Recession takes a mental toll, expert says

By Rose Simone, Record staff

WATERLOO – As the recession takes its toll on jobs, it will also take a toll on the mental health and productivity of the nation, says the head of federal non-profit corporation that is trying to put mental health issues on the business agenda of workplaces.

“The advent of depression is in part a function of the uncertainty and job insecurity in our lives,” Bill Wilkerson, co-founder and chief executive of the Global Business and Economic Roundtable on Addiction and Mental Health, said in an interview after speaking at a forum on work-related stress in Waterloo on Thursday.

“The absence of work, loss of work, and uncertainty about work is a major factor in the mental health status of the whole population,” he said.

Wilkerson was speaking at the forum organized by the Waterloo Region Suicide Prevention Council.

He said he was disconcerted by the trend of “emptying the workplace,” even before the recession hit, and added that “it is tragic and harmful to the country’s economic growth.”

Wilkerson said the lost work time productivity because of depression and substance abuse in Canada is now estimated at $51 billion a year. Stress also increases the risks and costs associated with heart disease, diabetes and high blood pressure, he added.

He said companies also have immediate commercial reasons to care about mental health because everything from sales to customer service and customer loyalty are affected by the employer’s relationship with the workers.

Wilkerson added that although some people mistake depression as a sign of weakness, it is actually a “disease of the brave and the hard-working.” Soldiers suffer post-traumatic stress after witnessing horrific scenes precisely because they care about the victims, and likewise, people suffer from depression because they care about what they do, he said.

He said the politics and culture of a workplace typically play a bigger role in stress than the work itself, because people become anxious and depressed if they feel they are not treated fairly or are prevented from contributing their skills.

Wilkerson, who was sworn in as a member of the Royal Canadian Mounted Police because he was helping that organization develop strategies for dealing with workplace stress, added that even in a high-stress job like policing, “the policing itself is not the major source of stress . . . the source of stress is usually what is going on in the office.”

He also said companies need to promote work-life balance and discourage taking work home. He added that since Waterloo Region is the home of the BlackBerry, a symbol of the “hurried world we live in,” it also should take a leadership role in researching ways to help people achieve a work-life balance and promote better mental health.

Wilkerson said insurance companies that provide disability benefits also have a responsibility. “You could never get insurance to operate in a building that did not have a fire protection system. So what if insurance companies were to say to a company, ‘because of your disability rates and work-time losses, there is something amiss in the kind of management you have?’”

Wilkerson added that reducing the toll of depression “requires social innovation, not just medical science.”

Housing Prices May Fall Further

Forbes Magazine from MBA Newslink

A number of factors suggest housing prices could drop another 10%.

Over the past few months, there have been suggestions that the U.S. housing market might finally be bottoming out. Since July, the decline in sales of both new and existing homes has moderated. Moreover, over the past three months, there has been a very modest increase in home prices at the national level as measured by the 20-city S&P/Case-Shiller home price index. However, the high inventory of unsold homes, continuing foreclosures, and double-digit unemployment could mean that housing prices have further to fall.

Reasons for cheer. A number of "green shoots" suggest cause for some optimism:

--Inventory reduction. Whereas housing starts are presently estimated to be running at a 600,000 annual rate, underlying U.S. household formation is presently running at an annual rate of approximately 1.5 million units. Lower residential construction relative to household formation is allowing excessive home inventories to be gradually worked off.

--Cheap mortgages. As a result of the Federal Reserve's highly accommodative monetary policy, and the activity of the government-sponsored home lending enterprises, mortgage rates have declined to more affordable levels. For example, 30-year fixed-rate mortgages have fallen below 5% for the first time in many years.

--Increased affordability. The slide in home values has brought prices more into line with their long-run fundamentals. Since September 2006, U.S. home prices have fallen 27%, bringing prices back to the level prevailing in mid-2003. As a result, the ratios of home prices to rents and of home prices to incomes are now much more in line with historic levels. The index of housing affordability now stands at its most favorable level in the past 20 years.

