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Policy-makers probably won’t do anything to cool prices now, since many smaller housing markets aren’t running as hot as Toronto, Calgary and Vancouver. (MIKE CASSESE/REUTERS)
Policy-makers probably won’t do anything to cool prices now, since many smaller housing markets aren’t running as hot as Toronto, Calgary and Vancouver. (MIKE CASSESE/REUTERS)

Business Briefing

Canada's housing market a ‘3-city show’ as sales score best October since 2009 Add to ...

These are stories Report on Business is following Monday, Nov. 17, 2014.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

Homes sales rise
Canada’s housing market is largely firing on three cylinders as it comes off its best October since 2009.

The latest numbers released today by the Canadian Real Estate Association show, again, that Vancouver, Calgary and Toronto are driving the gains, though they do extend beyond those three hot markets.

Nationwide unit sales by month (2009-present)

SOURCE: CREA

On a sales basis, it was the best showing since October, 2009, the realtors group said.

"Another month, another familiar tune in the Canadian housing market - very strong activity in Vancouver, Calgary and Toronto, but much more subdued conditions most everywhere else," said senior economist Robert Kavcic of BMO Nesbitt Burns.

His comments came as Canada-wide home sales defied expectations last month, rising 0.7 per cent from September and 7 per cent from a year earlier.

Prices also continue their ascent.

The national average rose 7.1 per cent in October from a year earlier, while the MLS home price index, which is deemed a better measure, climbed 5.5 per cent.

The national average price rose to $419,699. But if you strip out Vancouver and Toronto, the average rose 5.4 per cent to $330,596.

"Sales are now running comfortably above the 10-year average and near the best levels of the past decade," Mr. Kavcic said.

"Canada-wide market balance remains quite normal, with the sales-to-new listings ratio holding steady at 55.7 per cent (bang on the 10-year average and the months' supply of homes for sale edging down to 5.8, a touch higher than the 10-year norm," he added in a report.

Canada’s housing market is, of course, a series of markets, with wide regional differences.

The central bank has said, for example, that eastern Canadian markets are showing signs of a soft landing, while the provinces of Alberta, Ontario and British Columbia continue to power ahead.

“While the strength of national sales activity is far from being a Canada-wide phenomenon, it extends beyond Vancouver, Calgary and Toronto,” Gregory Klump, the chief economist at CREA, said in released October’s numbers.

“Sales in a number of B.C. markets have started to recover from weaker demand over the past couple of years,” he added.

“They have also been improving across much of Alberta, where interprovincial migration and international immigration are reaching new heights.”

Toronto-Dominion Bank economist Diana Petramala agreed, citing a "more broad-based acceleration" in other cities over the past three months, but for Regina, Saskatoon, Montreal and Halifax.

But it's still largely a "three-city show," as BMO's Mr. Kavcic put it.

"While price momentum in Calgary might finally be slowing, Vancouver and Toronto continue to strengthen," he said.

Here's what he thinks  of the various markets:

In Vancouver, where the MLS price rose 6 per cent from a year earlier, the market "has tightened considerably in the past year, with the sales-to-new listings ratio hitting 57.5 per cent in October, up from 49.6 per cent a year ago."

In Calgary, prices surged 9.5 per cent, which is a bit softer than earlier months. "Recent weakness in oil prices could suggest that we've seen the highs for home price growth in this city for awhile."

In Toronto, prices rose 8.3 per cent from last October, marking the fastest pace since the fall of 2011. And here's something to note: "While the highly scrutinized condo market is up 4.5 per cent year over year, detached homes are driving the gains, up more than twice as fast (9.3 per cent) amid strong demand from young families, but very little supply."

All points east of Toronto: "Fully seven of 10 reporting regions are seeing average prices below year-ago levels. Demographics remain very challenging for housing markets in most cities."

So what comes next?

"The Canadian housing market received a second wind following the 45-basis-point decline in interest rates at the start of this year," said TD's Ms. Petramala.

