Home sales tumble

China’s economy now world’s second largest

• TSX +24.51 (Reuters) Economic concerns kept the TSX at the break-even level for most of the day
  • DOW -1.14 The one thing that everybody agrees is a real problem is (U.S.) employment. Until we see that improve, I think you’re going to see a zigzag pattern. said David Baskin, president of Baskin Financial Services Inc.
  • Dollar -.29c to 95.73 USD
  • Oil -$.15 to $75.24 USD per barrel.
  • Gold +$9.60  to $1224.60 per ounce as investors abandoned riskier assets for safer investments
  • Canadian 5 yr bond yields -.05bps to 2.12. The spread (based on  the MERIX 5 yr rate published rate of 4.09%) is above the comfort zone at 1.97. http://www.tmxmoney.com/HttpController?GetPage=BondsAndRates&Language=en Basing the spread on MERIX’s LOWEST 5 yr fixed rate of 3.89%, the spread is closer to the comfort zone at 1.77

The rate of return on your bond, can be read through a yield curve, If the increase in bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise. Currently lenders are looking for a spread, between 1.50 and 1.75

Home sales tumble

Garry Marr, Financial Post · Monday, Aug. 16, 2010

Housing sales were down 30% in July from a year ago, and the Canadian Real Estate Association is blaming the drop on the new harmonized sales tax in Ontario and British Columbia.

The Ottawa-based group, which represents 100 real estate boards across the country, said July sales plunged 6.8% on a seasonally adjusted basis from the previous month, a decline “almost entirely the result of fewer sales in British Columbia and Ontario,” where the HST went into effect on July 1.

The slowdown had been expected as consumers rushed to buy homes ahead of the July 1 implementation in those provinces. The HST only applies to services used in purchasing and selling an existing home, such as real estate commission, and not the actual sale price.

Phil Soper, chief executive of Royal LePage Real Estate Services Ltd., said the HST, combined with tougher mortgage rules, expectations of higher interest rates and the bounceback from the recession, drove the market earlier this year. “You take those four things and add them together and you get a highly front-ended year, which we forecast,” he said.

The housing market did get some good news from Royal Bank of Canada, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Bank of Montreal, which all lowered interest rates Monday. The five-year, fixed-rate closed mortgage is down to 5.49%, which means that on a discounted basis, consumers can likely lock in a rate of less than 4% for five years.

But John Andrew, a professor of real estate at Queen’s University in Kingston, Ont., doubts the cut in bank rates will be enough to reverse a declining housing market.

“With homes sales down 30%, that’s surprising. I was expecting a drop, but nothing that big. I think prices are next [to decline] although they are holding their own now,” Prof. Andrew said.

“Thank goodness rates are as low as they are. If we were seeing significant increases in interest rates, it would disastrous for real estate prices,” Prof. Andrew said.

The average price of a home sold in July was $330,351, just a 1% increase from a year ago. However, the average price of a home sold in June was $342,662, so prices are off 3.6% from a month ago.

CREA said the lack of activity in British Columbia and Ontario — two of the country’s most expensive markets — likely skewed average prices down. In B.C., sales dropped 14.1% from a month ago on a seasonally adjusted annual basis. In Ontario, the decline was 8%.

The two provinces accounted for 85% of the change in national activity.

“The soft sales figures we’re seeing right now can be attributed in part to accelerated home purchases earlier in the year,” said Georges Pahud, CREA’s president.

He warned activity will be off for the rest of 2010.

“Activity may remain at lower levels for some time, but ultimately we expect a more stable market to emerge, with demand coming back into line with economic fundamentals,” Mr. Pahud said.

Prices are getting a boost from a drop in supply. The seasonally adjusted annual number of new residential listings fell 7.2% in July from the previous month, the third consecutive monthly decrease and the steepest drop in more than a decade.

However, the overall inventory rate, which reflects all housing on the market, is climbing. The number of months of inventory, which represents the number of months it would take to sell current inventories at the current rate of sales activity, was seven month in July. A year ago the number was 4.4 months.

Douglas Porter, deputy chief economist of BMO Capital Markets, said most consumers who were sitting on the sidelines already pushed their purchase ahead in the spring, so he’s also expecting a soft market for the next few months.

“Although with long-term mortgage rates dropping, employment improved and prices stabilized, the longer-term outlook is far from dire,” Mr. Porter said.