Reasons for doubt. Despite these "green shoots," there remain a number of factors that suggest that U.S. home prices have not quite hit bottom:

--Inventories historically high. Despite small declines in recent months, the inventory of unsold homes at the national level remains at close to its historic high. A key indication of the degree of excess home inventory is that the number of vacant homes, in which neither an owner nor a renter presently dwells, exceeds its normal level by nearly 1 million units.

--Foreclosure crisis. The United States is presently suffering from a foreclosure crisis that is further adding more homes to a market already characterized by excess inventories. Forward-looking indicators, such as the number of mortgages that are more than 90 days delinquent (i.e., behind payment) suggest that the pace of foreclosures could increase in the months ahead.

--High unemployment. A very weak labor market situation inhibits households from making the long-term financial commitments, such as buying a home. The Labor Department estimates that approximately 16.5% of the labor force is either unemployed or in involuntary part-time employment. At the same time, the huge slack presently affecting the labor market is exerting downward pressure on wage income growth. Most economists--including White House Council of Economic Advisers Chair Christina Romer--do not foresee much improvement in the labor market in 2010.

--Mortgage resets. Next year, approximately $200 billion in "Option ARM" mortgages (adjustable rate mortgages) are due to reset to higher rates. This is likely to add to the foreclosure problem, since these resets will produce a sharp jump in debt service payments.

--Default incentive. Finally, another factor adding to the foreclosure problem is that a growing number of U.S. households now have "negative equity" in their homes (i.e., their mortgage debt exceeds the value of their homes). Since mortgages in most U.S. states are "non-recourse loans" (the lender cannot pursue the borrowers' other assets, beyond the home), negative equity gives homeowners a strong incentive to default on their mortgage loans.

Outlook. The present high level of unsold housing inventories, the poor state of the labor market and the current wave of foreclosures suggest that home prices may have a further 10% to fall (in real terms). This will add to the financial distress facing the banking sector, inhibiting a return to above trend GDP growth in 2010.

High dollar `hollowing out' manufacturing economy

Iain Marlow- Toronto StarSpecial Features

Foreign exchange rates are "hollowing out" Canada's already-battered industrial economy and require intervention by the Bank of Canada, CIBC said on Tuesday.

Avery Shenfield, CIBC World Markets' chief economist, argued the soaring loonie could force Canada's bruised manufacturers and exporters to leave the country.

The comments, the latest salvo from intervention advocates, came hours before Bank of Canada Governor Mark Carney appeared in front of the House of Commons committee on finance.

In the short term, Shenfield said, the Bank of Canada is keeping interest rates low to maintain activity in sensitive areas of the economy, such as housing construction. However, in the long term, the strategy will result in permanent damage, he said.

"If businesses are making decisions today about where to locate, which plants to leave open, which to close, and they look at Canada as an expensive place to export from – because our workers are expensive in U.S. dollar terms – then we might lose facilities during this period of Canadian dollar overvaluation," Shenfield told the Star.

Carney has recently talked down the dollar in public statements that seem to be working, since the loonie dropped from 97 cents against the U.S. dollar last week to 93.80 cents on Tuesday.

But he told the committee that although currency was important, it was not a necessary component in keeping inflation rates down.

That makes sense to Eric Lascelles, chief economics and rates strategist at TD Securities, who said it is impossible to fight the recession war with a double front against both the currency and inflation.

"It's quite clear that the Canadian dollar's strength is damaging some sectors of the economy, I don't think that's particularly up for debate," he said.

"Where the issue stands, is whether it's practical to think that one can successfully intervene in the currency."

To alter the currency, the Bank of Canada can buy and sell on foreign exchange markets.

The last time it did so was in 1998, an intervention that Lascelles said was "ultimately unsuccessful."

He added that the bank cannot possibly try to control the currency and the rate of inflation at the same time.

"You're always back to square one, which is not trying to proactively influence the currency, but rather trying to respond to it simply by indicating the consequences when the currency does move," he said.

