Calgary Alberta Mortgage and Real Estate News

The Canadian dollar declined from a six-week high on speculation an economic slowdown in the U.S. will curb growth in Canada.“We’ve seen the highs in the Canadian dollar,” said Matthew Strauss, senior currency strategist in Toronto at RBC Capital Markets Inc. “The central bank will cut interest rates again in the first quarter. A U.S. slowdown will hit Canada eventually.”

The currency fell 1.3 percent to 99.41 Canadian cents per U.S. dollar at 4:08 p.m. in Toronto. The currency touched 97.57 cents on Dec. 28, the strongest since Nov. 20. One Canadian dollar buys $1.006. The currency rose to an all-time high of 90.58 Canadian cents per U.S. dollar on Nov. 7, and gained 17 percent this year.

Bank of Canada Governor David Dodge said on Dec. 21 that the country faces a greater risk of recession now than it did six months ago, as growth slows around the world and the risk of a “disorderly” adjustment increases.

Canada’s central bank unexpectedly lowered the benchmark borrowing cost a quarter-percentage point to 4.25 percent on Dec. 4 in a bid to bolster growth. The central bank will cut the rate to 4 percent at the next policy meeting on Jan. 22, according to the median forecast in a Bloomberg News survey.

The Canadian currency’s gain this year was its biggest since 2003, as advancing commodity prices boosted the country’s exports and pushed the unemployment rate to three-decade lows. The Canadian dollar had the second-biggest advance among the 16 most-actively traded currencies, trailing only Brazil’s real, which gained 20 percent.

Oil, Gold

Commodities such as crude oil and gold account for half of Canada’s exports. Oil prices rose 57 percent this year to about $96 a barrel, for the biggest annual percentage gain since 2002. Gold rose 31 percent this year, the seventh straight annual gain.

Hedge funds and other large speculators last week trimmed their bets that the Canadian currency will gain against the U.S. dollar by 37 percent, figures from the Washington-based Commodity Futures Trading Commission showed on Dec. 28. The wagers betting on the currency’s gain outnumbered those on the decline by 14,723 as of Dec. 25.

The currency may decline to C$1.06 per U.S. dollar by the end of next year, according to the median forecast in a Bloomberg News survey of 40 analysts.

The yield on Canada’s 4.25 percent two-year government bonds due December 2009 fell 4 basis points, or 0.04 percentage point, today to 3.74 percent. The price rose 7 cents to C$100.93.

Canada’s dollar fell to an almost six-week low after Bank of Canada Governor David Dodge said an interest rate cut is possible because of “risks” to economic growth.Dodge said the growing threats to the global economy and volatility in financial markets may affect the country’s benchmark lending rates. Interest rate futures suggest traders have increased bets that the central bank will cut the borrowing cost from 4.5 percent early next year.

“The central bank has started to take note of the downside risk coming from the trade side,” said David Watt, a senior currency strategist at RBC Capital Markets in Toronto. “The days of easy gains in the Canadian dollar are gone.”

Canada’s dollar weakened 1 percent to 98.19 Canadian cents per U.S. dollar in Toronto at 11:25 a.m. The Canadian dollar reached 98.88 Canadian cents per U.S. dollar on Nov. 16, its weakest since Oct. 9.

Canada’s trade surplus narrowed more than forecast in September to a nine-year low, as the country’s currency soared to parity with the U.S. dollar and hurt exports of machinery and industrial goods, a government report said on Nov. 9.

“It’s quite clear the downside risks to world growth have increased” since policy makers from the Group of Seven nations met in Washington a month ago, Dodge told reporters during a conference call from South Africa. “That clearly poses a risk, which we’re going to have to take into account in setting our own policy.” Dodge is in South Africa for meetings with finance ministers and central bankers from the Group of 20 nations.

Interest-Rate Futures

Bankers’ Acceptance Futures for March fell 13 basis points, or 0.13 percentage point, to 4.29 percent. The futures yielded 4.76 percent on Oct. 10.

The futures have settled at a three-month lending rate averaging 16 basis points above the central bank’s target since Bloomberg started tracking the data.

International investors reduced holdings of Canadian securities for a fifth consecutive month in September, with the decline exceeding economists’ forecasts, government figures showed.

