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(August 31, 2006) The U.S. housing market is falling back to earth, but that doesn’t necessarily mean Canada will suffer the same fate, according to TD Economics. However, the national picture is masking major regional differences.

In a report released Thursday, TD found that Canada’s current surging real estate market lacks the speculation that has dominated past boom/bust cycles.

“We still hold that view,” says TD chief economist Craig Alexander about the overall Canadian market. However, he cautions that “developments in a few Western cities are clearly flashing warning lights.”

The dramatic price gains in Calgary and Vancouver are unsustainable, Alexander warns, and vulnerable to significant moderation. “Edmonton is also experiencing explosive price growth, but affordability remains high.”

In contrast, housing markets in central and Atlantic Canada appear to be in a much more balanced shape. Activity has cooled without prompting a price correction, the report adds, supporting the view that a bubble never formed in these regions.

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Loonie’s wings might be clipped

(August 31, 2006) The Canadian dollar, which has been hovering around the 90-cent US mark of late, is set to weaken, according to BCA Research.

Strong energy prices and some large M&A deals have pushed the loonie higher in recent weeks, but the “unfolding U.S. and global economic slowdowns indicate this recent strength won’t last,” BCA said in a note released earlier this week.

“A moderation in Canadian growth is virtually inevitable given the strong correlation with the U.S. business cycle,” the report says. Canada’s manufacturing exports are already contracting as U.S. demand weakens, BCA warns. “More importantly, a pullback in oil and base metal prices is likely as global growth moderates in the months ahead, which will drag down Canada’s terms of trade and undermine the Canadian dollar.”

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CRA announces Q4 interest rates

(August 31, 2006) The CRA has announced the annual interest rates that will apply to any amounts owed to the agency and to any amounts the CRA owes to individuals and corporations in the last quarter of 2006.

The interest rate charged on overdue taxes, CPP contributions, and EI premiums will be 9%. The interest rate paid on overpayments will be 7%, while the rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 5%.

The CRA updates its rates quarterly. The new rates will be in effect from October 1 to the end of the year.

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Ottawa announces draft tax-relief proposals

(August 31, 2006) The federal government is moving forward on a number of tax changes first announced in the federal budget this past May.

On Thursday, Finance Minister Jim Flaherty released legislative proposals on a series of new tax-related measures, including the new Canada Employment Credit and the tax credit for public transit passes.

The package also includes a doubling to $2,000 from $1,000 of the amount on which the pension income credit is calculated, a reduction of the small business tax rate to 11.5% from 12% starting in 2008, and an increase to $400,000 from $300,000 of the amount that a small business can earn at the small business tax rate, effective January 1, 2007. The proposals are open for comment until September 22.

Once the comment period is over, Flaherty says the new measures will be introduced in parliament “at the earliest opportunity.”

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