Carney, according to United Steelworkers economist Erin Weir, is interpreting the bank's role in an overly conservative fashion. Pointing to the Bank of Canada Act's preamble, Weir said Carney and his team have a responsibility not only to regulate macroeconomic policy, but to protect employment.

"Mark Carney has raised the prospect of intervening in currency markets, but seems reluctant to actually do so."

The recession may be officially over, but recovery is fragile and job losses still mounting

Tom Raum, THE ASSOCIATED PRESS
The Canadian Press, 2009

WASHINGTON - It is about to become official: The U.S. recession is over - but not the pain.

The government will release figures this week expected to show that the economy has awakened from its deepest slump since the 1930s and is in the early stages of a recovery. But the following week, the government will issue another set of figures expected to show unemployment continuing to rise toward and possibly above a clearly recessionary 10 per cent.

How can both be possible?

The government releases third-quarter Gross Domestic Product figures on Thursday. Many forecasters say they will show GDP growing at an annual rate of about 3 per cent, validating a widely held belief among economists that the recession ended in June or July.

But try telling that to the more than 15 million still unemployed, the small businesses and individuals who can't get loans and the people whose homes are worth less than their mortgages.

Assertions by government and private economists that the recession is over - issued amid graphic examples of continuing wide distress - are raising fresh questions about economic scorekeeping.

The national recession may be technically over, but the state of the economy remains in the eyes of the beholder.

Or, as Ronald Reagan liked to say, a recession is when your neighbour loses his or her job. Depression is when you lose yours.

A survey of economic forecasters prepared by Blue Chip Economic Indicators, a research organization, predicted GDP growth to remain positive in each quarter through the end of 2010. In a survey by the National Association of Business Economics, 34 of 43 economists polled said the recession is over.

"From a technical perspective, the recession is very likely over," said Federal Reserve Chairman Ben Bernanke.

"A recession that showed no signs of ending last January appears to be firmly entering the recovery phase," said Christina Romer, the chair of the White House Council of Economic Advisers.

But nobody is sugar coating the statistics, especially in the administration, which agrees with private surveys suggesting that unemployment will hover near 10 per cent through most of next year.

"Even when you've turned the corner, you have so much work to do," Romer told Congress' Joint Economics Committee.

And while she credited much of the turnabout to government stimulus measures and moves by the Fed, she said "by mid-2010, fiscal stimulus will be contributing little to further growth."

Even ahead of the report expected to show an increase in economic growth, The Conference Board, a private Chicago-based research group, reported Tuesday that consumers' confidence about the U.S. economy fell unexpectedly in October as job prospects remained bleak.

That fueled speculation that an already gloomy holiday shopping forecast could worsen. Consumer spending accounts for more than two-thirds of the entire economy.

The economy has lost 7.2 million jobs since the recession began in December 2007, 3.4 million of them since President Barack Obama took office in January.

James K. Galbraith, an economist at the University of Texas at Austin, suggests too much attention is given to when recessions technically begin and not enough to other measures of the economy.

"It's just a word. A recession technically lasts during negative quarters. But that doesn't mean you're back to prosperity once you have positive growth. You're back to prosperity when the unemployment rate is back around 4 per cent," Galbraith said. And that, he said, could take years.

A recession is popularly defined as two or more consecutive quarters of negative economic growth, or declining output.

But a more refined determination is made by the National Bureau of Economic Research, a private group of leading economists charged with dating the start and end of economic downturns. It not only looks at GDP but at employment levels, real personal income, industrial production and wholesale and retail sales.

It put the start date at December 2007 and has not yet called an end.

There have been 11 recessions since World War II. In the two most recent ones, job growth lagged long after the recessions were deemed over. In the most recent two - July 1990-March 1991 and March-November 2001 - the unemployment rate did not fall to prerecession levels for several years.

After the eight-month 2001 recession, the unemployment rate went from a prerecession 4 per cent in 2000 to 4.8 per cent in 2001. Then it kept climbing even higher - to 5.8 per cent in 2002 to 6 per cent in 2003. It didn't return to under 5 per cent until 2006, when it fell to 4.6 per cent.

While there are clear signs of recovery, it is uneven.

