These are stories Report on Business is following Wednesday, Jan. 14, 2015.
How oil will affect housing
The rout in the oil market is now expected to change the fortunes of Canadian homeowners.
Whether you win or lose, of course, depends on where you live.
Specifically, Royal LePage Ltd. said today, the collapse in oil prices will buoy housing markets in the central regions of the country, while keeping a lid on price gains in the West.
“For our 2015 forecast, we could not ignore the potential impact of the steep decline in the price of oil on housing markets across Canada,” Royal LePage chief executive officer Phil Soper said in today’s study.
“In the immediate term we anticipate that the natural slowing of home price appreciation we called for in the third quarter of 2014 will be delayed in Central Canada and accelerated in the West by recent developments in the energy sector.”
The plunge in crude prices has already smacked the oil-rich province of Alberta, with job cuts and project delays, but has yet to filter through to the housing market.
That’s about to change, according to Royal LePage and other observers who project that housing will be hit as economic growth flatlines.
The really big winners this year, the real estate giant said, will be homeowners in the Greater Toronto Area, as Ontario gains from the oil-induced depreciation of the Canadian dollar, stronger exports and higher employment.
As well, the “unsatisfied demand from countless home buyers who lost out in 2014 GTA bidding wars are expected to carry the all-important 2015 spring market,” the company said.
In eastern Canada, buyers will have the “upper hand” as prices rise at a slower pace than inflation.
“In contrast to many parts of Central Canada, we expect increased opportunity for home buyers in Western Canada, but that opening is unlikely to last,” Mr. Soper said.
“Over the longer term, we foresee a return to regional home price appreciation that is above both the historical average and national trends in general, when energy markets recover,” he added, which, of course, means there’s a buying opportunity if you’ve got the money.
“In the interim, slowed growth in the price of homes will be a welcome sign for many people in the West, especially in pricey markets like Vancouver where first-time buyers have been frustrated by a hyper-competitive market and home prices that have escalated at a feverish pace.”
The biggest risk, Royal LePage said, is the threat to consumer confidence.
“In this light, we will be watching market developments closely in the regions most negatively impacted by oil price declines, such as Alberta, Saskatchewan and Newfoundland,” said Mr. Soper.
Royal LePage still expects house prices to rise in Calgary.
Indeed, among the major cities only Regina is forecast to see lower prices, by 1.3 per cent.
But remember that Calgary had, until recently, been the hottest market in Canada.
Royal LePage predicts prices to climb 2.4 per cent in Calgary and 2.5 per cent in Edmonton this year, trailing Vancouver, at 2.8 per cent, and Toronto, at 4.5 per cent.
Calgary and Edmonton are still forecast to outpace Halifax, Montreal, Ottawa and Winnipeg.
The national average is expected at 2.9 per cent.
A separate report today, the Teranet-National Bank home price index, showed Canadian house prices fell 0.2 per cent in December from November.
Prices fell in Halifax, Calgary, Quebec City, Montreal and Vancouver, rising in Toronto, Edmonton and the Ottawa area.
Compared to a year earlier, prices were up 4.9 per cent, a slower annual pace from November’s 5.2 per cent.
“Price inflation in Canada over the past year exceeded the 3.8-per-cent and 3.1-per-cent increase in 2013 and 2012, respective,” said National Bank’s Marc Pinsonneault.
“Historically low mortgage rates have stimulated the market last year, as depicted by the fact that home sales have exceeded 40,000 units over each of the seven months ending November,” he added.
“That being said, the dive in energy prices will put pressure on house prices in the western provinces in the coming months. The home resale market will remain weak in the regions east of Toronto as the excess supply in these markets will persist for awhile, especially in the condo market in Montreal and Quebec City.”
He, too, projected that Ontario will be a winner.
- Tamsin McMahon: Canadians keep loading up on debt despite worries from oil price drop
- Vancouver, Calgary, Toronto homes: One of these things is not like the others
- Listings shortage drives Toronto home prices sharply higher
- Josh Wingrove: In oil boomtown Fort McMurray, 'it's like the place has gone dead'
- Carrie Tait: Suncor cuts 1,000 jobs, takes $1-billion out of 2015 budget
Copper plunges, stocks depressed
It’s some kind of ugly out there today, particularly for copper prices.
