Predictions Are That the Housing Market Will Remain Moderately Overpriced

Toronto Dominion Bank is predicting that the residential real estate sector in Canada will remain somewhat overpriced and overbuilt during the coming year. The firm thinks that current housing prices are between 10 and 15 percent higher than they should be, nationwide. Individual markets, such as Toronto and Vancouver are considerably more inflated.

Craig Alexander, chief economist for the firm, expects the overvaluation will correct itself once the interest rates start to go back up, expected to happen sometime in 2013. He predicts that halfway through that year and into 2014, the market will see a decline in sales of about ten percent. Housing starts will decrease to some 170,000 units. As far as the remainder of 2012, Alexander expects sales and price levels to remain relatively steady.

The other side of the equation is the debt-to-income ratio among consumers. Alexander expects that to reach 160 percent, partially because of the ultra low interest rates currently available. The economy, as far as job creation, has slowed and there is not as much available disposable personal income. It is expected that jobs will show moderate gains, but that the income increases will remain on the weak side. That means that more households will rely on low cost debt to get by. Policy makers are taking a hard look at that 160, which is the number reached in both the United States and the United Kingdom right before the recession.

Also on the news front was the fact that Apple Inc was going to start paying dividends for the first time since 1995. The firm also bought back $10 billion in shares, under pressure to disperse some cash to its shareholders. Starting in the fourth quarter of 2012, the tech company will start paying $2.65 dividends and continue on a quarterly basis. The huge buyback will be stretched out over the next three years.

Tim Cook noted that some of the nearly $100 billion on hand was being used in researching and developing new products, opening new retail outlets, acquisitions, infrastructure, capital expenditures and strategic payments. Cook noted that even with all of this going on there was more than enough cash to operate, thus the dividend payments. The firm expects to use roughly $45 billion of its cash on hand within the next three years.

Wedgewood Investments owns roughly $150 million worth of shares in Apple. Its chief investment officer, David Rolf, advised Dow Jones the move was expected. He noted that the company is making so much money that they will amass a cash hoard much larger than anything else that exists. Some question the amount of the dividends Apple is paying and whether those amounts should have been higher. At the same time the shares saw an increase in price targets.

Co-manager Hersh Cohen from Legg Mason’s Clear Bridge Equity Income Builder Fund, wanted to see a higher yield, somewhere in the neighborhood of three percent. So did Dow Jones. Both firms were somewhat surprised by the named figure and similarly disappointed. But, as Cohen noted, they are paying a dividend.