NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS
The subprime mortgage default swap market may be pricing in a darker picture than the one likely to emerge, but that will not help the valuations of American financial institutions in the coming months. An unprecedented drop in house prices and the resulting surge in negative equity positions will continue to put upward pressure on default rates. When all is said and done, mortgage-related write-downs will reach the US$300 billion mark. But as opposed to the first wave, the next US$150 billion of global write-downs will be led by insurance companies and numerous smaller players such as regional banks. This lack of concentration should ease the pain.
We are in the midst of the worst US housing meltdown in the post-war era. Home sales are already down by 30% from their recent peak—the fastest pace of decline seen in any previous housing downturn. And the 50% drop in housing starts to date is already in line with the entire decline seen in the early-1980s housing market correction.
But for this cycle, the bottom is not yet in sight, despite the dramatic slowing in the pace of home construction. The excess number of unsold new and existing homes, based on their typical ratio to the total stock of homes, has now reached the one million mark. To put that in perspective, that represents a full year of construction by the US housing industry.
What really counts for markets is not the actual level of activity in the housing market, but what it will do to home valuations. Already down by more than 8%, the Case-Shiller House Price Index (CSI) will continue its descent in the coming quarters. Evaluated against benchmarks such as household income, and based on mean revision estimates of some key house price drivers such as inventories, rent and average user cost, we project that by the end of 2008, house prices will be roughly 20% lower than their late-2006 peak, and 12% lower than their current level. With every dollar drop in the value of their houses, more and more Americans find themselves in a negative equity position. Zooming in on the 2006 vintage, no less than 30% of households who bought a house in that year are already in a negative equity position. And by the end of the year, with house prices dropping by an additional 10-12%, close to 50% of households in this vintage will find that their mortgages are larger than the value of their houses. With total subprime exposure at close to US$1.3 trillion and a weighted average loss rate of just under 15%, we project that total cumulative subprime related losses will reach US$186 billion—of which more than 90% are concentrated in the vintage years of 2005-2007. But the story goes beyond subprime. Alt-A mortgages, which have seen their share in total mortgage originations rising quickly in the past few years, will add an additional US$56 billion to the loss tally. And even prime mortgages, where foreclosure rates are already 60% higher than the rates seen in the 2001 recession, will add to the pain. Sum it all up and you get a projected total mortgage market-related loss of close to US$315 billion. With global financial institutions writing down roughly US$150 billion of mortgage-related losses to date, we are half-way through. Where will the next wave of losses come from? Banks and brokers will end up assuming more than half of total mortgage-related losses. But this group has been aggressive in writing down assets against those losses.
With total cumulative write downs of close to US$135 billion to date, banks and brokers have already recognized more than three-quarters of their total projected losses. However, insurance companies, which will end up losing roughly US$50 billion on their mortgage exposure, have recognized to date only a fraction of that loss. Ditto for savings institutions and other players such as pension funds. Also note that the lion’s share of the losses recognized to date were by large household-name banks, and most of these write downs were on their CDO exposures, which account for roughly 50% of total projected losses. And with the ABX index currently pricing in the equivalent of close to US$330 billion in losses on subprime paper alone—well above our US$186 billion estimate for the subprime component—banks, which have been forced to mark to the ABX, may eventually benefit from write-backs if the index recovers and they continue to hold their positions.
Benjamin Tal
Senior Economist
CIBC WORLD MARKETS INC.
Weekly Market Insight February 22, 2008
TOP FIVE GARDENING TIPS
While fashionistas may follow the couturiers and home decorators watch television makeovers, in the world of gardening, the tables are turned. No longer are we looking for direction from designers and landscapers, rather, the gurus are paying close attention to what we're doing in our own backyards. Styles and themes are growing from a groundswell of grassroots passions about the way we want to live.
Here are some of the ideas that are taking root.
1. Growing and eating close to home:
With the popularity of the 100-mile diet, which advocates eating locally grown produce, a home garden of freshly picked and organically grown vegetables, herbs and fruits is catching on fast. We're finding that planting an edible garden is 'way more rewarding than pushing a cart down a supermarket aisle.
2. The eco-friendly gardener:
How our daily activities affect the environment has never been more important. We're measuring our carbon footprints, toting our purchases in biodegradable bags and banning pesticides. All of this has led to what Britain's Royal Horticultural Society is dubbing "The New Gardening". It's an approach that advocates wise ways to water, matching the right plants to the site, fighting pests with their natural enemies and managing the soil with plenty of organic matter.
3. Performance plants:
We've lusted after the darkest foliage, the bluest blossoms and the biggest blooms. Now, all that is over, replaced by a growing respect for plants that outlast the trends. Drought-tolerant, long blooming, no-fuss plants are what we want. Don't give us one more new, improved variety that doesn't last the winter.
4. Capturing a sense of place:
For decades, we've borrowed landscapes from foreign parts – tea gardens from Japan, cottage gardens from England and formal parterres from France. Now it's time to celebrate the landscape in which we live, be it a cityscape of tree-lined boulevards or the rolling hills and pastures of the countryside. Designing gardens that reflect the places and activities of our daily lives ground us in ways that are far more meaningful than the ephemeral delights of exotic gardens.
5. Deconstructing tradition:
Finding fresh ways with commonplace items is transforming tar-blackened rooftops into lush landscapes and crumbling brickworks into thriving farmers' markets. The rethinking can be as avant-garde as Claude Cormier's Blue Stick Garden or as simple as snowdrops growing under glass cloches for a new twist on terrariums.
Garden writer Lorraine Flanigan is web consultant and consulting editor for Canadian Gardening.
TD Economics Report
Click here to download the TD Economics Special Report PDF.
Steve's Rates
| Mortgage Term | Our Rates | Standard Rates |
|---|---|---|
| Variable Rate | 5.15% | 5.75% |
| 6 Month Closed | 6.75% | 7.35% |
| 1 Year Closed | 5.85% | 9.50% |
| 2 Year Closed | 6.20% | 7.50% |
| 3 Year Closed | 6.05% | 7.50% |
| 4 Year Closed | 5.95% | 7.54% |
| 5 Year Closed | 5.85% | 7.54% |
| 7 Year Closed | 6.20% | 7.85% |
| 10 Year Closed | 6.40% | 8.20% |
| 15 Year Closed | 6.40% | 0.00% |
| 18 Year Closed | 6.90% | 9.20% |
| 25 Year Closed | 7.00% | 9.50% |
Rates are subject to constant change, for the best rates call 1-866-993-8787.
Resources
Business Supporting Business — Thank You:
Investments
www.thenewwestside.ca
Insurance
Canyon Insurance covers all your needs, ask for Harry Mason
hmason@canyoninsurance.ca
FCm Travel Solutions
wes.flanagan@fcmtravel.ca
Private Home Sellers
www.privatehomesellers.ca
David Beeson
Realtor for the Kelowna Area
Royal Lepage Phone:1-800-747-6954
Email: davidbeeson@royallepage.com
Friends Supporting Friends — Thank You:
otis & huckleberry
www.otishuck.com
For Investments check out — www.renascencedevelopments.com
Ask for Lisa Thomas lisa@renascencedevelopments.com
A Quote to Note:
Refuse to be average... let your heart soar as high as it will.
A.W Tozer
Contact
At Prolink Mortgage Inc., I have over 30 lending financial mortgage institutions in Canada with Steve Faux sourcing the best rates and the best products to suit your needs!
Direct Line — 1.866.993.8787
Direct Fax — 403.208.6542
Email — steve@yourmortgages.ca
Refer a Friend
If you found any of the information in this email to be of value, please refer a friend to sign up!
