Immigration Canada

Canada’s housing market flirts with bubble

By Warangkana Chomchuen

NEW YORK (MarketWatch) — Rising home prices over the past decade, combined with mounting household debts, have fed concerns that Canada’s housing market has formed a bubble that’s about to burst.

“We call it a tug of war,” said Sonya Gulati, economist in regional economies, housing and government finance at TD Economics, an affiliate of Toronto-Dominion Bank. “Low interest rates make people want to participate in the housing market, but with modest growth, not strong job creation, we can see a negative repercussion on the horizon.”

A crash, or even sharp retreat, in home prices would contrast to the resilience of Canada’s housing market during the economic downturn, particularly compared to its U.S. counterpart.

Average American home prices have plunged 34% from their peak in April 2006 as of the most recent reading in December. In Canada, national average house prices fell 9% from their peak in August 2008 before they bottomed in April 2009, separate indexes from Teranet-National Bank of Canada and S&P/Case-Shiller show.

The U.S. housing market has recently started to improve, but it’s still far from prerecession levels. Sales of U.S. existing homes rose 4.3% in January, reaching the highest pace since May 2010, the National Association of Realtors said. However, American home prices in December fell to their lowest level since the housing crisis.Read more on U.S. home sales.

Relaxed lending standards in the U.S. and a Federal Reserve policy that kept interest rates at 1% for a full year before the central bank started to gradually raise them were blamed for the rapid gains in U.S. home prices until their peak in 2006, pushing values to unsustainable highs.

Canada discouraged overborrowing and limited its banks’ exposure to subprime lending with more conservative regulations and lending standards. Borrowers had to show employment and income records to take loans, while Canadian mortgage rates were kept higher than the U.S. rates over the same period to avoid boom-time price increases.

Canadians pile on debt

Canadian homeowners weren’t immune from the global financial crisis. But after home prices started to recover three years ago, Canadians have seen a sharp run-up in house prices relative to income, as well as excess real-estate inventories. Their bank accounts show a historic high debt-to-income ratio, spurred by ultralow interest rates.

The Bank of Canada announced on Thursday it would maintain its interest rate at 1%, which the central bank has kept steady since September 2010.

House prices in Canada have doubled in the past decade, with double-digit growth in the past few years. In British Columbia and Ontario, for instance, prices grew by 41% and 29% since their crisis troughs in the past few years, according to a 2011 country report on Canada by the International Monetary Fund.

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Fed: Banks can weather downturn

The Fed cleared the way for many of the nation's largest banks to raise dividends and buy back shares as it released the results of its latest round of "stress tests." Photo: Getty Images

Alongside these gains, Canadian homeowners have become more debt-strapped. The level of household debt relative to disposable income has accelerated to 153% in 2011, versus 110% in 1999, Statistics Canada said.

These levels bear an eerie similarity to U.S. households’ debt burden before the financial crisis. The U.S. debt-to-income ratio climbed to its peak at 130% in the third quarter of 2007, according to the Federal Reserve’s Flow of Funds report. Much of the sluggish U.S. economic recovery has been blamed on a massive deleveraging by these debt-strapped consumers.

Though not a perfect metric, the rising trend in the debt-to-income ratio “flags the fact that Canadians are becoming more leveraged and are more vulnerable to an economic shock than they were heading into to 2008/2009 recession,” Craig Alexander, chief economist at TD Bank, said in a report.

“Housing contributed positively to the boom years and it will have a negative impact on broader economy when the market unwinds,” said David Madani, Canada economist at Capital Economics.

Supply glut

Immigration and population growth in Canada, which has grown 5.9% from 2006 to 2011, help drive housing demands. But the population growth in some cities can no longer keep up with real-estate inventories.

The greater Toronto area has experienced a boom in high-rise condominiums in recent years. Housing starts are approximately 40,000 per year, exceeding the demographic need of about 18,000 to 25,000 units, Gulati, of TD Economics, said.

“The number is not going to be sustained,” Gulati said. “There’s going to be a gradual unwinding of excess in the next few years. The competition between new and resale markets will lead to a negative repercussion in terms of price.”

