Briefing highlights
- Canada’s housing market back on track: BMO
- Home sales, prices rise in August: CREA
- Oil surges as Saudi production crippled
- Stock markets at a glance
- Canadian dollar could rise on oil
- Purdue files for court protection
- GM hit by nationwide strike in U.S.
- Required Reading
‘It’s Baaaack’
Not only has Canada's housing market rebounded, it's "basically right back on track," Bank of Montreal's chief economist says.
That's if you leave British Columbia out of the equation, Douglas Porter said in a report titled "Canadian Housing ... It's Baaaack."
We got a fuller, national picture today when the Canadian Real Estate Association reported that home sales in August climbed 5 per cent from a year earlier and 1.4 per cent from July.
Average prices rose 3.9 per cent from a year earlier, while the MLS home price index, deemed a better measure, climbed 0.9 per cent.
“Transactions are now running almost 17 per cent above the six-year low reached in February, 2019, but remain about 10 per cent below highs reached in 2016 and 2017,” the group said.
Importantly, it also revised its forecast for this year and next, citing a boost from lower mortgage rates.
The group now projects sales of 482,000 homes this year, a 5-per-cent jump from 2018, with average prices rising 0.5 per cent to $491,000. It had previously forecast a drop of 0.6 per cent in prices.
CREA also now sees sales rising 7.5 per cent next year, to 518,100 homes, with the average price up 2.1 per cent to $501,400.
“Yet again, the housing bears are going to have to take their medicine,” said BMO senior economist Robert Kavcic, Mr. Porter’s colleague.
“A solid job market and population flows persist across much of the country, amplified by a roughly 100-basis-point drop in five-year fixed mortgage rates since late 2018. This momentum should continue into the fall.”
Some may say that this is like taking the iceberg out of the Titanic story
— Douglas Porter
Mr. Porter went further back, and found that "the housing market has not only stopped correcting, it's basically right back on track, at least by some measures."
As this chart shows, Mr. Porter studied the total value of homes sold along with price changes.
Source: Bank of Montreal
Mr. Porter said he "smoothed" the results over a three-month period so they would ignore "monthly weather quirks," and they were seasonally adjusted anyway.
"Next, we took out British Columbia," Mr. Porter said.
"Some may say that this is like taking the iceberg out of the Titanic story," he added.
"But we would counter that the B.C. government is actively trying to dampen the local market, so that is a special situation."
Indeed, British Columbia’s moves to cool down the Vancouver area market go far back. Remember, too, that the federal bank regulator introduced new Canada-wide mortgage-qualification stress tests at the beginning of last year, hosing down the housing market.
Indeed, CREA projected a drop of 5.4 per cent in B.C. sales this year, though a rebound to the tune of 14.3 per cent in 2020.
So forget B.C. in Mr. Porter’s calculations.
“In the rest of Canada, what we see is the value of sales rising right back to the underlying 10-year trend growth line (and that’s before we insert the August numbers),” Mr. Porter said.
“So, after the bubble-like conditions in late 2016 and early 2017, and then the subsequent policy-induced correction, we are basically back on track. Ignoring the iceberg, of course.”
Read more
- 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?
- Remember when you couldn’t afford a home in Toronto or Vancouver? Affordability has just improved big time (and you still can’t afford it)
- Overvalued? Overheated? Overly vulnerable? The state of 15 Canadian housing markets
- Janet McFarland: Home-building jobs fall in Ontario as construction for low-rise houses declines
Oil surges
Crude prices are sharply higher after a weekend attack crippled Saudi oil production, and with it about 5 per cent of the world supply of oil.
“The weekend's attacks on oil facilities in Saudi Arabia has prompted a spike in oil prices, on fears that global supply will be disrupted,” IG said in its morning research note.
“The surge in prices is one of the biggest one-day moves ever seen in oil. Shares in oil producers across Asia surged, but airlines and the currencies of crude oil importers fell. Geopolitical concerns are now back to the fore, as the event brings the U.S. and Iran back to a confrontational posture.”
President Donald Trump ordered the use of the U.S. stockpile, however, helping to cap prices.
“Investors appear to be weighing up the consequences of a number of different factors, including the likely reaction function of the U.S. to an attack on one of its key allies in the region, and a possible retaliatory strike against Iran, and the longer-term effect such a loss of capacity might have on a global economy, which is slowing down and that still appears over supplied,” said CMC Markets chief analyst Michael Hewson.
