Ottawa's 'dangerous' meddling biggest threat to housing: economist

Canada's hot housing market isn't in bubble territory, according to a new report which argues that it's the federal government's "dangerous" tightening of mortgage rules that poses the biggest threat to home prices.

That view, from housing market economist Will Dunning, runs contrary to many readings of Canada's housing sector.

Many analysts have examined the state of housing in this country and declared it overheated, overvalued, and ripe for a tumble in prices as soon as interest rates begin to rise.

Nonsense, says Dunning, who runs a real estate market research firm and frequently consults for the mortgage industry. 

For one thing, he dismisses some of the data that groups like the OECD have used to justify their diagnosis of a housing bubble as "badly flawed." 

The OECD report found that based on the ratio of house prices to rents, Canadian real estate is overvalued by as much as 60 per cent. But Dunning says the particular house-price-to-rent ratio used is inaccurate because it overestimates house price growth and underestimates the pace of rent increases. 

'Government actions to slow the housing market are not only unnecessary. They are also dangerous.'- Housing economist Will Dunning

Looking at house prices, Dunning says there is room to accommodate a sizable increase in house prices of as much as 25 per cent over the next two years, along with a rise in interest rates of as much as one percentage point from current levels.

"Rather than being overvalued, house prices in Canada are fairly valued, and they may even be undervalued," he writes in a report released Wednesday.

Dunning instead argues that it is Finance Minister Jim Flaherty who has created "dangerous" conditions for the housing market by tightening mortgage rules on four separate occasions.

"Government actions to slow the housing market are not only unnecessary," says Dunning. "They are also dangerous."

He says the most recent change, to eliminate 30-year amortizations for insured mortgages, "took demand out of a housing market that was already in a state of balance." He likened the effect of that one rule change to a one percentage point increase in mortgage rates.

"The deliberate reduction of housing demand, which is now clearly visible in the new and existing arenas, creates a risk that prices could fall, unnecessarily. Once prices start to fall, the outcome is unpredictable," he writes.

Dunning's report comes as a closely-watched indicator showed Canadian housing prices hitting a record high. The Teranet-National Bank composite price index rose 0.3 per cent month-over-month in February, led by gains in Western Canada.

Over the last 12 months, the index has increased by 5.0 per cent nationally. Prices in Calgary rose 9.6 per cent year-over-year and in Vancouver by 7.7 per cent. Toronto prices were up 6.1 per cent. 

But some markets saw year-over-year drops. Prices in Victoria fell 3.4 per cent, Halifax dropped 4.7 per cent and Ottawa-Gatineau slipped 0.6 per cent.

The Teranet-National Bank index tracks average home prices in 11 metropolitan markets based on data collected from public land registries.

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Fuel costs to trim record airline profits

Rising jet fuel prices will eat into the world's airline profits, but the industry is still on track for a record year, an airline lobby group forecast Wednesday.

The International Air Transport Association, which represents 240 airlines, forecasts that the global airline industry will earn a profit of $18.7 billion in 2014. That's a record. But the figure is $1 billion lower than its previous profit estimate in December.

North American airlines are expected to be the industry's biggest profit driver, with record 2014 profits of $8.6 billion. That's more than double the previous most profitable year — 2010's $4.2 billion.

The Geneva-based group now forecasts that fuel will average $108 US a barrel, up $3.50 from previous projections.

That will add $3 billion to the industry's fuel bill this year — a figure that will be partially offset by stronger demand in passenger and cargo traffic as the global economy recovers.

"“In general, the outlook is positive," said IATA director general Tony Tyler in a statement. "The cyclical economic upturn is supporting a strong demand environment. And that is compensating for the challenges of higher fuel costs related to geopolitical instability."

But he said industry returns remain at an "unsatisfactory level with a net profit margin of just 2.5 per cent." 

Tyler credits industry consolidation and joint ventures with helping to improve the bottom line.

Industry revenues are expected to total $745 billion this year, with average profit per passenger of $5.65.

Besides rising fuel costs, the airline industry also points to such geopolitical risks as the decision by Venezuela to prevent airlines from taking profits out of the country and the crisis in Ukraine.

The disappearance of Malaysia Airlines Flight MH370 over southeast Asia is, at this point, another unknown.   