Stocks have surged about 50 per cent since their March lows. And a year after Washington rescued the financial industry, some large banks and Wall Street firms have roared back to profitability.

But smaller banks and other businesses are struggling, and many have failed or are failing.

That disconnect sparked anger among the public and led to sweeping government action last week to limit executive compensation at financial firms that accepted federal bailout money.

"While credit may be more available for large businesses, too many small business owners are still struggling to get the credit they need," Obama said in his weekly radio and Internet address. "These are the very taxpayers who stood by America's banks in a crisis - and now it's time for our banks to stand by creditworthy small businesses, and make the loans they need to open their doors, grow their operations and create new jobs."

There have been modest improvements in manufacturing and other parts of the nonfinancial business sector, yet lingering signs of weakness in commercial real estate and retail spending.

Economists suggest some of the expected increase in economic growth is a bounce off the bottom. They attribute it to government stimulus spending, including the now-expired Cash for Clunkers program; accommodative Fed monetary policies and widespread cost-cutting by companies.

Many companies let inventories run down so much that when they ran out, orders picked up. Home resales ticked up as buyers scrambled to complete their purchases before a tax credit for first-time owners expires. And U.S. exporters have benefited from a relentless decline of the dollar that has made U.S. goods cheaper and more competitive overseas.

But none of this adds up to a sustainable upswing.

"Absent robust job growth, it is not a true economic recovery," said White House economic adviser Jared Bernstein.

Bernanke prods Congress for financial overhaul to prevent future crises

By Jeannine Aversa Associated Press

WASHINGTON — Federal Reserve Chair Ben Bernanke prodded Congress Friday to enact legislation overhauling the U.S. financial regulatory system to prevent a repeat of the banking and credit debacles that thrust the country into crisis.

“With the financial turmoil abating, now is the time for policy-makers to take action to reduce the probability and severity of any future crises,” Bernanke said in remarks to a Fed conference in Chatham, Mass.

For its part, the Fed has been taking steps to strengthen oversight of banks, sharpen consumer protections and on Thursday unveiled a sweeping proposal to police banks’ pay policies to make sure they don’t encourage top executives and other employees to take reckless gambles.

But Congress needs to step in and close regulatory gaps and make other changes that only lawmakers have the power to do, Bernanke said.

At the top of his list: Congress must set up a mechanism — along the lines of what the Federal Deposit Insurance Corp. does with troubled banks — to safely wind down big financial firms whose failure could endanger the entire system.

And the costs for such a mechanism should be paid through an assessment on the financial industry, not by taxpayers, Bernanke said.

Moreover, Congress needs to set up better systems for regulators to monitor risks lurking in the financial system, he said.

The Obama administration has proposed such action as part of its overhaul of financial rules. Its plan would expand the Fed’s powers over big financial institutions but reduce it over consumers. Congress, however, is leery of expanding the Fed’s reach because it and other regulators failed to crack down on problems that led to the crisis.

The House is expected to pass legislation by the end of the year, but the Senate is unlikely to consider the bill until early next year.

A House panel on Thursday approved a piece of the plan, creating a federal agency devoted to protecting consumers from predatory lending, abusive overdraft fees and unfair rate hikes. Doing so, however, strips some powers from the Fed.

Bernanke, in his remarks Friday, talked about the central bank’s efforts to bolster consumers protections.

He also said the Fed is working on rules to better safeguard consumers from abuses when it comes to overdraft protection, reverse mortgages and gift cards.

But he didn’t get into a public debate over whether the Fed — or a new consumer agency — is best equipped to do the job.

To beef up banking supervision, Bernanke again said regulators are considering assessing a capital surcharge on big financial companies or requiring that a greater share of their capital be common equity. The Fed also supports efforts for banks to build larger capital buffers in good times and allow them to be drawn down in bad times.

Forceful actions taken by the Fed and the government helped avert a global financial crisis last fall and since then financial conditions have “improved considerably,” he said.

But the fallout from the crisis has been severe, reflected in deep drops in economic activity and heavy job losses both in the U.S. and overseas, he said.