Read more: http://www.financialpost.com/news/Home+sales+tumble/3405783/story.html#ixzz0wrSnMkKo

China’s economy now world’s second largest By Tomoko A. Hosaka

TOKYO — China has eclipsed Japan as the world’s second-biggest economy after three decades of blistering growth that put overtaking the U.S. in reach within 10 years.

Japan is still far richer per person after confirming Monday that economic output fell behind its giant neighbour for the three months ending June 30. However, the news is more proof of China’s arrival as a force that is altering the global balance of commercial, political and military power.

Analysts are already looking ahead to when China might match the United States in total output — which the World Bank and others say could be no more than a decade away.

“This means the world will pay more attention to China, especially when most Western countries are mired in the bog of debt problems,” said economist Lu Zhengwei at Industrial Bank in Shanghai.

Unseating Japan — after earlier passing Germany, France and Britain — caps three decades of breakneck growth that has cemented a dramatic change in China’s place in the world over just the past five years.

State-owned Chinese companies have emerged as major resource investors, pouring billions of dollars into mines and oilfields from Latin America to Iraq. Chinese pressure helped to win a bigger voice for developing economies in the World Bank and other global institutions.

On a human level, China’s rise has allowed hundreds of millions of people to work their way out of poverty and sent a flood of students and tourists to the West. Its consumers are so avidly courted that companies from Detroit automakers to French handbag producers now design goods to suit them.

Still, China’s rise has produced glaring contradictions. The wealth gap between an elite who profited most from three decades of reform and its poor majority is so extreme that China has dozens of billionaires, while average income for the rest of its 1.3 billion people is among the world’s lowest.

By contrast, Japan’s people still are among the world’s richest, with a per-capita income of $37,800 last year, compared with China’s $3,600. So are Americans at $42,240, their economy still by far the world’s biggest.

According to Monday’s report, Japan’s nominal GDP was worth $1.286 trillion in the April-to-June quarter compared with $1.335 trillion for China. The figures are converted into dollars based on an average exchange rate for the quarter.

World stock markets mostly fell on the news that Japan’s economy grew just 0.1 per cent in the second quarter, far short of expectations and well below the 1.2 per cent growth in the first quarter. The report follows signs last week that both the U.S. and Chinese economies are not growing as fast as earlier in the year.

In the midst of the global crisis, stimulus-driven Chinese growth that hit 11.9 per cent in the first quarter this year before easing in the latest quarter helped to propel the world out of recession. Chinese demand for raw materials and other imports buoyed economies from Australia to South Korea to Africa.

China uses more than half the world’s iron ore and more than 40 per cent of its steel, aluminum and coal. It passed the United States last year as the biggest auto market and Germany as the biggest exporter.

“We are at the point now where China is overtaking the U.S. to be the engine of growth in consumption,” said Amar Gill, a researcher for brokerage CLSA Asia-Pacific Markets.

China could match the U.S. in total output as early as 2020, said a World Bank forecast in June. America’s gross domestic product was $14.26 trillion last year, nearly three times China’s.

A more serious concern for communist leaders is China’s income per person, which the World Bank said ranked 124th in the world last year — more on a par with impoverished nations like Angola, Tunisia and El Salvador than Japan, which ranked 32nd, or the U.S., ranked 17th.

As a result, becoming the second-largest economy “isn’t something to add to national pride,” said Zhang Bin, a researcher at the Chinese Academy of Social Sciences, a government think-tank.

“I care more about GDP per capita,” Zhang said. “People in small countries like Switzerland lead a much wealthier life.”

Despite slipping in the rankings, Japan still enjoys Swiss-style health, wealth and comfort. Tokyo has more Michelin-starred restaurants than Paris.

By contrast, China faces a huge and politically explosive gap between an elite who have profited from reform and a poor majority. The country has launched two manned space missions, but families in remote areas live in cave houses in hillsides.

“China’s first-tier big cities might look similar to big world cities. But social welfare still has a long way to match Japan, the U.S or European countries,” said Industrial Bank’s Lu.

China’s growth has made it a major importer and consumer of oil and gas and the biggest source of greenhouse gases blamed for changing the climate.

Complaints that surging Chinese demand pushed up global crude prices have made energy a sensitive issue for Beijing. It angrily denied an International Energy Agency report last month that said it passed the United States in 2009 as the top energy consumer.

China’s 21st century rise marks a return to a status it held until the 18th century as Asia’s military, technological and cultural leader. That era ended as European colonial powers expanded and Chinese imperial leaders crushed reformers who wanted to imitate Japan’s embrace of Western technology.

The Associated Press http://news.therecord.com/Business/article/762735

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