Briefing highlights
- What it takes to buy a home in work time
- Oil prices rise
- Earnings season speeds up
- Video: How to say no to more work
What it takes to buy a home
To twist an old saying, it’s not your parents’ housing market.
The cost of buying a home, in terms of how much you have to work, has surged, according to a novel new study by a University of Ottawa economics professor.
“This affordability challenge has grown for nearly a decade,” Marc Lavoie said in the report published today by the Broadbent Institute.
“Current and recent buyers need to devote many more weeks of labour time to the financing of their home than their predecessors,” he added.
“No wonder so many young prospective buyers, especially those in major cities, feel that owning a residential unit is more like a long-distance dream.”
Affordability is a huge and growing issue in Canada, particularly in the hot cities of Vancouver and Toronto and their surrounding communities, where home prices are rising dramatically.
Mr. Lavoie, who put it in terms of inequality, studied the cash cost compared to average weekly paycheques, as the chart below shows.
“The figure shows clearly that the cash cost of a residential property in terms of weeks of labour time remained roughly constant all the way from 1970 to 1986, at which point housing prices in Canada (and in particular in the Toronto area) rose drastically during the next three years,” he said.
He noted the spike in short-term interest rates in the late 1980s, which drove Canada into a severe recession in the early 1990s and which held prices down. They didn’t regain their 1989 peak until 2006.
And but for the 2009 financial crisis, prices have since surged by Mr. Lavoie’s measure.
In terms of labour time, the cost rose in 2015 to 400 weeks, or double that required in the 1970s.
“This is nearly eight years worth of labour time and about an extra 100 weeks compared to the 1989 peak,” Mr. Lavoie said.
“Clearly, at cash cost, young Canadians who wish to own their dwelling are much worse off than were their parents when they bought their house in the 1970s or during the first half of the 1980s.”
Of course, the cash cost is just one way of looking at it. And most home buyers can’t do it that way.
As this chart shows, it’s “more interesting” to look at costs factoring in mortgages, Mr. Lavoie said.
The top was in 1990, when rates spiked and you needed 466 weeks, though that eased and has now ramped back up to 432 weeks as of 2011, and then extrapolated in the graphic.
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Oil prices rise
The wildfire in the heart of Canada’s oil sands industry is helping to push up the price of crude, while uncertainty continues over when companies that have shut down or curtailed production will resume operations.
Some of the key players in the oil sands sector were forced to abruptly shut facilities not far from the fires or scale back production, The Globe and Mail’s Bertrand Marotte reports.
Estimates of the output reduction range from a half-million to “as much as one million barrels (probably too high) per day of shut-in production,” Bank of Nova Scotia economists Derek Holt and Dov Zigler said in a research note.
The oil sands operators produce more than two million barrels a day of crude.
Bank on bad loans
National Bank of Canada said it will set aside $250-million to cover bad loans associated with the oil and gas sector, lowering its profit for the second quarter as banks continue to struggle with a depressed energy sector despite a rebound in the price of oil.
The announcement from National Bank today follows a similar one earlier this week from Canadian Western Bank, which said that its provisions for loan losses would quadruple to $40-million, The Globe and Mail’s David Berman reports.
Earnings season speeds up
Corporate earnings are flooding in again fast today.