Nov. 1, 2013

CANADA / PRAIRIE HOUSING

  • Goldman Sachs warned of a sharp fall in Canadian house prices and said “if the elevated level of homebuilding persists in coming years, the risk of overbuilding will increase substantially.”
  • Canadian Real Estate Association (CREA) says the September national average sale price rose 8.8% Y/Y.
  • 24% of Canadians eliminated their non-mortgage debt in 2013, compared with 26% in 2012 and 22% in 2011. Canadians have become aware of the benefits of moving their debt from credit cards toward home equity lines of credit at a much lower interest rate.
  • Edmonton housing starts are expected to reach 13,900 in 2013, up 8% from the 12,837 in 2012. 2014 is expected to moderate to 12,200 units.
  • Calgary housing starts are expected to moderate to 11,700 units in 2013 down 8.9% from 12,841 in 2012 and are expected to increase to 13,100 in 2014.
  • In the prairies over all, housing starts are projected to reach 50,200 in 2013 and 50,000 in 2014 vs 50,606 in 2012.

HIGHER HOME OWNERSHIP POSES RISK TO THE ECONOMY

  • A recent study from the University of Warwick, UK, shows that Western governments have intervened in housing markets through subsidies, guarantees or tax allowances and lower interest rates.
  • The result: Residential property owners may try to hold back development in their areas through zoning restrictions that would curb job creation and business ventures.
  • Those who have homes may have negative equity or have lost value and may be reluctant to move to a place where they would have higher home costs.
  • A 1% increase in homeownership is estimated to lead to a 2.2% gain in unemployment over the long term.
  • The Fed may have had “too much” to do with the rebound. It remains to be seen if gains can be maintained when the central bank stops its mortgage bond purchases and interest rates rise.
  • This week the Federal Reserve maintained the threshold on inflation and sounded less upbeat about the housing market, acknowledging that the recovery in that sector had slowed somewhat in recent months.

ENBRIDGE PIPELINE CONSTRAINTS

  • Enbridge has pipeline capacity for 2,400,000 b/day from Edmonton and 450,000 b/day from Hardisty.
  • Enbridge announced constraints on their lines to reduce capacity by 100,000 b/d in November.
  • Western Canadian Select differential is now $38.25. The average for the first 9 months of 2013 was $23.95.

TIDBITS

  • Chinese manufacturing (PMI) rose to an 18 month high in October.
  • China said they will be discussing unprecedented reforms at next months’ Communist Party meeting.
  • Israel destroyed a cache of Russian missiles that the Syrian government was reportedly preparing to delivery to Hezbollah.