Briefing highlights
- How tax hit one market, spared another
- Markets at a glance
- Apple’s plans buoys investors
- Toronto on Amazon short list
- Alberta pumps up Keystone XL
- Trump threatens to link NAFTA, wall
- Behind China’s economic numbers
- Morgan Stanley tops estimates
Tale of two cities
Douglas Porter has a message for Canadian housing-market watchers: "Think foreign buyers' tax doesn't matter? Think again."
The Bank of Montreal's chief economist studied two "below-the-radar, mid-level" Southern Ontario regions, Kitchener-Waterloo and Windsor-Essex, thus escaping the "intense noise" around the inflated Toronto and Vancouver markets that sparked the provincial levies on foreign buyers.
Here's what he found:
"Kitchener-Waterloo and Windsor-Essex are both in Southern Ontario, have roughly similar populations, are both manufacturing heavy, and have nearly identical home sales totals over the past decade," Mr. Porter said in his look at the two markets this week.
"And, from 2010 to 2016, saw almost the same home price inflation."
The Kitchener-Waterloo market caught fire in late 2016 and early 2017, Mr. Porter noted, with home prices surging almost 40 per cent on an annual basis.
This is where Ontario's Fair Housing Plan, and its 15-per-cent tax on foreign buyers of properties in the Greater Golden Horseshoe, come into the picture, as prices there peaked last April as the levy came into effect.
"Since then, average prices have dropped a cool 17 per cent and are now barely above a year ago," Mr. Porter said.
"Meantime, Windsor churned out milder gains earlier on, but has suddenly caught fire recently and is now up a massive 35 per cent year over year," he added.
"The key difference between the two cities? K-W is technically in the Greater Golden Horseshoe region, and was thus affected by said foreign buyers tax. Windsor was not."
Separately, the Bank of Canada noted Wednesday that both the Vancouver and Toronto markets are now on the rebound after their tax-induced fall.
Some of the Toronto action, however, may have been because of buyers scrambling to beat new mortgage rules that came into effect at the beginning of this year, the central bank said in its monetary policy report.
"Residential investment is now expected to be roughly flat over the projection horizon," the central bank said of the Canadian market.
"The rate of new household formation is anticipated to support a solid level of housing activity, particularly in the Greater Toronto Area, where the supply of new housing units has not kept pace with demand," it added.
"However, interest rate increases, as well as macro-prudential and other housing policy measures, are expected to weigh on growth in residential investment, since some prospective homebuyers may take on smaller mortgages or delay purchases."
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- Threat of Canadian financial crisis eases (but don’t take that to the bank)
- Barrie McKenna: New mortgage rules could disqualify 10% of buyers with big down payments: Bank of Canada
- Brent Jang, Janet McFarland: 2018 could be real estate’s year of turbulence
- Mortgage sticker shock: Get ready to pay more on renewal, possibly through the nose
- Housing affordability: It’ll be far nastier in Toronto and Vancouver as rates rise this time
Markets at a glance
"While European markets had a disappointing day yesterday, it turned out that the late evaporation of those strong early gains in U.S. markets on Tuesday turned out to be a one-day wonder, as sentiment got turned on its head with a rally of over 300 points on the Dow, with most of the gains helped by an afternoon announcement from Apple about its future investment plans in the U.S.," said Mr. Madden's colleague, CMC Markets chief analyst Michael Hewson.
He was referring to Apple Inc.'s plans to build up its American operations, with 20,000 fresh jobs, and bringing home cash in the wake of the U.S. tax overhaul.
"Not surprisingly, tech stocks also rallied sharply on an expectation that we could see similar moves by other U.S. companies who have large overseas cash piles, with the S&P 500 also making a record close above 2,800," Mr. Hewson said.
"For all the criticism of President Trump, the nature of his presidency and his economic policies, he appears to have got what he wanted in prompting U.S. companies to reinvest their profits back into the U.S. economy."
Read more
- Follow our Inside the Market
- Apple to pay $38-billion in U.S. taxes on foreign cash, open second campus
Toronto on short list
Toronto is the only Canadian city to make the short list to host Amazon's second headquarters location, joining 19 U.S. cities also in the running, The Globe and Mail's Janet McFarland reports.
Amazon released its shortlist, saying it has whittled down its options from 238 applications received from cities in the U.S., Canada and Mexico. No cities in Mexico were chosen.
Amazon announced last year it is seeking to build a large second headquarters campus to expand beyond its crowded Seattle location, and asked communities across North America to submit bids. Amazon said it expects to create 50,000 jobs and invest over $5-billion (U.S.) in the city where it opens its HQ2 location, promising it will be "a full equal" to the Seattle headquarters.
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Alberta pumps up Keystone XL
The Alberta government is making a two-decade commitment to TransCanada Corp's long-stalled Keystone XL pipeline – a key move that will underpin the $8 billion (U.S.) project that has struggled to gain enough support from major oil shippers.
The Alberta government's crown corporation, the Alberta Petroleum Marketing Commission, will pledge 50,000 barrels of oil per day for 20 years, said Cheryl Oates, communications director for Alberta Premier Rachel Notley.
While rival Enbridge Inc. calls the deal a "subsidy" for the TransCanada project, the Alberta government said the commitment will bolster industry confidence and stability for the pipeline project, as well as the province's economy as a whole, The Globe and Mail's Kelly Cryderman and Jeff Lewis write.
Trump on NAFTA
U.S. President Donald Trump is threatening to link his promised wall on the Mexican border to the renegotiation of NAFTA, setting up a possible showdown days before talks resume in Montreal, our Washington correspondent Adrian Morrow reports.
On Twitter this morning, the President described the North American free-trade agreement as a "bad joke" and insisted Mexico would pay for the wall.
"The wall will be paid for, directly or indirectly, or through longer-term reimbursement, by Mexico, which has a ridiculous $71-billion dollar [U.S.] trade surplus with the U.S.," Mr. Trump wrote. "The $20-billion dollar wall is "peanuts" compared to what Mexico makes from the U.S. NAFTA is a bad joke!"
Behind China’s numbers
China's official numbers are raising questions, as always, and some analysts believe its economy will slow further.
Today's numbers from Beijing pegged 2017's economic growth at 6.9 per cent, up from 2016's 6.7 per cent.
But Capital Economics said its own reading of gross domestic product put last year's growth at a slower 6 per cent, though still up markedly from 5.1 per cent in 2016.
Official numbers put fourth-quarter growth at 6.8 per cent, but the independent economics group put it at 5.3 per cent.
"The upshot is that there is nothing in today's data to convince us that the economy didn't slow a fair bit last quarter," said Julian Evans-Pritchard, senior China economist at Capital Economics.
"Looking ahead, we think tight monetary conditions and slowing credit growth will continue to weigh on the pace of economic expansion in coming quarters," he added.
"Indeed, we expect growth to average a mere 4.5 per cent this year, though investors will probably need to look beyond the official GDP figures for evidence of this."
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