Fallout from a housing crash would hit Canada’s biggest banks hard.

Canada’s big five banks — Royal Bank of Canada CA:RY +2.15% RY +2.47% , Toronto-Dominion Bank CA:TD +1.18% TD -0.08% , Canadian Imperial Bank of CommerceCA:CM +1.78% CM +2.13% , Bank of Nova Scotia CA:BNS +0.46% BNS -0.32% , Bank of Montreal CA:BMO +1.65% BMO -0.44% — are top lenders, now holding about 62% of the C$1.1 trillion mortgage market in Canada, according to mortgage market share data compiled by Canadian Mortgage Trends.

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Some economists said the housing concerns, though warranted, are slightly overblown for the near term. Gradual moderation and correction in housing market are likely.

In a forecast released in February, Canada Mortgage and Housing Corporation, the government-owned housing corporation, said it expected the housing market to remain “steady” for 2012 and 2013.

“We see housing market slowing down, but we don’t believe there’s a bubble in Canadian market right now,” said Benoit Durocher, senior economist at Desjardins.

Durocher noted that the main risk for housing market is Canada’s economic condition. An increase in mortgage rates, modest job creation, and external shocks from weak economic recovery are possible triggers.

Growth sputters

Canada’s economy is set to grow at modest pace. Gross domestic product fell to an annualized rate of 1.8% for the final quarter last year, from 4.2% in the third quarter. The U.S. economy grew at an annual rate of 3% in the final quarter 2011.

Bank of Canada estimates that Canada’s economy will grow at 2% in 2012, down from 2.5% in 2011, and at 2.8% in 2013.

Canada economy lost 2,800 jobs in February, putting the job gain total to around zero in 2012. However, the exit of 38,000 people from the work force helped push the unemployment rate down to 7.4%, from 7.6% in January, Statistics Canada reported.

Much of Canada’s economic strength in recent years has derived from its strong natural-resource exports, which have benefited from China’s surging demand. That’s also its vulnerability.

“A decline in foreign demand for Canadian exports and weaker commodity prices in the context of increased global risk aversion could lead to higher unemployment in Canada and a downturn in house prices,” Canada report by the IMF said.

Fewer mortgage perks

But compared to the U.S., Canada still has some structural supports that should help its housing market, said Mazen Issa, Canada macro economist at TD Securities.

Unlike in the U.S., mortgage interest is not tax deductible in Canada, reducing an incentive to take out mortgages.

Defaulting Canadian borrowers continue to be responsible for repaying the full amount of the loan even in the case of foreclosure. In the U.S., lenders cannot recoup money from the homeowner beyond the property if borrowers decide to walk away from their home and mortgage loan.

Home affordability, supported by low interest rates, could be another buffer to a housing collapse.

Sales of existing homes are predicted to rise 0.3% this year but the average home price is expected to fall 1.1%, the Canadian Real Estate Association said in its quarterly forecast this month.

“Low interest rates should hold affordability in check for some time, allowing incomes to catch up with higher prices and restore proper valuations,” Sherry Cooper and Sal Guatieri, economists at the Bank of Montreal, said in a special housing report in January.

Madani, economist at Capital Economics, counters it is a “wishful thinking” that income growth will close the gap between house prices and income. Focusing on house affordability ignores borrowers’ abilities to commit to repay their loans over decades.

“If you buy a home today, that’s one thing,” Madani said. “But you have to be able to pay in 25 to 30 years; it’s more than just the ability to buy a house in today’s market.”

A five-year fixed rate mortgage with a 25-year or 30-year amortization period is the most common mortgage product in Canada, as opposed to the 30-year fixed mortgage mainstay in the U.S. This means that by the end of the five-year term when Canadian borrowers have to renew their rates, they may not realize what an increase in mortgage rates will mean for their personal income and monthly payments, Madani said.

Canadian policy makers, mindful of the destruction wreaked on the U.S. economy by its housing market collapse, have been introducing new measures to prevent borrowers from overstretching.

Finance Minister Jim Flaherty has tightened mortgage lending rules three times since October 2008, recently reducing the maximum term of publicly insured mortgages to 30 years from 35 years.

