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Home prices forecast to surge in B.C. and Ontario, eroding affordability Add to ...

Sizzle and fizzle

Canada’s realtors now expect 2016 to mirror 2015, which means strong sales in British Columbia, an ever-deeper slump in Alberta, and Ontario held “in check.”

In a new forecast today, the Canadian Real Estate Association projected that B.C. will lead the country with a sales increase of 11.8 per cent, while Alberta lags with a drop of 18.7 per cent.

“A lack of supply is expected to hold activity in check in Ontario in 2016 (+ 0.3 per cent) despite the continuation of very strong demand,” it said in its forecast.

Sales increases will be “modest” elsewhere, up 3.4 per cent in each of Manitoba and Quebec, 3.3 per cent in Prince Edward Island, 1.2 per cent in New Brunswick and 1.1 per cent in Nova Scotia.

In Canada’s other oil-shocked regions, sales are expected to slump by 3.7 per cent in Saskatchewan and 4.5 per cent in Newfoundland and Labrador.

Initially, the group said, it had expected the market to “rebalance” this year as sales and price gains cooled down in B.C. in Ontario.

“However, many of the defining themes among Canadian housing markets last year have persisted, and in some cases intensified, in early 2016,” it added.

“Interest rates are now also widely expected to remain low for longer, with administered lending rates beginning to rise no earlier than the second half of 2017.”

Where average prices are concerned, the group projected that B.C. will outpace the national showing with a 10-per-cent rise this year. But Ontario will be no slouch, with a rise of 8.2 per cent.

Prices are projected to climb by 2.1 per cent in Manitoba, 1.6 per cent in Quebec and 1.1 per cent in each of Nova Scotia and P.E.I.

They’re expected to decline by 2.5 per cent in Alberta, 2.4 per cent in Saskatchewan, 1.4 per cent in Newfoundland and Labrador, and 0.4 per cent in New Brunswick.

Then there’s next year, which, according to the forecast, will see B.C. as the sole province to post a sales drop.

The group also released the latest statistics for last month, noting a gain of 0.8 per cent in national sales from January.

Affordability has become a big issue in Vancouver, in particular, and Toronto to a lesser extent, which is expected to play a role in prices this year, said Toronto-Dominion Bank economist Diana Petramala.

The run-up in prices have already eaten into many of the gains buyers get from lower rates, she said, adding that “housing affordability is deteriorating in both markets, and alongside new mortgage qualifaction rules, should temper demand in these hot markets through the rest of 2016.”

Valeant sinks

Shares of Valeant Pharmaceuticals International Inc. plunged today in the wake of the company’s fourth-quarter results and fresh outlook.

“The challenges of the past few months are not yet behind us and our goal for 2016 is to better balance our priorities across all of our constituencies - physicians, patients, employees, payors, debtholders and shareholders,” chief executive officer Michael Pearson said in a statement.

Valeant posted a quarterly loss of more than $336-million, or 98 cents a share.

It also cut its forecast for the year, projecting adjusted earnings per share of $9.50 to $10.50, compared with an earlier call for $13.25 to $13.75.

Its new revenue forecast is for $11-billion to $11.2-billion, down from $12.5-billion to $12.7-billion.

Postmedia in limbo

Ownership of Canada’s biggest newspaper chain is in limbo today as its largest shareholder tries to sell its stake.

GoldenTree Asset Management LP of New York is shopping its 52 per cent of Postmedia Network Canada Corp.’s variable voting shares, The Globe and Mail’s James Bradshaw and Tim Kiladze report.

Bank of Japan, Fed in focus

Japan’s central bank held its fire today, even as it fretted over the state of the economy.

“Japan’s economy has continued its moderate recovery trend, although exports and production have been sluggish due mainly to the effects of the slowdown in emerging economies,” the central bank said in its statement.

“With regard to the outlook, although sluggishness is expected to remain in exports and production for the time being, domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the household and corporate sectors, and exports are expected to increase moderately on the back of emerging economies moving out of their deceleration phase,” it added.

The focus now shifts to Washington, where the Federal Reserve begins a two-day meeting that will end with its decision tomorrow afternoon.

“Even though the market is discounting the prospect of a move on rates this week, investors will be looking for signs that Fed officials are worried enough about the recent global slowdown to have revised down their ‘dot plot’ predictions of the future path of interest rate rises, which at the beginning of the year raised the prospect of at least four rate rises this year,” said CMC Markets chief analyst Michael Hewson.

Pay growth stagnates

A new look at pay no doubt confirms what many Canadians are feeling: Wage growth is stagnating.

This, suggests Bank of America Merrill Lynch, could erode the buying power of consumers at a time when Canada’s economy can least afford it.

Emanuella Enenajor, the bank’s North America economist, put together a new composite measure of wage growth from three separate Statistics Canada indicators.

What she found is that nominal wage growth hasn’t budged much since the recession.

And as inflation rises, there’s pressure on real wages.

“It’s very gradual,” Ms. Enenajor said.

“But if the increase in inflation persists, and wage growth remains stagnant, it will have a negative impact on real consumer purchasing power.”

What’s more, unemployment is rising in Canada, which in turns means “we’re not seeing stronger wages in the making.”

The erosion of the Canadian dollar is feeding into inflation because of the subsequent higher import costs.

And we can expect to see more of this on Friday in the monthly Statistics Canada report on consumer prices.

Economists expect that report to show prices up by between about 0.2 per cent and 0.4 per cent in February from January, while the annual pace of inflation slows markedly to around 1.5 per cent amid lower costs at the gas pump.

But food costs, which are partly driven by the loonie effect, are still expected to show an annual rise in the area of 4 per cent when the consumer price index report is released, said Nick Exarhos of CIBC World Markets.

At the same time, observers expect the report to illustrate how so-called core prices, which strip out volatile items, rose by about 0.5 or 0.6 per cent on a monthly basis and 2 per cent year over year.

“The first half of the year has historically been seasonally strong for consumer prices,” said senior economist Benjamin Reitzes of BMO Nesbitt Burns.

“The headline gain would be even larger if not for a chunky 5-per-cent plus drop in gasoline prices,” he added.

“Indeed, core CPI is expected to rise 0.6 per cent, slightly stronger than the norm as we continue to see pass-through from the weaker Canadian dollar.”

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