This week's mortgage market update contains:

• US economy slows
• If U.S. market slows, Canada to land softly
• Deal will provide 1,900 affordable homes

This week's highlights:

• US Q2 Growth Revised Higher
• GST Cut Does Not Prevent July Consumer Prices in Canada From Rising in the Month

This week's Quote:

The world is moving so fast these days that the man who says it can't be done is generally interrupted by someone doing it. - Harry Emerson Fosdick

Weekly Articles of Interest

US economy slows
JEANNINE AVERSA
Aug 30, 2006 11:53 | thestar.com
WASHINGTON -- The economy grew at a 2.9 percent annual rate ..... picture of the economy: In the spring, it slowed sharply from ..... the 3 percent pace that analysts were expecting. Even though the economy
read more

If U.S. market slows, Canada to land softly
ROMINA MAURINO
Aug 26, 2006 01:00 | Toronto Star
Weimer, senior economist with the Canada Mortgage and Housing Corporation ..... of mortgage equity withdrawal." "Essentially, they've been borrowing more
read more

Deal will provide 1,900 affordable homes
Aug 25, 2006 19:01 | thestar.com
for the Canada Mortgage and Housing Corporation in Ontario. "It's a terrific
read more

This Week's Highlights

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

The U.S. economy expanded at a 2.9% annual rate in the second quarter, faster than the 2.5% that was initially reported but slightly below the consensus forecast of 3.0%. The largest contribution to the upward revision was business inventories, which expanded by an annualized $58.7 billion, well above the initially reported $52.6 build. A major revision was also seen in growth in Q2 non-residential structures, which surged to a 22.2% pace, the fastest since the second quarter of 1994, and well above the 12.7% growth rate that was initially reported.

The most significant downward revision was in residential investment, which fell 9.8% in the quarter, weaker than the 6.3% decline seen in the advance report. The decline is consistent with the broad-based deterioration that has been seen in housing indicators in recent months. It is expected that a further sizable drop in the residential construction in Q3 and for this weakness to persist for several quarters as housing starts fall to more sustainable levels. Weakness in housing activity will continue to weigh on growth going forward, with the economy expanding at an average rate of 2.8% over the next three quarters, well below its current year-over-year rate of 3.6%. Given this soft growth picture, the Fed is projected to begin gradually easing policy late this year, bringing the fed funds rate to a more neutral level of 4.50% by the spring of 2007.

July consumer prices unexpectedly rose, albeit minimally, by 0.1% in the month despite the 1 percentage point (pp) reduction in the GST rate to 6.0% from 7.0%. The greater-than-expected pressure in overall consumer prices largely reflected sizeable gains in gasoline prices (+4.6%) and fresh fruit prices (+7.4%). The rise in the core rate will, at the margin, make the Bank of Canada moderately more wary about inflation pressures building in the system. However, given some uncertainty about the derivation of the current core measure, it would likely need corroborating evidence from other price measures before seeing the need to respond. Economists view is that most other inflation measures will remain well behaved allowing the central bank to remain on the sidelines holding the overnight rate unchanged at 4.25%. As always, we will keep our ear to the ground and make you aware of developments as they occur.