"However, the impact is expected to fade in the coming months as pent-up demand eases. Interest rate declines of this magnitude have historically boosted sales for up to six months and October was that mark. Furthermore, affordability is likely to deteriorate as  home prices are still growing at a faster pace than incomes. We continue to believe a moderation in housing activity is in the cards for the Canadian economy, but it likely won't happen until interest rates start edging higher at the end of next year."

Allergan strikes deal
Michael Pearson and Bill Ackman might want to take two aspirins and call someone in the morning.

Mr. Pearson, the chief executive officer of Canada’s Valeant Pharmaceuticals Inc., and Mr. Ackman, the activist investor who heads Pershing Square Capital Management, appear to have lost out, at this point, in their long quest to acquire Botox maker Allergan Inc.

Having fended off Valeant and Pershing Square for so long, Allergan today agreed to a takeover by Actavis PLC valued at about $66-billion (U.S.).

Valeant said it’s now likely game over.

"We have seen the announcement that Allergan and Actavis have made, and while we will review any such agreement in determining our course of action, Valeant cannot justify to its own shareholders paying a price of $219 or more per share for Allergan," Mr. Pearson said.

Japan not ‘coping well’
Expect Prime Minister Shinzo Abe to delay a tax hike after the latest failure of “Abenomics” in Japan.

A fresh reading from Japan’s Cabinet Office today showed the country sliding into a triple-dip recession as its economy contracted at an annualized pace of 1.6 per cent in the third quarter of the year.

That followed an even deeper loss in the second quarter, thus meeting the definition of a recession, as a hike in the sales tax took its toll on Japanese consumers.

Mr. Abe had planned a second tax increase, but is now having second thoughts and was awaiting today’s look at gross domestic product. Japan could also see an election.

“The sales tax hikes have been a key component of Abenomics - Japanese Prime Minister Shinzo Abe's attempts to return inflation to 2 per cent and increase growth in the country through fiscal and monetary stimulus and reforms - but it appears that the first hike from 5 per cent to 8 per cent has taken its toll on the economy more than expected,” said market analyst Craig Erlam of Alpari in London.

Clearly, he said, Japan is not “coping well” with the April tax hike.

“With 60 per cent of the economy being fuelled by the consumer, something needs to be done to drive consumption or the [Bank of Japan] will have no chance of hitting its 2-per-cent inflation target,” he added.

“I also imagine that the next tax hike will have to be pushed back which may raise questions about Abe's commitment to the ‘third arrow’ of Abenomics. I personally think pushing it back is the correct thing to do, at the end of the day the economy can't grow and inflation can't rise to 2 per cent if people refuse to open their wallets. People need time to adjust and Abe's initial targets have proven to be too aggressive.”

TVA buys magazines
Canadian Living, The Hockey News and some other publications are changing hands amid the “highly competitive magazine industry” in the country.

Transcontinental Inc. is selling a portfolio of publications to Quebecor Inc. subsidiary TVA Group Inc. for $55.5-million.

Not included in the deal are Vancouver Magazine and Western Living.

“In the context of the highly competitive magazine industry that is experiencing a proliferation of platforms and generated content as well as migration of advertising revenues towards digital media, Transcontinental Inc. has decided to sell its consumer magazines produced in Montreal and Toronto to TVA Group whose platforms will enable the continued evolution of these magazines,” chief executive officer Francois Olivier said in a statement, adding that Transcontinental will print the magazines for at least seven years under the deal.

“Furthermore, Transcontinental Inc. has decided to now focus on the local advertising market, which offers us more business opportunities through our 180-odd newspapers in Quebec, Ontario, Saskatchewan and the Atlantic provinces.”

JPMorgan ends credit card deal
JPMorgan Chase & Co. says it’s not renewing its credit card agreement with Sears Canada Inc.

The agreement expires in a year, and, the Wall Street giant said today, it will instead work with the troubled Canadian retailer to find another program for Sears Card and Sears MasterCard.

“Sears Canada and JPMorgan Chase will work together using a request-for-proposal process to help identify options for the future of the program,” Sears said.

“In the event that a sale of the portfolio occurs, JPMorgan Chase has agreed to pay Sears Canada up to $174-million, under certain circumstances.”

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