Investors abroad sold a net C$5.2 billion ($5.3 billion) of Canadian securities, Statistics Canada said today in Ottawa. Foreign portfolio investors sold C$2.9 billion of Canadian stocks during the month, and C$2.6 billion of Canadian bonds.

The currency extended its losses after National Bank of Canada, the country’s sixth-largest bank, said it plans to take a C$365 million ($374 million) writedown in the fourth quarter for its investments in Canadian asset-backed commercial paper.

Asset-Backed Securities

National Bank’s action is the largest among five Canadian banks that have said they’ll reduce the value of their asset- backed securities in the quarter. The other lenders, including Royal Bank of Canada and Bank of Montreal, had combined writedowns of C$807 million on commercial paper and securities tied to the U.S. subprime mortgage market.

Citigroup Inc., the largest U.S. bank by assets, was lowered to “sell” by a Goldman Sachs Group Inc. analyst who predicted that the lender’s writedowns of collateralized debt obligations will total $15 billion over the next two quarters.

The yield on the two-year Canadian government bond, more sensitive than longer maturities to interest-rate policy change, fell 18 basis points, the most since May when the bond started trading, to 3.66 percent. The price of the 4.25 percent security maturing in December 2009 rose 34 cents to C$101.15. Bond prices move inversely to yields.

“There has been a lack of liquidity in the market,” said Dean Popplewell, a currency analyst in Toronto at Oanda.com, an online foreign-exchange trading firm. “People are looking at the bigger picture, and taking shelter in the fixed-income market.”

New-home construction in Canada is set to cool slightly next year, and would likely drop more precipitously if not for the widespread adoption of longer-term mortgage products, according to one economist.

Housing starts are expected to pull back about 6 per cent in 2008 as rising prices curb demand, according to an outlook report by the Canada Mortgage and Housing Corp (CMHC).

“The pullback in housing starts next year will be mainly due to increases in house prices in recent years, which have pushed mortgage carrying costs higher,” Bob Dugan, chief economist at CMHC, said in a statement.

This would still put new-home construction at a relatively strong 214,000 units in 2008, the seventh consecutive year in which they’ll top the 200,000 mark, according to the report.

Lofty prices in the country’s hottest markets, particularly Western Canada, would likely take a much bigger bite out of new construction if it weren’t for longer-term mortgage products, said Derek Holt, assistant chief economist at Royal Bank of Canada.

Last year, the federal government extended the maximum amortization period for mortgages from 25 years to up to 40 years.

Consumers have embraced these products, which raise the cost of a mortgage over time but lower the entry hurdle to buying a home because the longer payment period allows for smaller monthly payments.

“It’s my belief we would be 10 to 20 per cent below 200,000 housing starts next year if it wasn’t for the impact of these mortgage innovations,” Mr. Holt said.

Sixty per cent of new and rollover insured mortgages are for amortization periods of longer than 25 years, and half of those are for 40 years, Mr. Holt said.

The economist expressed concern that people taking out 40-year mortgages aren’t leaving themselves any buffer in the event of future rate shocks.

Buyers should also be aware of the much higher overall interest cost of a longer-term mortgage.

For example, the total interest on a $300,000 mortgage can soar from $286,161 over the life of a 25-year mortgage to $498,416 over a 40-year amortization period - adding more than $200,000 to the cost of the home.

In the resale market, sales of existing homes are poised for their best year on record, with slightly more than 521,000 units expected to be sold in 2007, as measured by sales on the Multiple Listing Service sponsored by the Canadian Real Estate Association.

The 7.8-per-cent increase in volume from 2006 is attributable to booming sales in the Prairie provinces.

However, purchases of resale homes are expected to slow somewhat in 2008 to slightly more than 500,000 units, a drop of about 3.9 per cent.
 

You have to wonder what David Dodge will be thinking this time. Just over a year ago, the Bank of Canada governor met with Canada Mortgage and Housing Corp. because of his fears exotic mortgages were juicing an already robust Canadian housing market. Now, CMHC has decided it is going to let Canadians buy investment properties with no down payment.The Crown corporation, which controls about 70 per cent of the mortgage insurance market in Canada, has quietly introduced changes that lower the down-payment threshold for an investment property. Instead of needing 15 per cent down, Canadians will be able to buy a second property — not to mention a third and fourth and fifth — with no money down.

