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Inflation surge temporary, 'neutral' Bank of Canada says...

OTTAWA (Reuters) - Shrugging off a recent surge in inflation as temporary, the Bank of Canada held its key overnight interest rate at 1 percent on Wednesday, as expected, and insisted it could just as easily cut rates as raise them.

In the statement that accompanied the rate decision, the bank, however, did omit language it had used in its June rate statement that said the downside risks to its inflation outlook remain important, an acknowledgement that overall inflation hit 2.3 percent in May and that core inflation was also higher than expected.

It said the risk of a downward drift in inflation expectations has diminished with inflation close to the bank's 2 percent target.

The overall tenor of the central banks' statement, however, was to emphasize excess capacity in the economy and the need for continued monetary policy stimulation.

"The bank does not expect the recent momentum in monthly inflation to persist," it said in the quarterly Monetary Policy Report it released along with the rate decision. "The bank's judgment is that underlying inflation pressures remain muted, given the persistent slack in the economy and continued intense competition in the retail sector."

Recent higher inflation has resulted from higher energy prices, the fall in the Canadian dollar and sector-specific shocks such as costlier meat, "rather than due to any change in domestic economic fundamentals," the bank said.

Demonstrating its disappointment over economic growth, it pushed back yet again, to mid-2016, its expectations for when the economy would reach full capacity and when core inflation would rise to its 2 percent target.

And it said that total inflation, which hit 2.3 percent in May, would dip back below 2 percent in the second quarter of 2015 and rise to the target again only in the first quarter of 2016.

"The bank is neutral with respect to the timing and direction of the next change to the policy rate...," it said.

The bank explained that it attaches greater weight to downside risks to inflation when the current level is very low and less weight when it is higher.

Many market analysts had expected bank Governor Stephen Poloz to tone down the stress he has put on the bank's concern about low inflation. They had also expected him to try not to lend any support to the partial recovery of the Canadian dollar recently from the weak levels of earlier this year.

The report had numerous references to the lower Canadian dollar. It said, for example, that this had reversed a small portion of the past deterioration in Canada's competitiveness, and it said that, combined with strengthening foreign activity, it should support moderate export growth.

Updated: Wed, 16 Jul 2014 10:35:57 GMT | By Reuters, Reuters

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Mixed views on accessory dwellings

An American planner may be advocating the building of accessory dwellings in urban areas, but the concept is receiving mixed views on Canadian soil.

The idea of building individual micro-units on the site of single-family properties has been met with much enthusiasm, with affordability and relative ease of construction proving lucrative to many property owners.

Jack Wegmann, the planning guru spearheading this argument, says this is the easiest solution for urban areas to meet their housing requirements.

“It’s great to have solutions to deal with housing potential but there are so many by-laws and compliance issues, that it would be hard to get more development on already small lots,” says Realtor Shannon Murree from Barrie, Ont.

Monika MacMillan, sales representative from Bosley Real Estate Ltd, says many homeowners prefer to build up and preserve green space due to smaller lot sizes and not give up the backyard for another structure.

“Aside from the legal issues, it is the issue of living and green space,” adds Murree. 

Tracy Ma, an Ottawa-based investor, believes it is a good concept but any backyard cottage dwellings would have to be legal with the ability to rent out, while also complementing the existing house and local neighbourhood.

“Having lived in Vancouver for eight years, I personally witnessed friends and family who built these 'backyard cottages' and rented them out,” she says. “It may become more difficult to sell these properties to the emotional buyers in the housing market as the emotional buyers may perceive it as an eye sore, loss of land space, or more upkeep and maintenance.  A realtor is key to marketing these types of properties, so that it not only appeals to the emotional buyer but also to an investor like me.”

Source: Canadian Real Estate Wealth

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Canadian housing starts unexpectedly rise in June

Canadian housing starts rose in June, frustrating economists' expectations for a modest slowdown, though the previous month was revised lower, data released on Wednesday showed. 

A report from the Canada Mortgage and Housing Corp showed the seasonally adjusted annualized rate of housing starts rose to 198,185 last month from a downwardly revised 196,993 units in May.

That surpassed analysts' forecasts for 189,000. May was originally reported as 198,324.

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