Briefing highlights
- Home prices sail in Toronto, Hamilton, Victoria
- Fed could hike key rate in March
- What lurks beneath strong jobs data
- Toshiba takes $6-billion nuclear hit
- PSA in talks to buy GM's Opel
- Aetna, Humana end big merger
- Credit Suisse to cut jobs
Home prices gain
Canadian home prices are rising at the fastest pace in the history of at least one measure.
Even Vancouver managed to score a rise in January from December, according to the latest reading of the Teranet-National Bank home price index.
On a national basis, the group said, prices rose 0.5 per cent from December, matching the fastest pace ever scored for a January in the index’s 18-year history.
“On a 12-month basis, national house prices were growing in January at their fastest post-recession pace,” said National Bank senior economist Marc Pinsonneault, adding that that reflects the strength of Toronto, Hamilton and Victoria.
Prices rose 1.1 per cent in Hamilton, 0.8 per cent in each of Toronto and Montreal, 0.3 per cent in Vancouver, 0.2 per cent in Victoria, 0.1 per cent in Calgary and 0.1 per cent in Quebec City. Prices in Halifax were flat, and down 0.7 per cent in each of Winnipeg and Ottawa-Gatineau, and 0.1 per cent in Edmonton.
Note that the Vancouver reading brought to an end three consecutive months of decline.
Year over year, national prices rose 13 per cent, led by a 20.9-per-cent gain in Toronto, a record 17.6-per-cent rise in Hamilton, a 17.1-per-cent jump in Victoria, and a 16.4-per-cent push in Vancouver.
Ottawa-Gatineau prices rose 4 per cent from a year earlier, Montreal prices by 2.8 per cent, Winnipeg by 2.4 per cent, Halifax by 1.6 per cent, Calgary by 1.4 per cent, and Edmonton by just 0.5 per cent. Quebec City prices slipped 0.2 per cent.
Driving the Toronto surge are homes outside of the condo category, Mr. Pinsonneault said, and there are affordability issues for first-time buyers.
“This, together with the new rules on qualification for an insured mortgage, should sooner or later take steam out of that market.”
Other observers also believe the Toronto market will ease in time.
“Overall, the rate of national house price inflation will remain high in the near term, but only because of the investment mania that is bolstering home sales in Toronto,” said David Madani, the senior Canada economist at Capital Economics.
“But even that boom might not last, especially if mortgage rates rise in step with a further surge in Canadian sovereign bond yields.”
The Teranet-National Bank reading comes a day before the Canadian Real Estate Association releases its monthly look at sales and prices.
We’ve already seen several of the local reports but, according to Bank of Montreal, expect it to show home sales up 2 per cent in January from a year earlier, and average prices up 7 per cent.
The MLS home price index, which is seen as a better measure, is expected to show a surge of 14 per cent.
“Again, location is critical on the price front,” said BMO senior economist Robert Kavcic.
“Vancouver prices are now correcting modestly, along with Calgary and Edmonton, with more meaningful declines for the high end of the market,” he added.
“Toronto price growth, however, continues to accelerate .. Strength has also started to emerge in Ottawa and Montreal, with those markets tightening up alongside ramped-up federal government spending (Ottawa) and a strengthening labour market (Montreal).”
Yellen treads cautiously
Federal Reserve chair Janet Yellen is signalling full-steam ahead on interest rate increases.
Well, gradual, as she put it in her testimony to the Senate banking committee.
The Fed’s policy-making body, the Federal Open Market Committee, has to be “forward-looking,” Ms. Yellen said.
“Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the committee’s longer-run policy goals,” she said.
“Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.”
Observers saw her comments as a signal that a rate hike in March is a possibility, though not a given.
“Nothing really hawkish in this, but markets have been pricing in very low odds of a March hike, and might at least have a more open mind on that until we see the next payrolls report,” said CIBC World Markets chief economist Avery Shenfeld.
Less work, lagging pay
Beneath Canada’s strong jobs numbers lurk some troubling trends.
There’s no question Friday’s employment report from Statistics Canada was solid: As The Globe and Mail’s Rachelle Younglai reports, we saw 48,000 new jobs in January and a dip in the unemployment rate to 6.8 per cent.
Over the course of 12 months, Canada has now gained 276,000 jobs for an increase of 1.5 per cent.
But hold that thought.
While the country gained full-time jobs in January, they were still outstripped by part-time positions. So in the year to January, the country is up 86,000 full-time jobs and a far stronger 190,000 part-time positions.
Indeed, about one in five jobs in the country are now part-time.
“It’s a concern,” said Arlene Kish, the senior principal economist at IHS Markit Economics in Toronto.
“The share of part-time employment has trended higher since late 2015, increasing a full percentage point, hitting 19.6 per cent in January,” Ms. Kish said earlier in a report.
Then there are the number of hours actually worked, and how fast we’re getting ahead in terms of rising pay.
On the first point, hours worked slipped in January by 0.8 per cent from a year earlier, or the same period in which we saw 276,000 new jobs.
“More bodies working fewer hours seems to be the trend of late, and for quite some time,” said Derek Holt, Bank of Nova Scotia’s head of capital markets economics.
“At some point, employers might slow their pace of adding more bodies and demand more from the existing ones they’ve added,” he added.
Then there’s the issue of pay.
Average hourly wages among permanent workers is up just 1 per cent from a year ago, when not adjusted for inflation, Mr. Holt noted.
“Adjusted for inflation, wages are suffering a slight erosion of purchasing power given headline [consumer price index] inflation of 1.5 per cent,” he said.
“So some combination of people being newly hired at soft or falling wages, and existing employees getting little by way of wage gains, is driving this result.”
There could well be a cost to all this.
“The shift to part-time employment and low wage growth can stretch consumers and further contribute to household imbalances,” Ms. Kish said.