The Fed chief didn’t talk about the future course of interest rates in his speech or in a brief question-and-answer session afterward.

To nurture the budding recovery, the Fed is expected to keep a key bank lending rate near zero when it meets in early November. Analysts predict rates will stay at record-low levels into part of next year.

Study says variable-rate mortgages better deal for borrowers most times

The Canadian Press

TORONTO - Fixed mortgage rates may help you feel secure in your budgeting, but the Bank of Montreal (TSX:BMO) says the more volatile variable rate mortgages will save you money in the long run.

The bank put out a report Friday showing that, over the past 30 years, variable-rate mortgages have been more cost-effective about 82 per cent of the time.

That may come as a surprise to some after studies have shown many Canadians prefer a fixed-rate mortgage.

A fixed rate locks the borrower into a set interest rate for a certain period of time.

That gives many borrowers peace of mind knowing how much money to set aside each month for their mortgage payment.

Variable rates change along with interest-rate moves.

BMO said the Bank of Canada's overnight lending rate is at its lowest possible point now, which could mean there are fewer benefits to a variable rate in the foreseeable future.

BMO highlighted two historical periods when fixed rates were considered beneficial - in the late 1970s and late 1980s - and both were just before interest rates started rising again.

The bank added that the current interest environment is similar to both of these periods.

"Short-term rates are at extreme lows and pressure is likely to build for higher rates in the year ahead," said deputy chief economist Doug Porter in the report.

"The question of whether to lock in to a longer-term fixed mortgage rate or stay in a variable rate has become an increasingly complex and important issue."

Canada has been in a long-term declining rate environment since the early 1980s, the bank suggested.

As a result, the spread between five-year fixed mortgages and variable mortgages has been pushed wider in recent years, and is now near an all-time high.

Carney wins round one with loonie, taking currency down two cents with one blow

By Julian Beltrame, The Canadian Press

OTTAWA - The Bank of Canada took the wind out of the loonie's sails Tuesday, driving down the currency nearly two cents against the U.S. dollar with a warning that it was prepared to stick to low interest rates for some time.

And although the central bank's words have had short-term impacts on the currency before, this time the effect may last longer, economists said.

In one of the gloomier reports in months, the central bank's governing council declared that a strong loonie threatens Canada's economic recovery, saying its recent rise more than offset all the encouraging indicators seen over the summer.

"(The) heightened volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures," the bank said. "The current strength in the dollar is expected, over time, to more than fully offset the favourable developments since July."

As expected, the central bank kept its policy interest rate moored at the historic low of 0.25 per cent, the level it's been at since the spring.

The affect of the bank's statement could be seen immediately. The currency fell a penny against the U.S. dollar within minutes of the announcement and kept going, at one time trading down 2.17 cents U.S.

It closed on slightly better footing, though still down 1.98 cents at 95.17 cents U.S.

Economists said the reason for the big drop was not so much what the bank said about the dollar - it had made similar warnings for months - but more because markets had expected it would soon follow the lead of Australia, which has begun to raise interest rates.

Canada's central bank put a stop to that speculation Tuesday when it downgraded economic growth prospects for this year and 2011.

The bank now estimates the Canadian economy will shrink by 2.4 per cent in 2009, not 2.3 per cent as it predicted last month. Next year's forecast was unchanged at three per cent growth, but the bank downgraded its forecast for 2011 growth by two-tenths of a point to 3.3 per cent.

As significantly, it set back a full quarter its expectation for when economic output and inflation can be expected to return to where it wants them, to the fall of 2011.

"This is a somewhat more modest recovery in Canada than the average of previous economic cycles," the bank said.

With inflation nowhere in the horizon, there appears little urgency for governor Mark Carney to back off his conditional commitment to keep the central bank's policy rate at the lower bound of 0.25 per cent until next July. The thinking may be that short-term interest rates will stay at the historic floor even longer, perhaps until the end of next year.

"The delay in returning back to its target rate on inflation would allow a longer period of keeping rates on hold," said CIBC chief economist Avery Shenfeld.