“Talk of a supply shock seems premature at this time, given that a lot of the concerns about lost capacity might be misplaced, and with the U.S. ready to release spare capacity from its strategic reserves, oil prices have already slid back from their highs and could well slip back further,” he added.
“If prices continue to climb sustainably higher then these concerns would be valid.”
Goldman Sachs said an outage of more than six weeks due to the attacks could cause Brent prices to rally above US$75 a barrel, although the magnitude of the impact was uncertain at this point.
“The aftermath of this weekend's drone attack on a Saudi Arabia oil facility that shut 5 per cent of global oil output, drove oil prices as high as 20 per cent at one point,” said Oanda senior market analyst Edward Moya.
“The impact of the Saudi oil field attacks should have a temporary negative impact on the global economy,” he added.
“With the U.S. and other countries poised to tap their respective strategic reserves, we could see much of the record surge with crude prices slowly retrace.”
Read more
- Brent crude sees biggest intraday gain since Gulf War after attack on Saudi facilities
- OPEC says too early for any action on oil after Saudi attacks
- Saudi officials considering delaying IPO after drone attack: report
- Jeffrey Jones: Oil prices jump after drone attack slashes Saudi production in half
Markets at a glance
Read more
Loonie could rise
The surge in oil prices could drive the Canadian dollar higher, CIBC World Markets says.
“Most private sector analysts are pointing to a US$5 to US$10 gain in crude prices to account for the rise in geopolitical premium once the initial noise dies down,” Bipan Rai, CIBC’s North America head of foreign exchange strategy, and his colleague Sarah Ying said in a report on the Saudi disruption.
“If that’s the case, then USD/CAD should settle to the 1.3150-1.3220 range,” they added, referring to the U.S. and Canadian dollars by their symbols.
Those numbers translate to a loonie worth between 75.6 US cents and just over 76 US cents.
If crude prices were to rise by as much as 25 per cent, Mr. Rai and Ms. Ying said, the Canadian dollar could hit just shy of 77.5 US cents.
Purdue files for court protection
From Reuters:
OxyContin maker Purdue Pharma LP filed for bankruptcy protection in New York Sunday night, succumbing to pressure from more than 2,000 lawsuits alleging the company helped fuel the deadly U.S. opioid epidemic.
Purdue’s board met Sunday evening to approve the long-expected bankruptcy filing, which the company is pursuing to restructure under terms of a proposal to settle the widespread litigation.
Purdue reached a tentative deal to resolve lawsuits with 24 states and five U.S. territories, as well as lead lawyers for more than 2,000 cities, counties and other plaintiffs, the company said.
Read more
GM hit by strike
From The Associated Press:
More than 49,000 members of the United Auto Workers walked off General Motors factory floors or set up picket lines early Monday as contract talks with the company deteriorated into a strike.
Workers shut down 33 manufacturing plants in nine states across the U.S., as well as 22 parts distribution warehouses.
It wasn’t clear how long the walkout would last, with the union saying GM has budged little in months of talks while GM said it made substantial offers including higher wages and factory investments.
The two sides were expected to negotiate today.
Read more
Ticker
Chinese indicators weaken
From Reuters: The slowdown in China’s economy deepened in August, with growth in industrial production at its weakest in more than 17 years amid spreading pain from a trade war with the United States and softening domestic demand. Retail sales and investment gauges worsened too, data released on Monday showed, reinforcing views that China is likely to cut some key interest rates this week for the first time in over three years to prevent a sharper slump in activity.
Apple to launch legal challenge
From Reuters: Apple will launch a legal challenge on Tuesday to a European Commission order to pay €13-billion in Irish back taxes in a landmark case in the EU’s crackdown on tax avoidance by multinational companies.
Required Reading
OSFI conducts risk assessments
Canada’s banking regulator is changing how it assesses risks in the country’s financial institutions, Rita Trichur writes. The Office of the Superintendent of Financial Institutions is surveying banks to better understand how corporate culture, including human behaviour and social mores, can create excessive risks for major lenders, according to people familiar with the matter.
Blackstone in deal for Dream Global REIT
Private equity giant Blackstone Group Inc. is buying Dream Global Real Estate Investment Trust, a Canadian company founded by real estate magnate Michael Cooper that specializes in European properties. Blackstone is to pay $16.79 in cash per share of Dream Global, for a total purchase price of $3.3-billion, Tim Kiladze and Rachelle Younglai report.
Britain, Brexit and the lowly pallet
As Britain scrambles to prepare to leave the European Union as early as next month, one unlikely product has emerged as a symbol of the fear and frustration that surrounds Brexit: wood pallets. Paul Waldie looks at the issue.