Banks also started enforcing lending policies on the self-employed and new immigrants.

Nonetheless, mortgage rates that remain exceptionally low risk fostering further, possibly precarious rise in home prices.

“In the last 10-20 years, we see bubbles in commodities, in housing, in the markets,” Madani said. “Is there any great surprise? Canada is not different from other country.”

Desperate for workers, West seeks immigration powers

JUSTINE HUNTER AND DAWN WALTON

VICTORIA AND CALGARY— From Monday's Globe and Mail

Canada’s Western premiers are seeking to wrest control over immigration away from Ottawa to help the West manage its growing skills shortage.

“We are well-positioned but we need to have a national discussion about what further tools provinces need to grow the national economy,” said B.C. Premier Christy Clark, who is leading the group, in an interview.

The biggest one for us in the West is immigration. It’s one of the most important economic levers any government has and we don’t have it. ... We need to devolve immigration to provincial governments.”

Ms. Clark has the backing of Alberta Premier Alison Redford and Saskatchewan Premier Brad Wall, who are facing similar labour and skills shortages. They are eyeing Quebec’s immigration authority with envy.

As Ottawa struggles with a huge backlog of immigration applications, the provinces, especially in the fast-growing West, are increasingly frustrated with their inability to bring in needed workers.

Ms. Clark was in Ottawa last week but did not formally raise the immigration issue, waiting instead for a task-force report she commissioned to help build B.C.’s case.

In her current jobs plan, Ms. Clark expects B.C.’s economy to grow by one million jobs over the next decade, and a third of those jobs will need to be filled by immigrants.

Under the Provincial Nominee Program, which allows provinces to put forward candidates who want to invest and run a business for accelerated immigration, B.C. can bring in 3,500 skilled workers or entrepreneurs. B.C. wants that figure to rise to 5,000 this year and 6,500 a year after that.

“We wish there were no caps, but if there are caps we’d like them to be higher than they are,” said Liberal MLA John Yap, who led the task force. “Ultimately it would be nice to have what Quebec has. Failing that, we would like to have discussions with the federal government to let us have a greater share of the immigration process, in the context of the growth we are forecasting,” he said.

Mr. Yap’s report is due on the Premier’s desk by the end of the month. He has already travelled the province holding a series of forums to assess how to increase the number of skilled immigrants and investors in British Columbia.

Mr. Yap said he heard from businesses big and small that are frustrated about the lack of skilled workers now – and the challenge is expected to grow as B.C.’s aging population fails to produce enough skilled workers to maintain even the status quo.

“A small business owner in Prince George said he cannot bring in welders fast enough,” Mr. Yap recalled from his road show. In Fort St. John, representatives from the oil and gas industry sounded “desperate” for workers. In Cranbrook, he heard the same message from a mining company that says it needs 1,000 skilled workers to develop projects.

“The long term trend is clear,” Mr. Yap said. “Over the next 10 years we have so many people leaving the workforce and not enough people here to fill those positions. We need to fill the gap with immigration.”

Saskatchewan’s premier is also looking to persuade Ottawa to relinquish some of its control over immigration in order to source workers for both skilled and general labour shortages facing his province.

“As strong as I think the component parts feel they are able to respond to their own unique economic challenges, the devolution of that kind of influence especially in terms of immigration policy is pretty key,” Mr. Wall said.

“One of barriers to continued growth is the human resources. We have skilled labour shortage. We have a general labour shortage,” he said in an interview.

In Alberta, Ms. Redford is also anxious to see Ottawa hand over some power to the provinces with respect to immigration.

“I think we agree very much on that,” she said of her provincial counterparts in the West. “In Alberta, labour issues are paramount for us just to counter inflationary cycles and I think we are very much on the same page with respect to that in order to continue to allow the economy to grow, not just for our own benefit, but for Canada’s benefit, we need to see some more flexibility on that.”

Federal, Provincial and Territorial Governments Cooperate to Speed Up Foreign Qualification Assessment and Recognition for Skilled Newcomers

OTTAWA, ONTARIO, Mar 12, 2012 (MARKETWIRE via COMTEX) -- Governments are working in partnership to help internationally trained professionals find work in their fields through a national framework to improve the recognition of foreign qualifications.