Stocks and oil are down in the wake of a fresh economic forecast from the World Bank and a weak report on U.S. retail sales.
Copper, seen by some as a barometer for the economy, plunged to its lowest level in more than five years.
“Copper has commanded all the attention today as it hits its lowest level since mid-2009,” said market analyst Chris Beauchamp of IG in London.
“It is as if investors have just remembered that there are supply gluts in other commodities apart from oil, and that copper is a prime target for more selling,” he added.
“Given weakness of demand in China it looks eerily like the fundamentals that have caused such havoc in oil are at work in copper, too, which bodes ill for the metal and mining companies generally.”
Tokyo’s Nikkei lost 1.7 per cent, and Hong Kong’s Hang Seng 0.4 per cent.
In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were down by between 1.2 per cent and 2.6 per cent as North American markets were opening.
The S&P 500, Dow Jones industrial average and Toronto's S&P/TSX composite also tumbled.
- Follow our Inside the Market blog (for subscribers)
- Tim Kiladze in Streetwise (for subscribers): Canada's big banks shrug off energy slump
Well, how about that?
The Canadian dollar is now at “fair value.”
With the currency sinking along with the price of oil, the loonie has hit that mark relative to purchasing power parity, which looks at “what would be fair” to buy the same value of product in different countries, as Camilla Sutton explained it today.
Fair value for the loonie, said Bank of Nova Scotia’s chief currency strategist, is $1.19, or an 84-cent loonie viewed the other way.
The loonie touched a low point of 83.23 cents U.S. today, and a high of 83.82 cents. It sat at 83.66 cents at midday.
“Large shifts in currency markets has also caused significant change in how many currencies are trading relative to PPP,” she said.
The euro is 2 per cent away from fair value, while the yen and Australian dollar are still “significantly undervalued and overvalued, respectively,” she said.
“Currencies rarely trade at fair value for long and typically overshoot but we do find it notable that of all the majors it is now CAD and EUR that are closest to their PPP estimates,” Ms. Sutton added, referring to the loonie and euro by their symbols.
Big banks report
The big U.S. banks kicked off their fourth-quarter reports today with a loss and a win.
JPMorgan Chase & Co., hurt by legal costs, posted a drop in profit to $4.9-billion (U.S.), or $1.19 a share and below the estimates of analysts, from $5.3-billion or $1.30 a year earlier.
Wells Fargo & Co., in turn, met the estimates with a fourth-quarter profit of $5.7-billion, or $1.02 a share, up from $5.61-billion or $1 a year earlier.
Magna trims outlook
Auto parts giant Magna International Inc. has cut its sales outlook for 2015, now projecting a range of between $34.4-billion (U.S.) and $36.1-billion.
The forecast sales drop comes despite Magna's expectation of higher vehicle production in North America and Europe, its two largest markets, The Globe and Mail's Greg Keenan reports.
Profit margins are expected to rise slightly in 2015 from the 2014 forecast, to 7 per cent this year from 6.9 per cent in its most recent 2014 projection.
The company is forecasting North American production of 17.3 million vehicles compared with 17 million earlier and a slight rise in European vehicle production to 20.2 million from 20.3 million.
A win for Draghi
The European Court of Justice today endorsed one of the European Central Bank’s key crisis-fighting efforts – the purchases of sovereign bonds – just as the bank is preparing to launch a full quantitative easing program.
In an interim, non-binding opinion, an ECJ advocate-general, said that the ECB’s bond-buying program “in principle” adheres to European law, our European correspondent Eric Reguly writes.
The opinion marks a big victory for ECB president Mario Draghi, who has had to resort to so-called unconventional measures to keep the euro zone intact at the height of the financial crisis.
Streetwise (for subscribers)
ROB Insight (for subscribers)
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- Copper High Grade Front Month Futures$2.63+0.01(+0.34%)
- Canadian Dollar / US Dollar FX Spot Rate0.7504+0.0003(+0.04%)
- Crude Oil Front Month Futures$48.35+0.31(+0.65%)
- Magna International Inc$56.960.00(0.00%)
- JPMorgan Chase & Co$87.530.00(0.00%)
- Wells Fargo & Co$55.330.00(0.00%)
- Updated March 22 4:00 PM EDT. Delayed by at least 15 minutes.