Today’s top stories from Report on Business :

A housing bubble? Not yet

The stunning rebound in Canada’s real estate markets continues to prompt speculation about whether a bubble is forming. Today, the Canadian Real Estate Association reported that home sales rose 73 per cent in November across the country, though that’s compared with weak numbers at the height of the crisis a year ago, and that fresh records were set in Ontario and Quebec. Nationally, the average price rose 19 per cent to $337,231, compared with a year ago.

In a note titled “It’s beginning to look a lot like a bubble,” Douglas Porter of BMO Nesbitt Burns said today: “Before officially declaring this a Bubble with a capital B, we would again painstakingly point out that the reported price change is skewed by the surge in Vancouver and Toronto sales, two of the priciest markets. Using a fixed-weight measure, average home prices in the major markets have risen by a milder 11 per cent year over year – still robust, but short of a warning-bell-ringing pace. … While we don’t believe Canadian housing is in full-blown bubble territory quite yet, there is clearly a risk of a blow-off to the high side in the months ahead.”

Record-low interest rates and other government measures are driving buyers, with willing sellers looking at hefty premiums. There are fears that some home buyers taking on debts now may not be able to handle them when rates rise. Economist Sheryl King of Bank of America Securities-Merrill Lynch said there’s no bubble yet but, citing variable-rate mortgages, acknowledged the seeds are there.

But new listings are also on the rise and CREA economist Gregory Klump said rising prices and higher rates next year will cool the market. Read the story

Related :

Housing market has big cracks

Merrill warns of housing bubble

Consumer bankruptcies decline

Maybe, just maybe, the recession’s toll on the Canadian consumer is easing. While it’s never a good idea to make too much of a monthly number, it’s still noteworthy that consumer bankruptcies, which have surged since the slump began, fell more than 28 per cent in October. That may be in part because people have been rushing to beat a mid-September deadline on changes to bankruptcy law, but it’s still a good sign. Over all, total insolvencies among consumers and businesses in Canada fell 19 per cent from September. According to the Superintendent of Bankruptcy Canada, it’s only the second time in a decade that October insolvencies were below those of September. Read the story

Austrian bank troubles latest threat

Troubles in Austria’s banking sector and continuing concerns over Greece’s credit woes rippled through currency markets today, dragging down the euro against the U.S. dollar. On Monday, the Austrian government nationalized Hypo Alpe Adria, whose soured loans are centred in troubled Eastern Europe, and there is more speculation that other Austrian banks may also need to be rescued.

At the same time, markets aren’t buying into promises by Greece’s prime minister, George Papandreou, to bring his fiscal mess under control. Despite his pledge Monday to slash layers of government, freeze some salaries and tax bankers’ bonuses, investors were selling down the country’s debt and financial shares today. Markets have lurched from mini-crisis to mini-crisis, from Dubai to Greece, and now face being rattled by new fears.

“Six months ago, people would have thought ‘it’s only Greece’ or ‘it’s only Austria,’” one currency analyst told Te Wall Street Journal. “Now these things are taken as a reason to sell the euro.” Read the story

Boeing 787 Dreamliner jet takes off at being its long-waited first flight Dec. 15, 2009

Dreamliner makes test flight

The 787 Dreamliner got off the ground on its test flight today, a win for Boeing Co. BA-N after delays of more than two years. The Dreamliner promises a new era for airlines, with lower fuel and maintenance costs given its plastic fuselage and other titanium parts. Boeing has 840 orders worth about $140-billion (U.S.). “It really sends a message that this is a real program and they have a lot of work to do, but this looks like a real, and very promising, aircraft,” Teal Group analyst Richard Aboulafia told Bloomberg News. Read the story

Airlines to suffer billions more in losses

First there was SARS, then surging oil prices, then a recession, and then H1N1. The global airline industry hasn’t had it easy. Today, the International Transport Association warned the industry is expected to lose $11-billion (U.S.) this year, and it upped its forecast for next year’s losses to $5.6-billion. Still, IATA head Giovanni Bisignani said today that the worst is probably over, and some key indicators are pointing “in the right direction.” Nonetheless, the group’s chief economist told reporters he believes high debt levels among North American consumers in particular “will limit air travel for probably a number of years.”

What’s next for U.S. banks?

Are America’s banks now strong enough to stand alone again? Yesterday marked the official end of the U.S. government’s bank bailouts as Citigroup Inc. C-N and Wells Fargo & Co. WFC-N announced plans to repay the money from the Troubled Asset Relief Program, or TARP, and raise money through stock sales. The major U.S. banks were anxious to get out from under the government’s largesse, which also came with pay restrictions, after the massive bailout at the height of the financial crisis. Despite the raging controversy over bankers’ bonuses, there are legitimate competitive concerns for banks that want to retain top talent.

There are other theories on why the banks want out, as well. Analysts note that mortgages and commercial real estate loans could spark big losses next year. And banks such as Citigroup that are deep in consumer lending must contend with the potential for soured loans given that unemployment is not expected to ease any time soon. “It may be as much about raising capital as it is paying off TARP,” FBR Funds portfolio manager David Ellison told The New York Times.

Other observers told the newspaper they worry that the Obama administration may be erring by letting the banks out of the program too soon. Another shock, on sovereign credit, say, could send them back to the trough, they say. “The guarantee is no longer explicit, it’s implicit – just like the implicit guarantee for Fannie Mae and Freddie Mac,” former U.S. Federal Reserve Board official, and now bank analyst, Dino Kos told The Times. “This is the nature of the ‘too big to fail’ problem.”

Related :

Obama urges ‘fat cat’ bankers to help

The town that Bank of America took down

Bank of America may tap insider

Bank of America Corp. BAC-N is now expected to tap someone from inside the bank as its next CEO to succeed Kenneth Lewis, who is leaving at the end of 2009. The bank had reportedly been in talks with Robert Kelly, a Canadian who now heads Bank of New York Mellon Corp., but he dropped out. Bloomberg News this morning suggests the search committee may tap Gregory Curl, the bank’s chief risk officer, or Brian Moynihan, chief of consumer banking.

Markets await the Fed

The U.S. dollar rose today as markets speculated on when the U.S. Federal Reserve Board will begin to unwind the unprecedented measures it took to fight the economic crisis. The U.S. central bank begins a two-day meeting and is widely expected to signal no change to its benchmark lending rate tomorrow afternoon, but markets are looking for hints of what lies ahead. Like the Bank of Canada, the Fed has pledged to keep interest rates at historic lows for some time yet.

“Tomorrow’s release of the FOMC statement will prove important and could put an end to this spurt of U.S. dollar strength,” Scotia Capital said today. “For now we continue to believe that the economic backdrop is too fragile to implement aggressive interest rate hikes, unemployment at 10 per cent and contained inflation do not lay the foundation for near-term policy tightening. This combined with global policy makers’ ongoing commitment to support growth (at almost any cost) should see the U.S. dollar close 2010 at lower levels than it will close this year.”

The Financial Times reported that there’s an “outside chance” the central bank could change other programs while the benchmark Federal funds rate untouched. Read the story

China IPOs rise

In yet another sign of China’s growing might, the country has again eclipsed the United States in terms of initial public offerings. Dealogic, a research company, said IPOs in Hong Kong and mainland China have brought in almost $52-billion (U.S.) this year, compared to about $26-billion in the United States. Read the story

From today’s Report on Business

Exxon deal shakes natural gas sector

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