Briefing highlights
- State of the housing markets
- What to expect from the Fed
- Stocks, loonie, oil at a glance
- Annual inflation dips in August
- Required Reading
State of housing markets
Montreal and Saskatoon come in for special mention in the latest batch of housing statistics.
That’s because, as Bank of Nova Scotia ranks Canadian cities for housing, Montreal reclaimed the No. 1 spot for “local market tightness,” while Saskatoon stood alone as the only buyers’ market among the 31 it tracks.
The latest numbers, released this week, showed national home sales climbed again in August to mark six straight months of gains, a first since 2014. This comes as buyers adjust to new mortgage-qualification stress tests introduced in early 2018 by the federal bank regulator.
Each month when numbers are released, Scotiabank provincial economist Marc Desormeaux ranks the tightness of markets based on how much the ratio of sales to new listings for the regions diverge from their longer-term trends.
Here’s how they look:
Source: Bank of Nova Scotia
Nationally, the sales-to-new-listings ratio indicated “roughly balanced supply and demand, but representing the tightest conditions since January, 2018,” Mr. Desormeaux said.
The ratio in Montreal hit its second-highest level ever, while “conditions in Ottawa, London, Windsor and major cities in New Brunswick remained tilted towards sellers,” he noted.
“The data continued to point to excess housing supply in centres in Canada’s net oil-producing regions,” he added, but Saskatoon was the odd city out, nonetheless.
The overall numbers, Mr. Desormeaux said, signal “tightening housing market conditions” particularly in Ontario’s Greater Golden Horseshoe and southern British Columbia.
“The pace of price appreciation is also far more manageable than at the heights those markets reached in 2016-17,” he said.
“From a near-term economic growth perspective, upward trends in and around Toronto and Vancouver are positive following early-year downturns in Ontario and B.C.”
While the federal election campaign could include calls for stricter rules around qualifying for a mortgage, Mr. Desormeaux hopes policy makers take a longer view.
“Major markets looked to have moved past last year’s stricter mortgage-qualification rules, and factors such as healthy job creation and population gains will likely put further upward pressure on prices,” he added. “But the key to sustainable price increases over the longer-run is bringing more supply online, efforts which will take time and collaboration among all three levels of government.”
If you look at the third quarter to date, you’ll see sales are an average 6.1 per cent above the second-quarter average, said Toronto-Dominion Bank economist Rishi Sondhi.
“As activity has improved, housing markets across the country have become tighter,” he agreed.
“This suggests that further growth in home prices is likely, although affordability challenges in Toronto, Vancouver and some surrounding regions should cap gains in these markets.”
One other thing worth mentioning here is the potential impact on the Bank of Canada, which has long fretted over the housing market and the fat debt levels among households.
“Looking ahead, the BoC can probably remove housing from the worry list for the time being – if anything, given that the market balance continues to tighten, there is a risk that prices resume their upward march and outstrip the corresponding rise in incomes,” David Rosenberg, chief economist at Gluskin Sheff + Associates, said of the latest numbers.
Read more
- Janet McFarland: Toronto home buyers pay far more in taxes, fees on new construction than purchasers in other cities: study
- Canada’s housing market (minus B.C.): ‘It’s Baaaack'
- Canadian home sales up for sixth straight month in August
- Rachelle Younglai, Chen Wang: How Canada’s suburban dream became a debt-filled nightmare
- Michelle Zilio, Janet McFarland: Liberals target millennials with expanded home buyer subsidies
- Andrea Woo: B.C. tax on real estate speculation and empty properties brings in $58-million for 2018
- ‘Canada has become a country of renters and condo dwellers’: What building numbers show
- How Canada’s housing market compares with many others. (Hint: It doesn’t)
- Janet McFarland, Brent Jang: Toronto, Vancouver home sales rise as Canadians adapt to tougher mortgage rules
- Canada’s perkier housing market: Uh-oh, here we go again?
What to expect from the Fed
It’s a fairly safe bet that the Federal Reserve will trim interest rates this afternoon.
It’s also a fairly safe bet that the expected cut of one-quarter of a percentage point won’t be enough for President Donald Trump.
Mr. Trump has been on the central bank’s case, urging it and chair Jerome Powell again this week to take the opportunity to chop today.