“These enhancements will ensure continued supply of affordable rental accommodations across Canada,” said Pierre Serre, vice-president of insurance products with CMHC.

Critics charge CMHC once again has moved into risky territory, the last time being its decision to allow Canadians no money down on a principle residence. “Look at the fee, anytime it’s that high, you know there is a lot of risk,” said one senior mortgage industry observer.

The mortgage insurance fee for the new product is 7.25 per cent of the total amount of the loan. So, a $300,000 mortgage would have a $21,750 mortgage insurance fee.

Instead of paying the fee up front, CMHC will allow that fee to be added to the overall mortgage which can be amortized over as many as 40 years. Based on 5.8-per-cent interest,  the current discounted rate for a five-year term, it would cost just over $1,700 a month to carry that $321,750 mortgage.

By law, any consumer with less than a 20-per-cent downpayment must buy mortgage insurance if they are borrowing money from a financial institution covered under the Bank Act.

None of CMHC’s competitors are coming close to this new offer. Genworth Financial Canada — the other dominate player with about 30 per cent of the mortgage insurance market — requires investors to have at least 10 per cent down.

Back in July, 2006, Dodge demanded a meeting with the federal crown corporation. He was concerned about products like interest-only mortgages which give consumers the option of not making a principle payment for the first 10 years of a mortgage.

Serre said CMHC did consider the issue of whether the changes could over-stimulate the market. “We look at those kind of considerations all the time,” he said, adding that to get a loan consumers will have to meet certain criteria in terms of their overall debt load. “We’re not trying to get people into situations they can’t manage.”

Some question whether there was any need for the latest change, given how strong the market in Canada remains.

The Building Industry and Land Development Association said this week condo sales in Toronto — the largest market for new high rises in North America — were up 31 per cent over the first nine months of the year from a year earlier.

“I’m not sure why CMHC is relaxing the rules, the logic escapes me,” said Stephen Dupuis, chief executive of BILD. “The market is strong. I look at what is happening in the United States and wonder if there is a need to be so free with credit.”

The real reason for the new program, suggest some commentators, is CMHC trying to fend off competitors in the marketplace. In a constant battle with Genworth, CMHC is also facing up to four new mortgage insurers who have applied to do business in Canada or are already licenced to do so.

“There are competitors in the marketplace that didn’t exist before. They are reacting to competition that hasn’t even materialized yet,” said Dupuis.

CIBC World Markets senior economist Benjamin Tal said the latest changes by CMHC are probably just the beginning. “The genie is out of the bottle, this mortgage market is starting to move. Over the past 16 months we’ve seen more changes than the past 30 years,” said Tal.

the Bank of Canada this coming week almost certainly passes on another opportunity to raise interest rates.And that’s despite expectations that the annual inflation rate last month bounced back up above the central bank’s two-per-cent target.

The Bank of Canada’s interest rate announcement on Tuesday, its latest monetary policy report Thursday, and Statistics Canada’s September inflation report Friday are the major domestic economic reports this week.

While many economists still suspect that the next move by the Bank of Canada will be to raise rates further, they say it certainly won’t be this week, and may not be until next year.

Analysts expect the central bank will keep its trend-setting overnight target rate steady at 4.5 per cent, the second time it will have passed on an opportunity to carry through on last summer’s threat to raise rates further.

And that’s good news for indebted consumers, as changes in that key rate are almost always matched by changes in the chartered bank’s blue-chip prime rate to which the rates on consumer and business loan and variable rate mortgages are tied.

“While the recent employment and housing data have been strong and the turmoil in financial markets appears to be abating, the Canadian dollar is up about a whopping eight cents since the bank’s last meeting, and house price gains have been moderating,” UBS Securities Canada said in explaining why it expects no change in rates this week.

CIBC Worlds Markets economist Avery Shenfeld was even more adamant about why the central bank won’t raise rates.

