Chris Lau - Seeking Alpha

Monday, August 11, 2008

The Health of Canadian Housing - Part 2

June StatsCan figures confirm housing weakness in the West, but not so much so in the Central region i.e. Toronto. As I correctly stated in my last entry, housing prices in Canada will be affected in places where ties with the U.S. economy are strong.

New Housing Price Index
June 2008



New housing prices increased at their slowest pace in over six years in June, continuing a slowdown that started in September 2006. This was a result of a softening housing market in Western Canada.

Nationally, contractors' selling prices rose 3.5% between June 2007 and June 2008, compared with the 4.1% year-over-year increase in May. This was the slowest rate of growth since March 2002 when year-over-year prices increased by 3.4%.

On a monthly basis, prices edged up 0.1% between May and June this year.

Homebuyers in the census metropolitan area of Regina continued to experience the largest gains in new home prices. Contractors' prices in Regina increased by 28.5% from June 2007, with continuing labour shortages and increased costs of materials likely playing important roles.

The metropolitan area with the second largest increase, at 22.2%, was St. John's, Newfoundland and Labrador, which is now showing a larger increase than Saskatoon for the first time since December 2005. Builders reported that higher costs for labour and land helped push prices up.

In Saskatoon, the year-over-year price increase was 16.3%, down substantially from 30.2% in May. Contractors reported costs of labour and materials were increasing. However, prices fell 2.8% between May and June because of a softening market.

In Winnipeg, contractors' prices were 11.5% higher than in June 2007, with contributions likely from higher material costs and continuing strong demand for new housing.

New housing prices were up only slightly from June 2007 in Edmonton (+1.6%) and in Calgary (+0.1%), Alberta's two principal metropolitan areas. Contractors in both areas cited a soft market as the main factor.

In British Columbia, year-over-year prices in Vancouver were up 1.8%, while those in Victoria declined by 0.4%.

Higher material costs pushed prices in Québec up by 5.4%. In Montréal, prices were up 5.6%.

In Toronto, homebuilders increased prices by 3.8% from June 2007. Prices in Ottawa were up 4.4%.

Available on CANSIM: table 327-0005.

Definitions, data sources and methods: survey number 2310.

The second quarter 2008 issue of Capital Expenditure Prices Statistics (62-007-XWE, free) will be available in October.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Client Services (613-951-9606, fax: 613-951-1539; prices-prix@statcan.ca), Prices Division.
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Note: View the census subdivisions that comprise the metropolitan
areas online.

US Dollar Rally, Gold, Oil Down -Is this a Trend?

The US dollar strengthened considerably last weak, as a result of weakening oil prices. Investors had placed money in oil as a hedge against the dollar. They also do the same with gold. Gold corrected sharply, down 12% from its peak.

If you are a believer of the Elliot Wave Theory, read this article: http://www.kitco.com/ind/Field/aug062008.html

The author suggests that the observed price decline is a part of a corrective wave Large II, and gives a target price of $1,500 for gold.

Gold stocks have been hit harder than the price of gold.

From DV Tech Talk:

Technical action by gold and gold stocks remains negative. Several key stocks in the sector broke support last week including Barrick Gold, Goldcorp and Kinross. Gold has fallen below its 200 day moving average where recoveries frequently have occurred during the past seven years. However, short term technical signs of a bottom have yet to appear.

...

However, short term momentum indicators show that the U.S. Dollar now is substantially overbought (thanks mainly to declining commodity prices) and is unlikely to move significantly higher in the short term. Indeed, if demand for commodities by China recovers after the Olympics when temporarily shut down plants resume production, weakness in commodity prices and the U.S. Dollar likely will be short-lived. Meanwhile fabricators in India and South East Asia report that recent weakness in the price of gold has triggered a surge in demand for gold jewelry. As noted last Monday, another seasonal entry point is expected to surface shortly, but technicals are not there yet. Please continue to be patient.

Until the Volatility Index reaches ~30, no reversal from a rally or sell-off should be taken with full conviction.

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