"Financial markets tend to get edgy sitting still, but Carney is a man in no hurry to act."

Royal Bank currency strategist Matthew Strauss said Carney's gambit will have long-lasting impacts on the dollar.

That doesn't mean the dollar won't rise again, since the main driver will be oil prices and other external forces. But, he said, the bank governor has taken some of the speculation out of the calculation and going forward expects the loonie will underperform compared with other commodity-weighted currencies, such as the Australian dollar.

"It will definitely have an effect," he said. "Now the market knows exactly where the Bank of Canada and the Government of Canada stands."

Scotiabank economists Derek Holt and Karen Cordes said the markets should have seen it coming.

They wrote in a note to clients that it's ill-advised to lump Canada in with Australia, saying there are "night-and-day differences in the Canadian economy's export exposures and currency sensitivities."

Canada fell into a recession similar to one it experienced in the early 1990s, with its recovery prospects closely tied to the weak U.S. economy. Australia, which is benefiting from returning strong growth in China, never fell into even a technical recession.

Carney believes the Canadian dollar will keep future growth even more sluggish than it thought a few months ago.

Two indicators from Statistics Canada on Tuesday filled in the picture of an economy that is recovery, but not robustly.

The leading index of economic indicators rose 1.1 per cent in September, slightly less than the revised 1.2 per cent gain registered in August. And Canadian wholesalers took a hit in August as sales dropped 1.4 per cent.

The TD Bank said it now believes the Canadian economy likely contracted 0.2 per cent in August after a flat reading in July.

In September, the last time the bank pronounced on interest rates, Carney and the governing council had enthused that the recovery was going so well it was expecting to revise its July growth forecast that predicted 1.3 per-cent growth in the gross domestic product in the third quarter and three per cent in the fourth.

But that was when the bank expected the loonie to average 87 cents US through 2010.

Overnight rate holds steady, "conditionally"

Tuesday, 20 October 2009

As expected, the Bank of Canada announced that it will be maintaining the overnight rate of a quarter per cent, with a continued "conditional commitment" to maintain that until the second quarter of 2010.

In its official press release it stated that "recent indicators point to the start of a global recovery from a deep, synchronous recession .... [T]his resumption of growth is supported by monetary and fiscal stimulus, increased household wealth, improving financial conditions, higher commodity prices, and stronger business and consumer confidence."

The Bank then went on to use language that it would seem still give it room to manoeuvre before the second quarter of 2010 if need be. It said:

"However, heightened volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures. The current strength in the dollar is expected, over time, to more than fully offset the favourable developments since July."

Growth, it said, is also projected to be "slightly higher" than previously forecasted in the second half of this year, but lower overall.

"The Canadian economy is projected to grow by 3.0 per cent in 2010 and 3.3 per cent in 2011, after contracting by 2.4 per cent this year. This is a somewhat more modest recovery in Canada than the average of previous economic cycles," it said.

A full outlook for the economy and inflation will be made available Thursday, 22 October, while the next scheduled date for announcing the overnight rate target is 8 December 2009.

Little chance of rate change in Canada this week

Derek Abma, Financial Post
OTTAWA -- Chances are next to nil the Bank of Canada will alter its record-low interest rate of 0.25% when it issues an official decision this Tuesday.

Nonetheless, people will be watching closely for subtleties that accompany the central bank's decision, and the elaboration that comes in Thursday's monetary policy report, on whether it is considering straying from its well-documented plan of leaving rates put until the middle of next year.

For the past several months, such periodic decision dates have been non-events. Since the Bank of Canada set the policy last spring of keeping the rate as low as possible until the end of next year's second quarter, little has happened to prompt a diversion. There's been no sign of excessive inflation for the foreseeable future, and the hoped-for economic recovery has yet to kick into high gear.

Still, questions remain about the Bank of Canada's ultimate path after the recent decision by the Reserve Bank of Australia to raise its benchmark lending rate. Speculation that Canada will follow suit has been a factor in the loonie's recent rise to near-parity with the U.S. dollar.