“It can’t even think about cutting rates with a 5.9-per-cent unemployment rate, and a hike seems equally unthinkable given uncertainties over the U.S., a soaring Canadian dollar, and a crunch in commercial paper markets,” Shenfeld said.

Bank of Canada governor David Dodge will give his own explanation of what it did or didn’t do with rates and why when it presents its Monetary Policy Report which will also provide an update the bank’s expectations for inflation, the state of the domestic credit crunch, as well as its outlook for the Canadian, U.S. and global economies.

UBS, meanwhile, expects that Statistics Canada will report on Friday that the annual inflation rate bounced back up to 2.4 per cent last month from 1.9 per cent in August, which, under normal circumstances, would give the central bank justification to raise rates further.

But UBS also expects core inflation, which excludes volatile energy and food prices, and which the central bank monitors for underlying inflation trends, to ease to 1.9 per cent, a notch below the bank’s two per cent target, and down from 2.2 per cent in August.

Meanwhile, UBS sees mixed results coming from two other Canadian economic reports for the month of August, a 0.7-per-cent decline in factory shipments following a 2.3-per-cent gain in July but a three-per-cent rebound in new motor vehicle sales following three months of declines.

Americans and most of the rest of the world, meanwhile, will focus this week on speeches by U.S. Federal Reserve chairman Ben Bernanke on Monday in New York and then again on Friday in St. Louis, the latter being on the issue of conducting monetary policy in times of financial and economic uncertainty.

“And there’s no shortage of uncertainty these days,” CIBC’s Shenfeld noted.

Some of the uncertainty surrounding how the U.S. economy has responded to the mortgage market meltdown and ensuing credit crunch may be reduced with a string of reports from south of the border on September’s consumer price inflation and housing starts on Wednesday, the U.S. leading economic indicator on Thursday, and industrial production and business capacity utilization on Tuesday.

One uncertainty that will be cleared up is who is this year’s winner of the Nobel prize for economics, which will be announced Monday in Stockholm.

The Canadian dollar slipped
against the U.S. dollar on Wednesday, after comments by Bank of
Canada Governor David Dodge seemed to do away with any thoughts
of higher interest rates any time soon.
Domestic bond prices, with no major Canadian data to
consider, followed U.S. Treasuries lower.
At 9:25 a.m. (1325 GMT), the Canadian dollar was at
C$1.0056 to the U.S. dollar, or 99.44 U.S. cents, down from
C$1.0036 to the U.S. dollar, or 99.64 U.S. cents, at Tuesday’s
close.
In a Vancouver news conference on Tuesday, Dodge said the
Canadian dollar’s surge to parity with the U.S. dollar was not
entirely justified by economic fundamentals, suggesting the
central bank was fretting about the currency’s rise.
The market, which had previously priced in the chance of
higher interest rates in the near to medium term, has had to
reassess outlooks to take into account the impact of the recent
credit crunch and the soaring currency.
“I think (the bank is) going to be on hold certainly next
month and there’s probably a little bit of doubt creeping into
the market’s mind…about rate increases period,” said Shaun
Osborne chief currency strategist at TD Securities.
The Canadian dollar last week reached parity with the
greenback for the first time in 31 years, reflecting steady
Canadian interest rates — the Bank of Canada left its key rate
steady at 4.50 percent in September — and a U.S. Federal
Reserve rate cut of 50 basis points to 4.75 percent.
A raft of weak U.S. data after the U.S. subprime mortgage
induced credit crunch has increased expectations of further
interest rate cuts in the U.S.
Meanwhile, oil prices spurted back above $80 a barrel ahead
of U.S. data expected to show a further decline in crude
stocks. Part of the commodity-linked Canadian dollar’s rise in
recent weeks has been on the back of soaring oil prices.
“Around these ($80 a barrel) levels, it would suggest that
the Canadian dollar is probably going to trade around this
parity level, but we’d probably need higher levels again to see
the Canadian dollar really take off,” said Osborne.
BONDS SLIP
Canadian bond prices followed U.S. Treasuries lower,
retracing some of the gains made over the past week.
Weaker-than-expected U.S. durable goods figures did little
to help bond prices, as the data is often volatile, said Chris
Holmes, Canadian fixed income strategist at J.P. Morgan
Canada.
With no Canadian data due until the end of the week,
domestic bond prices will likely continue to follow the lead of
U.S. treasuries and North American equity markets.
Friday’s figures are for July gross domestic product, and
August industrial producer prices and raw materials.
The overnight Canadian dollar Libor rate <LIBOR01> was
set at 4.7667 percent, still above the Bank of Canada’s 4.5
percent target for the overnight rate.
And Tuesday’s CORRA rate <CORRA=>, the weighted average of
the day’s rates on Canadian repurchases rose to 4.4840 percent
from 4.4709 percent on Monday. The Bank of Canada publishes the
rate at around 9 a.m. daily.
The two-year bond fell 7 Canadian cents to C$100.15 to
yield 4.174 percent, while the 10-year bond dropped 27 Canadian
cents to C$96.72 to yield 4.420 percent.
The yield spread between the two-year and 10-year bond
moved to 24.8 basis points from 24.0 at the previous close.
The 30-year bond lost 35 Canadian cents to C$108.36 to
yield 4.487 percent. In the United States, the 30-year treasury
yielded 4.920 percent.
The three-month when-issued T-bill yielded 4.03 percent,
unchanged from the previous close.