Federal, provincial and territorial ministers responsible for the labour market announced today, through the Forum of Labour Market Ministers (FLMM), the release of a progress report on the implementation of the Pan-Canadian Framework for the Assessment and Recognition of Foreign Qualifications(1). All governments are working towards the common goal of ensuring that foreign qualifications are assessed and recognized in a fair, consistent, transparent and timely manner. This collective effort will help internationally trained professionals put their knowledge, skills and experience to work sooner in communities across the country.

"Attracting and retaining the best international talent to address existing and future labour market challenges is critical to Canada's long-term economic success," said the Honourable Diane Finley, Minister of Human Resources and Skills Development and Co-Chair of the FLMM. "For Canada to achieve its economic potential, internationally trained professionals must have the opportunity to find work that best suits their skills and training. That's why we are improving foreign qualification recognition so that these skilled workers can find jobs in their fields faster."

Through the Framework and other initiatives, federal, provincial and territorial governments are working to improve the assessment and recognition of foreign qualifications and to better integrate internationally trained professionals into the job market.

The FLMM's progress report highlights that the first eight target occupations outlined in the Framework, including engineers and registered nurses, meet the one-year commitment to timely service in all Canadian jurisdictions. This means that internationally trained professionals will be advised within one year as to how their qualifications compare to the Canadian standard.

"I am proud of the progress we have made to date on improving foreign qualification recognition for internationally trained professionals," said the Honourable Dave Hancock, Minister of Human Services, Government of Alberta, and Co-Chair of the FLMM. "Streamlining foreign qualification recognition is a win-win for both governments and newcomers to Canada. Ensuring immigrants to Canada can work to their full potential in their chosen profession is essential for our future economic success and international competitiveness."

Governments are now working with stakeholders to improve foreign qualification recognition for an additional six target occupations, including physicians and dentists.

The implementation of the Framework has been made possible through the collaboration of federal, provincial and territorial governments, and through consultations with key partners that support specific actions to promote continuous improvement to the way that internationally trained professionals' qualifications are assessed and recognized in each of the first set of target occupations.

The FLMM also recognized the important role that federal, provincial and territorial ministries of immigration and health play in implementing the Framework.

The Framework is one example of the collaborative approach governments have taken to respond to current and future labour market challenges, such as skills shortages in key areas of the economy, while creating opportunities for all Canadians to contribute to the labour force.

The Framework is available on the Human Resources and Skills Development Canada website at http://www.hrsdc.gc.ca/eng/workplaceskills/publications/fcr/pcf.shtml .

The progress report on the Pan-Canadian Framework for the Assessment and Recognition of Foreign Qualifications is available online at http://www.hrsdc.gc.ca/eng/workplaceskills/publications/fcr/2010/fcr.shtml .

This news release is available in alternative formats upon request.

Backgrounder

The Forum of Labour Market Ministers (FLMM) was established in 1983 as an intergovernmental forum to strengthen cooperation and strategic thinking on the labour market priorities of the provinces, the territories and Canada.

The FLMM was mandated to develop the Pan-Canadian Framework for the Assessment and Recognition of Foreign Qualifications, announced in November 2009. The Framework represents a new vision, guiding principles of fairness, transparency, timeliness and consistency and desired outcomes for improving foreign qualification recognition for internationally trained professionals in Canada.

Through the Economic Action Plan, the Government of Canada invested $50 million to work with the provinces and territories and other partners, such as regulatory authorities and post-secondary institutions, to address barriers to foreign qualification recognition. The provinces and territories are also investing in this work.

The following are the first set of target occupations in the Framework:

        
        --  architects
        --  engineers
        --  financial auditors and accountants, including chartered accountants,
            certified general accountants and certified management accountants
        --  medical laboratory technologists
        --  occupational therapists
        --  pharmacists
        --  physiotherapists
        --  registered nurses

The next set of target occupations in the Framework are as follows:

        
        --  dentists
        --  engineering technicians
        --  licensed practical nurses
        --  medical radiation technologists
        --  physicians
        --  teachers (K-12)

Internationally trained professionals must submit all fees and relevant documents necessary to process their applications. They may also be advised of additional requirements or may be directed to alternative occupations that would benefit from their skills and experience.

