Worst fears of economic collapse abate

A year ago, Canadians were worried about the impact that outside influences were going to have on our economy.

With a couple of European countries looking like their economies were going to collapse, there was a concern of a Euro Zone breakup. The situation in the United States wasn't looking any better, and politicians seemed to be more concerned about the election than fixing the country's finances.

There was also a great deal of speculation in Canada concerning rising interest rates.

Although everyone is far from being out of the woods yet, our fears of the past year did not come to realization, much to our relief. Europe did not fall apart and is trying to get its house in order.

This impacts Canada in that financial markets and homebuyer confidence would be affected by any change in order. The U.S. had its election and has not fallen over the fiscal cliff. It's some distance from recovery, but it hasn't collapsed.

It appears as though the market for new homes in the U.S. is starting to grow again. Naturally, there are various pockets where severe unemployment and past over-growth will keep rejuvenation slow. However, other markets that had been quiet for the past few years are starting to show gradual signs of growth.

The U.S. has tied its monetary policy and interest rates to unemployment figures. As long as unemployment remains above 6.5 per cent, interest rates will remain relatively unchanged. It's not anticipated the unemployment rate will dip below this figure until 2015 at the earliest. Expect Canadian banks not to stray too far from U.S. rates.

It should be noted that U.S. renovation spending plunged by more than 25 per cent since 2007. To date, it has not shown any signs of recovery. But the opposite is true in Canada. As soon as it appeared things might cool as the recession loomed, the Home Renovation Tax Credit brought new life to the industry. It hasn't looked back since.

The Office of the Superintendent of Financial Institutions reduced the borrowing-to-equity ratio from 80 to 65 per cent, which may impact the number of larger renovations going forward.

Although 2013 is predicted to be a slow-growth year, it's a growth year nonetheless. Canada, and in particular Manitoba, are still moving forward throughout this year.

Mike Moore is president of the Manitoba Home Builders' Association.

Republished from the Winnipeg Free Press print edition February 9, 2013 F8