Bank of Canada governor Mark Carney has talked about the damaging effect a high-valued Canadian dollar can have on the country's efforts to emerge from recession, and has hinted the bank could take steps to intervene.

"This can't be a short ‘steady as she goes' message," Avery Shenfeld, chief economist at CIBC World Markets, said in a research note about the bank's upcoming statement.

He noted the bank's recent indication it would be upgrading its forecast for 1.3% growth in the current third quarter, but added this now seems "unlikely" given the "shockingly low" numbers that were part of reports on gross domestic product for July and factory sales in August.Mr. Shenfeld said Carney is likely to warn about the rising dollar's potential to prevent a return to 2% annual inflation, which the central bank deems as ideal. On Friday, Statistics Canada said prices were down 0.9% in September, the fourth straight month of negative price trends.

"Staying silent on the currency would only give markets carte blanche to tack on a few cents to the loonie," Mr. Shenfeld said.

With the Bank of Canada's previous expectations for economic growth and inflation more or less in line, Mr. Shenfeld said he doesn't anticipate changes to its overall game plan.

Eric Lascelles, chief economics and rates strategist with TD Securities, is of the same opinion. He added that the central bank's determination not to raise rates prematurely might have some negative influence on stocks markets."Stocks actually have a really finicky approach to monetary policy," he said in an interview. "Sometimes you see a stock market go up because rates are hiked and sometimes to you see it fall."

While low interest rates are ideal for companies to operate, Mr. Lascelles said the reluctance of the bank to raise rates can be interpreted as a lack of confidence in the economy.

Despite past hints, Mr.Lascelles said the Bank of Canada is unlikely to go beyond talk in its attempts to dampen the loonie's value.

A key sign in just how strong the economic recovery in Canada is going could some in the August retail figures, to be released Thursday. The July figures, which many were hoping would provide evidence of a strong economic rebound, were surprisingly downbeat with a 0.6% decline. The consensus among economists for the August numbers is for a 0.2% gain.

Some other key upcoming reports on the Canadian economy include wholesale trade numbers and leading indicators, both due Tuesday.

The U.S. will see housing-start and building-permit numbers on Tuesday, and its leading indicators on Thursday.

Don't expect rubber-stamped mortgage approvals anymore

Helen Morris, National Post

Whether you are planning to move from an existing home or are stepping into the property market for the first time, and unless you have a substantial supply of cash, you will likely require a mortgage.

Interest rates may be at historic lows but with uncertain and changing market conditions, lenders want to be doubly sure that borrowers can repay a mortgage. This has led to lenders placing more stringent conditions upon borrowers and demanding more detailed and verifiable proof of income and ability to pay.

A borrower's income, expenses, credit history and down payment are all considered when assessing whether they qualify for a mortgage.

"Prior to eight months ago, for a standard salary individual, I could do the mortgage on a job letter," says Jeff Mayer, a mortgage agent with the Mayer Group, part of the mortgage brokerage firm Mortgage Intelligence. "Now you need a job letter ... then they want a pay stub...and a lot of times they'll ask for two paystubs, then they're going to want either a T-4 or a notice of assessment. The bank wants to make sure that you can afford the mortgage. It's tough love; they want to make sure that you're going to stay in your house."

If you work overtime it is essential to check with the lender if this income can be counted towards your mortgage qualification.

"In a lot of situations, with unemployment rising, there is not as much overtime," says Gary Siegle, a regional manager with the Invis mortgage brokerage firm. "Lenders are looking at that a little bit more carefully."

Because of increased default rates in some communities, some lenders will now only consider a base salary when evaluating a mortgage application.

If you have a stable job, a decent-sized deposit and a good credit score, putting in the hard work at the application stage can secure you a good deal.

"With prices having softened due to the recession, housing has never been more affordable," Mr. Siegle says. "It is a little more difficult to qualify when it comes to showing your income and proving different parts of [it], but it's also much easier to qualify on the numbers because house prices are down and mortgage rates are on sale, really."