(1) While the Quebec government has not endorsed the Framework, it supports its principles and agrees to share reports already made public to its citizens, notably those tabled at the National Assembly.

        
        Contacts:
        Alyson Queen
        Director of Communications
        Office of Minister Finley
        819-994-2482
        
        Media Relations Office
        Human Resources and Skills Development Canada
        819-994-5559
        
        Sonia Sinha
        Public Affairs Officer
        Ministry of Human Services
        Government of Alberta
        780-427-2934

SOURCE: Human Resources and Skills Development Canada and Forum of Labour Market Ministers

Canada wisely using resource riches to feed education

Much ink has been spilled of late on Canada’s growing economic divide, as western provinces benefit most from high global prices for commodities like oil and potash, while manufacturers in Ontario and Quebec are hamstrung by the sky-high currency that comes with those.

In Central Canada, some economists worry that a variation of the dreaded “Dutch disease” may be settling in, where the energy-fuelled loonie makes it hard for exporters of anything else to make a go in foreign markets, and threatens to depress employment in many export-dependent industries for years, if not decades.

But the notion that too many of Canada’s eggs are being put into the resource basket – laid bare as Ontario Premier Dalton McGuinty and Alberta Premier Alison Redford duked it out over Canada’s “petro dollar” and its impact on manufacturers – is hardly black and white. For example, as Economy Lab blogger Stephen Gordon (a Laval University professor) points out, the resource boom from 2002 to 2008 pushed unemployment down across the country, offsetting losses in manufacturing and, before the financial crisis anyway, nudging up wages even in Ontario.

Still, it’s clear that over time, the businesses in Central Canada that survive and profit will be the ones that figure out how to piggyback on gains in the resource sector, finding ways to ensure they are part of the resource supply chain and producing goods that are useful to that industry, on top of high-value products for customers around the world.

A crucial component for making this work will be an adaptable, highly educated and highly skilled work force that can adapt quickly to fill a variety of needs.

According to a new study from the Organization for Economic Co-operation and Development, released Monday, Canada is in a better position than most to figure out how to thrive over the long haul because it is one of the few resource-rich nations on the planet where education and skills have not been shortchanged.

Canada, Australia and Norway, the OECD says, outperform the vast majority of oil-producing nations in learning outcomes at schools. In fact, those three countries were the exceptions in a group of 65 that the OECD looked at, which found a “significant negative relationship between the money countries extract from national resources and the knowledge and skills of their school population.”

In other words, Canada is among a select group of countries positioned to prosper even some time way down the road, when finite resources like oil start to become less important to the economy.

“Exceptions such as Canada, Australia and Norway, that are rich of natural resources but still score well on PISA (Program for International Student Assessment), have all established deliberate policies of saving these resource rents, and not just consuming them,” said Andreas Schleicher, deputy director and special adviser on education to the OECD secretary-general. “Today’s learning outcomes at school, in turn, are a powerful predictor for the wealth and social outcomes that countries will reap in the long run.”

Countries with few natural resources – like Israel, Finland, Singapore and Japan – have high education scores, the OECD notes, “at least in part because the public at large has understood the country must live by its knowledge and skills and that these depend on the quality of education.”

In general, countries where this is the opposite tend to be in the developing world. However, Mr. Schleicher notes that there is a message in the study for struggling developed countries, too, whether they’re endowed with resources or not.

“Without sufficient investment in skills, people languish on the margins of society, technological progress does not translate into productivity growth, and countries can no longer compete in an increasingly knowledge-based global economy,” he said. “The toxic co-existence of high unemployment and skills shortages in many countries today illustrates that producing more of the same graduates is not the answer.”

Indeed, business leaders in Canada argue that a greater national emphasis on skills and training in the so-called “technical trades” – and perhaps a bit less emphasis on liberal-arts degrees that are becoming harder to translate into jobs – is desperately needed. This, they say, could go a long way toward matching the labour needs of resource companies and the employment needs of laid-off factory workers, while ensuring Canada can capitalize on new opportunities in emerging markets.

