This week's mortgage market update contains:

• Consumer spending lifts economy
• Big bank profits set to soar
• U.S. housing weaker than expected

This week's highlights:

• US economy is starting to impact the major inflation of the housing market
• the overall inflation is expected to be at the 2% range

This week's Quote:

Slow down and enjoy life. It's not only the scenery you miss by going too fast - you also miss the sense of where you are going and why. - Eddie Cantor

Weekly Articles of Interest

Consumer spending lifts economy
CANADIAN PRESS
Aug 23, 2006 09:36 | thestar.com
Statistics Canada says that in July, housing and stock markets rebounded from a spring slump
read more

Big bank profits set to soar
SINCLAIR STEWART
Aug 21, 2006 08:59 | globeandmail.com
More lending drives recovery from slide
read more

U.S. housing weaker than expected
Aug 23, 2006 10:59 | thestar.com
Sales of previously owned homes in the United State plunged in July
read more

This Week's Highlights

• Canadian Consumer Price Inflation Moderates in June
• US Growth Slows in Q2

South of the border saw what some are calling the first sign of victory in bringing inflation to target level - the result of the Federal Reserve rate increases that had been steadily upward for some time and now stopped for the near term. It is important that we always remember that the economy as a whole does not fully reflect an interest rate changes by the central banks for 12 to 24 months after the change, as such changes are far from being fully reflected in the market at this time. The slowing US economy is also finally starting to impact the major inflation of the housing market as US existing home sales fell by over 6% and while the prices are still moving upward they are increasing much more gradually and moving toward increases that are more consistent with inflation. The US Federal Reserve is not likely to move at all with the slowing economy likely to fix inflation further.

In Canada the markets were reacting to a different signal. The July 1st cut in the GST (remember the temporary sales tax?) was supposed to see price relief for Canadians, but July inflation showed that the average consumer actually paid more for their goods last month when compared with June. Energy remained a major draw as the price of gas was 4.6% higher than the month previous, and represented a 16% increase over the same time last year. Important to note about the unexpected rise in inflation is that the largest impact came from the non-core inflation numbers – in simple terms the items in the inflation measure that are essentially not driven by consumer demand.

Housing prices remained to be a big contributor to inflation, but an item that is very difficult to look at nationally as it is being driven largely at a local level (nearly one local to be fair). In Calgary the year over year replacement cost of housing is up over 40% and an obviously large drive of housing cost. When the second largest increase for home prices sits at 7.5% in Saskatchewan the national increase reported at 7.6% is a measure that misses the reality for the majority of Canada. While core inflation has been volatile, the overall inflation is expected to be at the 2% range which will continue to keep the Bank of Canada on the sidelines as anticipated. As always, we will keep our ear to the ground and make you aware of developments as they occur.