However, mortgage qualification has become rather more testing for those with lower credit scores, smaller deposits or irregular income.

"Lower credit scores have become more difficult to get traditional financing for. You can still quite often get a mortgage but it's just going to cost more," Mr. Siegle says. "Those with very poor credit probably have much more difficulty today. If you've got bad credit and haven't been proven to be able to manage it, maybe you need to get things fixed up before you get a mortgage."

It has also become a lot tougher for self-employed individuals to get mortgage financing, Mr. Mayer says. Lenders are still allowing self-employed applicants to state their own income levels but the income stated must be deemed reasonable based on the size and type of business.

Many lenders, Mr. Siegle says, are demanding extensive documentary evidence from self-employed applicants and even then, lenders can refuse to provide a mortgage if they believe that disparities between taxable and real income are not reasonable.

It is not just borrowers buying their own homes who are facing tougher lending criteria.

For buyers of rental properties, Mr. Siegle says, lenders have become less generous when calculating how much rental income can be used to qualify a mortgage. Conventional lenders used to include up to 80% of the rental income when calculating how much homebuyers could borrow. However, due to a higher risk of default, now he says some lenders are including only 50% to 70% of the rental income.

A hot real estate market getting hotter

Garry Marr, Financial Post The statistics may not say it yet but Toronto real estate sales representative Kate Watson can already feel the ground shifting.

A new set of data from the Ottawa-based Canadian Real Estate Association (CREA) shows the market tighter than ever with the lack of supply in new listings conspiring to make a hot market even hotter.

CREA said Thursday the average sale price of a house in Canada reached $331,602 last month, a 13.6% increase from a year ago. There just isn't enough new product coming to market to meet demand. Last month, there was 80,816 new listings across the country, compared to 97,657 a year ago.

The supply problem is happening in almost every major Canadian city. Toronto new listings were down 25.3% last month from a year ago. Calgary was off 26.1%.

The number of months of inventory in the market -- which is based on the number of months it would take to sell current inventories based on current sales activity -- was 4.9 months in September. That figure was down slightly from August and way off the peak of 12.8 months reached in January.

CREA expects the situation to ease in the coming months as sellers realize the type of prices they can get if they list. Ms. Watson, who works for Wright Real Estate Brokers Ltd., says the situation is already resolving itself.

"It was bit of as logjam but it is already starting to clear," she says. "You had a lot people waiting to list until after Thanksgiving because nobody wants to put their property for sale before a holiday."

The Canadian market has had a remarkable turnaround from a winter that was the worst Ms. Watson can remember in her six years on the job which have mostly witnessed a rising market. September sales across the country were up 1.5% from August. The latest bump in sales puts the market 63% above January low.

The same things continue to drive the housing market. "Low interest rates, rebounding consumer confidence and improving overall sense of economic security continue to draw homebuyers," said Dale Ripplinger, president of CREA.

CREA's chief economist Gregory Klump said the 1.5% increase in sales while impressive shows the market is beginning to cool to some degree. "Monthly sales activity remained on a strong upward trajectory throughout the third quarter in British Columbia while showing signs it may be topping out in other provinces. On balance, this suggest the sales activity may be starting to plateau after having climbed rapidly earlier this year," he said.

The total dollar figure for all sales in the third quarter reached $41-billion, the highest level on record for the period. British Columbia and Ontario reached new highs for dollar volume. Canada's largest cities are driving the housing market. Vancouver sales in the third quarter were up 34% from second. Toronto sales rose 11% during same period while Calgary climbed 19%.

Nationally, average national sales price in the third quarter was $327,736, an 11% increase from a year ago. Sellers sitting on the sidelines are expected to move in the coming months.

"Headline average price increases over the rest of the year are expected to prompt sellers to return to the market," said Mr. Klump. "An increase in new listings will help keep a lid on price increases."

Scotiabank economist Adrienne Warren says she's not too concerned about any sort of bubble building in the housing market. "I don't think so. This is just the strength of demand and a lack of listings," she said. "As the economy stabilizes, people will feel more confident to list their homes."