 alone. This shortfall will affect every aspect of these retirees’ lives including their ability to provide adequate shelter, food, clothing and the basic necessities of life for themselves in their so-called “golden years”.

Many people believe that just blindly turning their life savings over to their bank, financial institution or financial advisor will produce the results they so desperately need to live their desired lifestyle as they age. This seems to be a very popular view with very contrasting results as many of these institutions choose to pour client investment capital into well diversified mutual funds.

However, one can find plenty of statistics that support the fact that approximately 75 to 80 percent of mutual funds under-perform the stock market returns in a typical year. Of course there is no such thing as a typical year and the real performance of funds varies greatly.

Now I know people spend less during a recession; however, most recently I was quite surprised to come across this article published in the Edmonton Journal here are a couple of the highlights I found.

•  A record trillion dollars of cash sitting on the sidelines in Canada!
• 10 trillion dollars of cash sitting on the sidelines in United States!
• The worst thing to do is: leave money in cash balances that pay LESS than 0 after inflation and taxes!

Enjoy!

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With a record trillion dollars of cash sitting on the sidelines in Canada, and 10 times that much in the United States, it’s arguable households aren’t taking enough risk to get a decent return on their money.

Derek Holt, vice-president of Scotia Capital Economics, says the worst thing to do is to leave too much money in cash balances that pay less than zero after inflation and taxes.

Holt and colleague Karen Cordes startled Bay Street Monday when their Capital Points letter revealed Canadians are sitting on a trillion-dollar mountain of cash, or $635-billion if you don’t count less-liquid term deposits. Either figure is “astoundingly massive,” Holt says, and in line with the US$3.5-trillion to US9.6-trillion parked in cash in the United States.

OTTAWA, September 3, 2009 — Housing starts are expected to rebound in the second half of 2009 and will reach 141,900 for the year. Starts will increase to 150,300 for 2010, according to Canada Mortgage and Housing Corporation’s (CMHC) third quarter Housing Market Outlook, Canada Edition* report. The overall forecast totals for housing starts remain unchanged from the second quarter release.

"Economic uncertainty and lower levels of employment tempered new housing construction in the first half of this year", said Bob Dugan, Chief Economist for CMHC. "In the second half of 2009 and in 2010, we expect housing markets across Canada to strengthen."Improving activity on the resale market and lower inventory levels in both the new and existing home markets are expected to prompt builders to increase residential construction.

Dear Professional Real Estate Investor:
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As someone who’s developed a business that continuously purchases one, two or even three properties a month with joint venture partners and has done so for the past 4 years – I understand the enormous challenges you face every day “in the trenches.”
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You’re under constant deadlines, your workload and paperwork is overwhelming, you have enormous responsibility and maybe not enough money or access to credit – and everyone thinks all you do is buy a house or two.
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Sound familiar? Sure it does. I’ve heard those frustrations time and again from the literally hundreds of professional real estate investors who do joint ventures like you that I’ve had the privilege to coach and talk with over the years. And there’s yet another stressor that comes along with your position: Even a single mistake on your part can cost you and your partners thousands of dollars. Holy smoke, talk about pressure.
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On Thursday June 11, the Bank of Canada declared the recession in Canada was over and that the economy is expected to bounce back twice as strongly as the American Economy. The Bank of Canada went on further to estimate an economic growth of 1.3% in the current period and growth of 3% in the fourth quarter.  The announcement was taken with caution by the general public.

However, today Thursday July 23, Federal Finance Minister Jim Flaherty made a similar announcement. Mr. Flaherty was quoted saying “the Canadian economy has stabilized and recovery has started” and that as a country “we’re moving into a period of modest economic growth”. The minister went on further to explain “consumer confidence is relatively strong and growing, we are seeing good home sales numbers (and) some improvement in retail sales.”

The Canadian housing market has recorded an increasing number of sales in most areas around the country for a second month in a row.

Low interest rates and slightly lower home prices have resulted in increased momentum on a month-over-month basis; however, April sales remained lower than 2008 levels.

BC-Surrey

The Fraser Valley real estate market continues to show signs of rebalancing with the number of sales increasing for the third month in a row while the number of listings stayed relatively constant.

April 2008 - 1787 sales
April 2009 - 1293 sales (28% decrease from last year but 29% more than March 2009)
April 2008 - 4458 listings
April 2009 – 2477 listings (44% decrease from April 2008)

Here’s the episode of CBC’s The Hour with George Strombolopolus with former CIBC World Markets Chief Economist Jeff Rubin. The folks at REIN kindly made it available. Rubin wrote a book called Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization and it sounds like an interesting read. If you have read it, let us know how it was by making a comment! I'd love to hear your thoughts.

RBC Housing Affordability Index is a measure of a household’s median pre-tax income that goes towards housing costs (mortgage payments, taxes, utilities).

These measures are based upon a conventional 25% down payment and 25 year amortization period so it is likely that inclusion of 35 year amortizations would further decrease typical mortgage costs and increase affordability.

Overall, Canadian affordability has shown improvements over the 4th quarter of 2008 with lower mortgage rates having the largest impact in the recent reversal of RBC measures in addition to rising family incomes. Only in Edmonton, Calgary and Vancouver were lower home prices a major factor in the year over year changes to affordability.