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Private contractor to take lead in fixing U.S. health insurance website

The Associated Press Posted: Oct 25, 2013 3:24 PM ET Last Updated: Oct 25, 2013 3:24 PM ET

Nearly a month into the dysfunctional rollout of the U.S. government's new health insurance website, Obama administration officials said Friday they have identified dozens of problems that need fixing and tapped a private company to take the lead in solving them.

Jeffrey Zients, a management consultant brought in by the White House to assess the extent of problems with the HealthCare.gov site, told reporters his review found issues across the entire system, which is made up of layers of components interacting in real time with consumers, government agencies and insurance company computers.

It will take a lot of work, but "HealthCare.gov is fixable," said Zients. The vast majority of the issues will be resolved by the end of November, he said, and there will be many fewer errors. He stopped short of saying the problems will go away completely.

The administration also said it is promoting one of the website contractors, Quality Software Systems Inc., to take on the role of "general contractor" shepherding the fixes. QSSI was responsible for two components of the website, a major linchpin that works relatively well, and an accounts registration feature that froze and caused many of the initial problems.

HealthCare.gov was supposed to be the online portal for uninsured Americans to get coverage under President Barack Obama's health care law. Touted as the equivalent of Amazon.com for health insurance, it became a huge bottleneck immediately upon launch Oct. 1. The flop turned into an embarrassment for Obama and will likely end up as a case study of how government technology programs can go awry.

The briefing from Zients came a day after executives of QSSI and the other major contractor, CGI Federal, a subsidiary of Montreal-based CGI Group, told Congress that the government didn't fully test the system and ordered up last-minute changes that contributed to clogging the system. Next week, Health and Human Services Secretary Kathleen Sebelius is scheduled to testify.

Zients gave some new details about the extent of the problems, but administration officials are still refusing to release any numbers on how many people have successfully enrolled. Although 700,000 have applied for coverage through the new online markets, it's believed only a fraction of that number actually managed to sign up. Prior to the website going live, an administration estimate projected nearly 500,000 people would sign up in October alone.

The marketplaces are the gateway to obtaining health insurance under the new health care law, which requires most Americans to have coverage by Jan. 1. Middle-class people who don't have insurance on the job can purchase a private plan with new tax credits to make the premiums more affordable. Low-income people will be steered to an expanded version of Medicaid in states that agree to extend the safety net program.

The federal government is running the insurance markets or taking the lead in 36 states. The rest were set up by states themselves.

Zeints said almost daily fixes are already having an impact. For example, over 90 per cent of users can now complete one of the first steps, creating an account.

But the application process, which involves submitting and verifying personal information and income details, remains "volatile," he said. At one point, as few as one-third of users were getting through that part.

Zients said there are two big categories of problems. Performance issues involve the speed and reliability of the website. Functional issues are bugs that keep the software from working as intended. He said the government has a "punch list" of needed fixes that add up to dozens in each broad category.

Near the top of the list: insurers are getting enrolments with incomplete, incorrect or duplicate information.

Until now, officials at the federal government's Centers for Medicare and Medicaid Services have taken the lead operational role on HealthCare.gov. The federal agency operate a successful e-commerce site for Medicare coverage, but it appears to have gotten in over its head when it comes to Obama's law. QSSI will now be responsible for the execution.

The company is a subsidiary of UnitedHealth Group, the nation's largest health insurer. It built a component of the website that's called the federal data hub and appears to be working relatively well. The hub is a conduit for verifying consumers' personal information.

An executive of the parent company, Andrew Slavitt, told Congress this week that QSSI had concerns about the federal website and relayed those to the government. Officials said the company's new role as "general contractor" will be an expansion of its current contract.

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More small businesses using social media, study says

More Canadian small businesses are taking to social media to interact with their consumers, according to a BMO study. (CBC)

Bank of Montreal says Canadian small business owners are increasingly savvy about using social media such as Facebook, LinkedIn and Twitter.

BMO says 57 per cent of about 300 business owners contacted for the study said they use social media.

That's up 17 points from 40 per cent in last year's study.

BMO's report is based on a Pollara telephone survey of 301 business owners, conducted between Aug. 22 and Sept. 10.

Nearly 40 per cent of the respondents said they use social media to seek ideas or suggestions

About one-third said they track what's being said about their business and one-quarter check out feedback about their competitors.

About 25 per cent said they were using social media to search for new talent, up 11 percentage points from last year.

BMO's study found Facebook was used by 43 per cent of respondents, while LinkedIn was used by 23 per cent and Twitter by 11 per cent.

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