The Bank of Canada’s 4.5-per-cent overnight lending rate “is appropriate” but the bank must “look at the causes” of the rising loonie over the next three and a half weeks as it drafts its Oct. 16 interest-rate announcement, governor David Dodge said in speech Tuesday.”We need to assess the effect of movements in the exchange rate on the balance of aggregate demand and supply in the Canadian economy,” Dodge said, in what observers took as a hint that an immediate interest rate hike is unlikely as the bank examines the ongoing fall-out from this summer’s market turbulence.

“Overall, it looks like the bank is solidly on hold until they have a chance to assess the impact of the tightening of credit conditions on the real economy, and the impact of the most recent appreciation of the Canadian dollar,” Jacquie Douglas, an economics strategist with TD Securities, wrote in a note following the speech.

In his speech, Dodge noted “significant upside and downside” inflationary risks, observing that stronger-than-expected household demand could drive up inflation while spillover from the sputtering U.S. housing market could have the opposite effect.

Assessing which of those risks is more serious is what “we will be concentrating on between now and our next interest rate announcement,” Dodge told reporters after his speech to the Vancouver Board of Trade.

Of particular concern are rising housing prices, he said, which make up about five per cent of the country’s consumer price index.

“When, on average, new housing is rising at eight per cent, that really puts an upward bias into the CPI and it’s clearly something that in hitting our target we are very concerned about,” he said.

But he offered little hope to Canadian manufacturers, who have pressed the bank to cut interest rates as a way of dropping the value of the loonie, whose flight to parity has slashed returns in the auto and forestry sectors.

The rise in the price of resource products relative to manufactured goods “sends a signal that real resource labour and capital really have to be diverted from now lower value-added activities in manufacturing to higher value-added activity in the resource sector or in a number of service sectors,” Dodge said. “The lesson of history is that not to adjust is just not an option. And we have to find ways to get on with it.”

Still, while noting that a rising currency has little direct impact on inflation, “to the extent the rise in the Canadian dollar affects our exports in a negative direction and our imports in a positive direction, obviously that effect really does flow-through into the balance of demand and supply of Canadian goods and services. And that precisely is what we will have to take into account,” Dodge said.

His comments suggest that “a tighter Canadian monetary policy is not likely and, if anything, pointed to a higher probability of an easing if economic conditions get much worse,” Scotia Capital economist Karen Cordes wrote in a note.

For a generation, Americans have had a reason to feel superior to Canadians: Our dollar was worth more than theirs. Ours was a full dollar; theirs was discounted. And thus it was a shock last week when the Canadian loonie stole across the line of superiority and registered a value of $1.0008.

There were several reasons for this. Oil is the obvious one. Canada is endowed with much oil and gas, and the rise in its value tends to lift the currency. Americans have a large appetite for that oil and gas, perhaps more than is good for them. Another reason for the muscular loonie has been the financial probity of Canada’s conservative government. Unlike our conservative government, Canada’s has really and honestly balanced its budget.