Federal Reserve chair Jerome PowellANDREW CABALLERO-REYNOLDS/AFP/Getty Images
“The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries,” Mr. Trump said in a tweet.
“They can’t believe how lucky they are that Jay Powell & the Fed don’t have a clue. And now, on top of it all, the Oil hit. Big Interest Rate Drop, Stimulus!”
It’s virtually certain Mr. Powell and his colleagues won’t be swayed by Mr. Trump, and hold their rate cut to 25 basis points, bringing the Fed funds target to between 1.75 and 2 per cent.
At this point, markets have shrugged off Mr. Trump’s pressure on the Fed. Presumably, they’ll continue to do that.
But …
“If the markets starts taking seriously this vendetta of the White House, the impact on the dollar and equity markets would be considerable,” warned Sébastien Galy, senior macro strategist at Nordea Asset Management.
“Equity markets would be unnerved that the U.S. is becoming like an emerging market à la Turkey,” he added.
“The U.S. Treasury curve would wobble and eventually flatten more on a search for safety and the dollar would likely rise significantly against emerging market currencies.”
Markets at a glance
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Inflation dips
Annual inflation dipped in August as prices at the gas pump eased from a year earlier.
Inflation edged down to 1.9 per cent from July’s 2 per cent, Statistics Canada said today, as those pump prices declined by more than 10 per cent.
“Global oil prices fell slightly in August due to higher production and soft international demand, remaining below the elevated levels of 2018,” the federal agency said.
Prices for air travel, in turn, climbed by more than 10 per cent, the increase primarily because of “continued reductions in operational aircraft capacity during the final month of the busy summer travel season, due to the March grounding of the Boeing 737 MAX aircraft models.”
There have also been changes to the methodology around tracking air travel.
On a month-to-month basis, costs for fresh vegetables also declined in August from July, accounting for the fastest monthly drop in five years.
What’s all this mean for the Bank of Canada? Not much.
“For the Bank of Canada, inflation isn’t running too hot or too cold, it’s just right,” said CIBC World Markets senior economist Royce Mendes.
Read more
Ticker
British inflation slows
From Reuters: Consumer prices in Britain rose last month at the slowest rate since December, 2016, a pre-Brexit boost to the spending power of households who are also seeing the fastest wage growth in 11 years. Prices of goods and services paid by consumers rose at an annual rate of 1.7 per cent in August, the Office for National Statistics said.
Airbus revises demand
From Reuters: Airbus revised up forecasts for jetliner demand in the next 20 years, led by growth in the new industrial hubs of Asia, while voicing alarm over rising protectionism. The European plane maker, revising an annual 20-year forecast that sheds light on economic trends across the globe, predicted the world’s fleet would more than double to 47,680 jets by 2038.
Saudis see slower growth
From Reuters: Saudi Arabia’s economic growth in 2019 will be significantly less than the kingdom had expected because of OPEC-led oil output cuts, but the attack on Aramco had “zero” impact on revenue, the country’s finance minister said.
Huawei forecasts 5G revenue
From Reuters: Huawei Technologies expects the roll-out of next-generation 5G wireless networks to start contributing to the firm’s revenue from next year when China launches services, the company’s deputy chairman said. The Chinese telecoms equipment giant has said that it has secured more than 50 5G commercial contracts even as it fights accusations from the United States and its allies that its networks are vehicles for Chinese espionage.
India bans e-cigarettes
From Reuters: India banned the production, import and sale of electronic cigarettes, a public health decision that will dash the expansion plans of companies such as Juul Labs and Philip Morris International in the country.
Required Reading
CannTrust licences suspended
Health Canada has suspended CannTrust Holdings Inc.’s cannabis growing and processing licences, dealing a major blow to what was once one of the most prominent and highly regarded marijuana growers in Canada. Mark Rendell reports.
Rental affordability troubles
Suburban neighbourhoods around Toronto are facing the worst rental affordability in Canada, with a new national report showing more than 30 per cent of renters in many parts of the Greater Toronto Area spend at least half their income on rent. Janet McFarland examines the issue.
Make better use of TFSAs
It’s been a little more than a decade since the former federal Conservative government introduced the tax-free savings account as a financial planning tool to help Canadians increase their net worth, Brenda Bouw writes. However, recent research shows the TFSA has been used more as a piggy bank than a tax-efficient investment vehicle – and financial advisors believe this is a missed opportunity for investors.