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Confidence shown in real estate
Jul 14, 2006

Reading about Manitoba’s low four-per-cent unemployment rate and a number of companies needing workers, it’s no wonder that the gainfully employed are feeling confident about job prospects. Not surprisingly, they are also prepared to invest in big ticket items such as real estate.

The Winnipeg Real Estate Board recorded its best month ever in its 103-year history with nearly 1,500 sales worth $233 million. As remarkable as that is, just a few days later on July 6, the board went over $1 billion in year-to-date MLS® sales. This result comes almost a month faster than the year before. 

Excerpts of two articles below, prepared by the Canadian Real Estate Association, help explain why the MLS® market continues to do so well in 2006, especially in the Prairie region.

1. National consumer confidence — a significant indicator in projecting Canada’s housing market — continued to rise in the second quarter of 2006 despite rising prices and interest rates. 

National confidence posted the third consecutive quarterly increase and reached the fifth-highest level on record in the second quarter. The latest national increase reflected another new record for confidence in the Prairie region, and quarterly gains in Ontario and Quebec. 

Confidence remains highest in the Prairie region where near-term expectations for job growth reached their highest level on record in the second quarter. The outlook for household budgets in the Prairie region also reached the highest level in almost a decade. Combined with an upbeat near term outlook for job growth, enthusiasm about making major purchases is expected to remain high in the coming months. 

2. The Bank of Canada held its benchmark overnight lending rate steady at 4.25 per cent on July 11. The trend-setting bank rate, which is set one-quarter of a percentage point above the overnight lending rate, remains at 4.5 per cent. The decision follows seven increases of 0.25 per cent since September 2005.

In its announcement of the decision to keep interest rates steady, the bank indicated its forecast for economic growth is being revised downward. 

“In 2007 and 2008, growth is projected to be a little weaker than was set out in the (Bank of Canada’s) April MPR (Monetary Policy Report),” said the bank. “The additional strength that has developed in domestic demand is expected to persist into next year, but this should be more than offset by a weaker outlook for net exports, owing primarily to the recent strength of the Canadian dollar.” 

“The bank’s decision to hold interest rates has, for the first time in recent history, shown that it recognizes the negative impact that the soaring Canadian dollar is having, and will continue to have, on economic growth,” said CREA’s chief economist Gregory Klump. 

“Western provinces are powering economic growth in Canada this year due to strong construction activity and an energy sector that’s running flat out,” added Klump. 

In May 2006, the core rate of inflation stood at two per cent — its midpoint, and the highest rate of increase since December 2003. In its news release, the bank projects that overall inflation will soon retreat due to the cut of one per cent in the GST on July 1. 

Canada’s bank rate is now expected to hold steady, so the Canada-U.S. currency exchange rate is unlikely to rise beyond its current level. With the Canadian dollar now at its highest level in more than 25 years, this will also help keep inflation under control. 

“Bonds respond to expectations about inflation and economic growth, and mortgage rates track bond yields,” said Klump. “The economy is still expected to slow due to weakening Canadian exports to the U.S. This suggests the five-year conventional mortgage is also near its peak.” 

Competition among mortgage lenders remains stiff, which continues to help many borrowers negotiate discounts of one per cent or more off advertised rates. 

“Higher mortgage rates and additional home price increases are expected to gradually cool resale housing activity in the second half of 2006 from the record levels we’ve seen in recent years, but not by much,” Klump said. “Record level sales activity in the first half of the year is expected to help lift MLS® residential transactions to their sixth annual record in 2006.”