This year, Canada is planning to run a 2-percent budget surplus. Canada’s Treasury has announced a long-term plan to pay off the central government’s debt, allowing cuts in the rates of personal income tax.

Imagine that: Pay off the debt, then cut the tax.

Our conservative government doesn’t think that way. It cuts taxes first, increases domestic spending and starts a war. Our conservative government put the whole smorgasbord on the credit card and argued that there would be no financial indigestion.

When indigestion arrived in the form of a subprime-mortgage crisis, Fed Chairman Ben Bernanke slashed the interbank lending rate. Probably by that time, it had to be done but it was not what a prudent, fiscally sound country should have had to do.

With the interest-rate cut, the dollar fell again, because it is less rewarding to park one’s funds at a lower rate of pay.

Now the greenback swims in the same pond as the loonie, which as recently as January 2002 was worth just 62 cents on the dollar.

And it’s not just Canada: The dollar has fallen this year against the euro, the pound, the yuan and the yen, and also against such proud players as the Polish zloty, the Russian ruble, the Philippine peso, the Mexican peso and the Brazilian real.

We shall have to be polite to the Canadians.

The Bank of Canada is universally expected to hold its interest rates steady at 4.5% tomorrow.

Although the unemployment rate is at a 33-year-low of 6.0%, wages are rising at a 3.7% annual clip, the economy expanded 3.4% in the second quarter and core inflation has been above its 2% target for an entire year, the sludge dripping from North American debt markets is expected to persuade the bank to stay its hand for now.

It will take time to see whether this sludge will contaminate broader lending, mingle with the U.S. housing slump and cause the United States and Canadian economies to slow. Canada also has some sludge of its own to absorb from the asset-backed commercial paper blow-up here.

It is ironic that as the bank holds rates in response to the slump in U.S. housing, it may further stoke a Canadian housing market still on a tear and vulnerable to risks of its own — like the rising labour and materials costs the bank was previously trying to restrain.

While U.S. building and sales have cratered and prices have dipped 3.2% on the year, Canadian resales rose nearly 10% in July to a new record and average prices jumped 12.6% to a record $311,495.

Toronto high-rise sales, meanwhile, are in their second year of 24% increases year-to-date. The luxury hotel-condo — usually commanding the top floors of some architectural jewel and bearing a marquee name like Ritz or Four Seasons — is the latest boom’s must-have.

“It is now common to see 2,000-to 2,500-square-foot condos selling for $2-million or more with property taxes and condo fees to match,” Sherry Cooper, chief economist at BMO Capital Markets, said in a recent note. “Per square foot, condo prices are now higher than single-family home prices of similar quality and location.”

At the Four Seasons hotel-condo in Yorkville for example, a 2,500-square foot condo sells for more than $4-million; a 3,900-square-foot penthouse has a $7.4-million price tag.

Although the prices may not be quite so lofty, they are racing across the country, too, with Saskatoon joining Calgary as the latest hot spot.

Analysts are at pains to point out how the Canadian market is in much better health than the United States.

“The current subprime default rate in Canada is less than 3% compared with 13% and growing for the United States,” Warren Lovely, economist at CIBC World Markets said in recent note. And there isn’t much subprime debt in Canada anyway. It accounted for barely 5% of mortgage originations during 2005-06, well below the 20%-plus share in the United States, Mr. Lovely said.

As well, Canadians have taken out fewer mortgages with teaser or adjustable rates and they have traditionally relied less on home lines of credit to fuel consumption.

Builders and lenders in Toronto, burnt by the 1990 real estate bust, are smarter too.

“There’s a healthy amount of discipline that has been inserted into the Canadian system that was a direct result of the problems of ‘89, ‘90, ‘91,” said George Carras, vice-president at RealNet Canada Inc. Typically a project is 60% to 70% sold before a shovel breaks ground. Deposits are also quite significant and required at various milestones over the course of construction.

At the Four Seasons for example, the buyer must put down a $50,000 deposit, followed by additional deposits equal to 25% down at the end of the first year after signing — with still more than two years to go before occupancy, Ms. Cooper notes.

“There is an incredible rigour around the interim financing, which is typically done after a minimum pre-sales target has been met and enough due diligence is in place — there is enough money to get their loan back on the completed building,” Mr. Carras said.