Meanwhile, Statistics Canada on Monday released a short study on labour productivity that supports the notion Canada has been careful to not approach its resources as a never-ending cash cow that the country can coast on indefinitely. The study found that from 1997 to 2010, gains in productivity were primarily driven by “capital intensity” – investments in plant, machinery and equipment. Nonetheless, Statscan said, every province except British Columbia saw gains come from investments in “human capital,” too, which refers to the amount invested in educating workers and boosting their skill sets.

Western Canadian employers court the Irish

SEAN SILCOFF

OTTAWA— From Tuesday's Globe and Mail

Faced with a massive skills shortage and a surge of job openings, Western Canadian employers are looking to an old source for new workers: hard-up Ireland.

This week, two delegations of employers – one from Saskatchewan led by Premier Brad Wall, the other headed by British Columbia and Alberta construction industry representatives – are making a push to entice Irish citizens to leave their economically devastated country and come to Canada, as the ancestors of more than one in eight Canadians did generations earlier.

“We have a construction boom; they have a bust,” said Abigail Fulton, vice-president of the British Columbia Construction Association, whose 11-member delegation is meeting with Irish government, industry and union representatives in Dublin this week. The meetings, she said, are intended “to lay groundwork and develop an inventory of people who are looking for work” – then match the names to companies looking to fill more than 100,000 construction jobs expected to open up in B.C. and Alberta in the next five years.

Like the Alberta-B.C. delegation, the Saskatchewan group, which includes 27 employers, has a big presence at the Working Abroad job fair in Dublin this weekend, giving Canadian exhibitors close to 40 per cent of the booths. The Saskatchewan government has set up a website that greets potential Irish emigrants with the message “Welcome to your future” and hundreds of job postings. The province is even sending immigration officials to help applicants speed the process of moving to Saskatchewan, while Mr. Wall will greet job seekers on Saturday.

“They’re pushing it really hard,” said Chris Willis, a Canadian immigration consultant based in Hudson Heights, Que., who has attended the twice-annual job fair for the past six years. “This time it’s very much a Canadian-focused show.”

Among the exhibitors is Kevin Dahl, co-owner of Nipawin, Sask.-based K&R Contracting, which builds giant metal storage bins attached to grain elevators across the Prairie provinces and has had trouble holding on to employees. “This past year we needed 15 to 20 and couldn’t get any more than 12,” he said. “We’d hire a bunch of guys and they’d just disappear. There’s so much work in Saskatchewan that if you have a bad day, you can start 10 other jobs tomorrow.” He’s hoping to hire up to 10 metal workers this weekend.

With its steady economy, common language, similar training and work standards – not to mention shared history – Canada is one of a handful a popular destinations for Irish workers.

Moreover, the Irish economy holds few opportunities. Four years after the bursting of its property bubble – and its reputation as one of the strongest economies in the world – Ireland’s unemployment rate is stuck at 14.2 per cent, and the number of construction jobs is down more than 60 per cent from its peak in 2007. Construction activity is expected to sag to €6.5-billion ($8.7-billion) this year, one-sixth its level in 2007. “There’s not a huge amount of light at the end of the tunnel at the moment,” said Jimmy Healy, spokesman for Ireland’s Construction Industry Federation.

As a result, people are leaving the country of 4.6 million people in droves. In the year ending April, 2011, 40,200 Irish nationals emigrated, up 45 per cent from the same period a year earlier and triple the level three years earlier, according to the Irish Central Statistics Office.

Meanwhile, Citizenship and Immigration Canada reports 3,729 temporary foreign workers entered the country from Ireland in 2010 – up 25.7 per cent from the year before – either through the country’s one-year “working holiday” program for those under age 35 or after obtaining four-year permits under the temporary foreign workers program through their Canadian employers.

Ms. Fulton said her group had met with a warm reception so far. “They see this as a partnership more than us coming over and snagging all their workers. They want their workers to find jobs and return when their economy improves.”