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NH10 The Mississauga News - Friday, March 24, 2006 T ren d s im p actin g h o u sin g The Canadian economy continues to expand at a robust pace. Real gross domestic product (GDP) growth accelerated to an annualized 3.6 per cent in the third quarter of 2005, up from 3.4 per cent in the second quarter. After slipping in the second quarter of 2005, third quarter exports rebounded due mainly to exports in the automotive and resource sectors. Wages and salaries continued to outpace inflation while corporate profits advanced at an even stronger clip. Consumer spending slowed in the third quarter due mainly to a drop in consumer confidence which accompanied the spike in fuel prices in the wake of the Gulf coast hurricanes early in the fall. Consumer confidence has now rebounded from the sharp decline recorded in September, interest rates remain low, and income gains have been strong. Therefore, looking ahead, we expect consumer spending to strengthen. All categories of business investment were up in the third quarter of 2005. Investment in machinery and equipment was up by an annualized 12.4 per cent, non-residential construction was up by 11.9 per cent and residential construction expanded by 2.8 per cent. The industrial capacity utilization rate moved up to 86.9 per cent in the third quarter. The manufacturing sector also saw its capacity utilization rate increase marginally to 86.1 per cent. These high rates of capacity utilization continue to support our view that the Canadian economy is operating at its potential. Further reduction in monetary stimulus may be required to keep inflationary pressures in check. Mortgage Rates The Bank of Canada raised its target for the overnight rate by one-quarter of one percentage point on January 24th, thereby increasing the target for the overnight lending rate to 3.50 per cent. Short term rates will continue torise in 2006 as the Bank of Canada removes the excess monetary stimulus at a measured pace. We expect three additional 25 basis point hikes in 2006, bringing the target for the overnight lending rate to 4.25 per cent by the end of the year. Mortgage rates will remain low, rising Moderately in 2006. Tame inflation, and a strong Canadian dollar vis-A -vis the U.S. dollar will restrain the size and speed of Canadian interest and mortgage rate increases. While still low by historical norms, posted mortgage rates are expected to rise gradually by 25-75 basis points in 2006. One, three and fiveyear mortgage posted rates are forecast to be in the 5.50-6.50, 5.75-6.75, and 6.00-7.00 per cent ranges respectively in 2006. In 2007, these three mortgage rates are forecast to rise marginally and be within 25 basis points of their 2006 annual averages. Migration Immigration into Canada is set to come in at the higher end of the 220,000 and 245,000 target range for new permanent residents per year in 2006 and 2007. Net migration (immigration minus emigration) will increase by 5.7 per cent to about 225,000 people in 2006 and by an additional 5.7 per cent to 237,750 net migrants in 2007. Strong net migration will continue to support housing demand with the majority of newly arrived immigrants initially setding in rental accommodations. An increasing share of migrants will move into home ownership as time passes. Employment and Income With the Canadian economy operating near full employment, job growth will become increasingly constrained by growth in the population. A surge in new jobs in the latter half of 2005 will result in an elevated launching point for the annual average employment level in 2006. Hence, employment is forecast to grow by 1.7 per cent this year and 1.4 per cent in 2007. The unemployment rate in 2006 will fall for a fourth consecutive year to 6.6 per cenf where it will remain in 2007. Following last year's strong growth, British Columbia will once again lead the rest of Canada with 2.7 per cent employment growth in 2006 and 2.2 per cent growth in 2007. Lacklustre job growth will be recorded in Atlantic Canada this year with New Brunswick and Nova Scotia registering the slowest growth at 0.5 per cent and 0.6 per cent respectively, while Newfoundland and PEI will come in at 0.7 per cent and 0.8 per cent, respectively. New Brunswick and Newfoundland will trail the rest of the country in 2007 with 0.8 per cent job growth. Alberta will have the distinction of being the only province in Canada to have an unemployment rate below four per cent both this year and next. Consumer Confidence The Conference Board of Canada s Consumer Confidence Index rebounded in the fourth quarter after dipping significantly in September. 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