Yet trouble can come rumbling out of nowhere, as the Canadian ABCP market storm has shown.

Instead of buyers walking away from deposits as prices slid in the United States, Canadian developers might run into trouble grappling with runaway costs, especially if borrowing costs become stickier north of the boarder.

Canada is at, or very near full employment in the construction industry, and competition for labour has become fierce, Mr. Lovely said. Material costs have also soared.

Under a supply-side crunch, a developer might go bust before he can bring his project to completion, leaving buyers hanging.

Mr. Carras agrees the biggest risk for the Toronto market now appears to be execution risk, especially with some 60 of the 160 or so developers building new homes in the Greater Toronto Area having operated for five years or less.

“The things to watch are in the execution risk–being able to deliver the units that are sold, within budget to people that will be closing when they are supposed to be closing,” Mr. Carras said. “That’s the risk profile of this marketplace because there are a number of people in this space that have not been in this space before.”

So far though, the market appears to be functioning smoothly and the condos are flying off the shelves.

But as the U.S. market shows, sentiment can sometimes turn on a dime — all the more reason for the Bank of Canada to hope this subprime mess sorts itself out and it can get back to raising rates.

The governor of the Bank of Canada suggested yesterday the Canadian dollar’s recent surge may have gone beyond levels supported by economic fundamentals — but repeated that interest rates may still have to increase to restrain stronger-than-expected growth and inflation.

The delicate balancing act from David Dodge fell short of verbal intervention to talk the currency down, analysts said.

Instead, the bank was acknowledging the currency’s US10¢ surge to the US94¢ territory over the past couple of months will factor prominently in its interest rate deliberations, putting a question mark over hikes beyond an already expected increase in July.

“I don’t think [the currency’s surge] is going to change the fact that they seem to be gearing up still toward a move in July,” said Michael Gregory, senior economist at BMO Capital Markets. “What this did do was throw a little bit of water on the belief we’ve got multiple hikes coming down the pike here, because the currency is now back on their radar screen.”

Mr. Dodge said the loonie has moved well beyond the US86.5¢-to-US89.5¢ range expected in its April update and it has been significantly stronger than other major currencies against the U.S. dollar.

“Much of this appreciation can be linked to such factors as the strength of demand for Canadian goods and services, continuing firm prices for commodities and a positive outlook for Canadian economic growth,” Mr. Dodge said in a speech in St. John’s. “But over this period, it does seem the overall response of the Canadian dollar to these factors appears to have been a bit stronger than historical experience would have suggested.”

The comment indicates the bank thinks the currency’s latest jump may not be driven entirely by the kind of economic fundamentals that would also drive growth — such as strong commodity prices — so it could act as restraint on the economy.

“I don’t think he’s trying to talk the currency down,” said David Wolf, Canadian economist at Merrill Lynch. “I think what he’s trying to suggest is the bank does view the rise in the currency as having done some of its tightening work for it. It shouldn’t diminish anyone’s expectations of higher rates ahead but it also reinforces the fact that any particular quantity of tightening or duration of tightening certainly shouldn’t be a certainty.”

At the same time, Mr. Dodge also pointed out inflation has been stronger than anticipated, service prices continue to run well above 2%, prices for goods have been higher than expected and there is an increased risk future inflation will persist above its 2% target.

In the bank’s May statement, it said “some increase in the target for the overnight rate” may be needed to bring inflation back into line. It was how Mr. Dodge concluded his speech yesterday in St. John’s — and pointed that out at a later press conference.

Marc Levesque, chief economics strategist for TD Securities, said he is maintaining his forecast for a rate hike in July and September but added Mr. Dodge’s comments did “inject a little bit of uncertainty” into the outlook for monetary policy.

Mr. Dodge downplayed the possibility the bank would intervene in foreign exchange markets to restrain the currency like the Reserve Bank of New Zealand did this week, noting markets had not been “disorderly” — a key requirement for Canadian central bank intervention.

“We haven’t had disorderly markets, which is one of the key issues,” Mr. Dodge said. “Nor have we seen an issue where somehow currency alignment has got way, way out of line.”