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Briefing highlights

  • Pay gains lag, home prices rise
  • United slumps after man dragged off flight
  • Toshiba warns of ability to continue

Feeling the pinch

There are reasons you might be feeling somewhat squeezed, particularly if you live in Southern Ontario.

Your income gains are generally lagging and a nice house is increasingly out of reach.

Of course, if you already own a home in and around Toronto, you should be feeling rich as property values run up wildly. Having said that, you can’t tap into it unless you borrow against the equity or sell the house, which just means you’ll have to pay an inflated price for your next one.

Or, if you’re retiring, you can cash in your “lottery ticket” and get out of town, as Bank of Montreal puts it.

But many working stiffs must feel like they can’t catch a break.

As The Globe and Mail’s Rachelle Younglai reports, the latest Statistics Canada jobs report shows average hourly earnings rose 1.1 per cent in March from a year earlier, with full-time pay up 0.9 per cent to mark the weakest showing in almost two decades.

Annual inflation, in turn, was running at 2 per cent in February. You do the math.

(Prices rose 1.3 per cent if you strip out what it costs at the gas pump, which may mean something to the Bank of Canada but not those of us who have to fill up.)

In Ontario specifically, the average hourly wage rose in March by only 0.1 per cent, its slowest recorded pace. Annual inflation in Ontario ran at 2.3 per cent in both January and February, faster than the national pace.

It’s not clear why income gains are lagging, said Dawn Desjardins, Royal Bank of Canada’s deputy chief economist, but, regardless, better times are around the corner.

Full-time employment, which is up, tends to go hand in hand with earnings. It’s just not happening now.

“There are many more people working than there were a year ago, and the slower pace of wage growth I don’t think is going to be sustained,” Ms. Desjardins said in an interview.

This factors, too, into the thinking of the Bank of Canada, which releases its decision and monetary policy report Wednesday.

Derek Holt, Bank of Nova Scotia’s head of capital markets economics, noted how the central bank has argued that we’re not yet near the end of soft incomes in the wake of the collapse in oil prices.

“This gradually unfolding income shock is among the main macro thematic reasons for a dovish central bank,” Mr. Holt said.

“While income supports have been granted in the form of a sharp increase in child benefit payments and limited tax relief except for upper-middle class and upper-income earners, this wage weakness is a prime reason for questioning the durability of consumption gains.

But it hasn’t stopped people from spending yet, so they must feel “somewhat optimistic,” said RBC’s Ms. Desjardins.

She also cited the wealth effect – you know, that feeling you get from your stock portfolio and the latest assessment of your property – as presumably playing a role.

Which brings us back to the Greater Toronto Area housing market, and affordability that an earlier RBC study showed is now the worst in a generation.

Prices in and around the city have been rising rapidly, and governments are growing ever more worried.

“Outside of a few regions in China, one is hard pressed to find a city with faster-rising house prices than Toronto, where the average rose by a third in the past 12 months,” said BMO senior economist Sal Guatieri.

“This is the fastest rate since the late 1980s when speculation ran amok,” he added in a recent report.

We’ll see more of this Wednesday when the Teranet-National Bank home price index is released, again showing the jump in Toronto prices in March.

“Curiously, prices are now rising faster in the outskirts of Greater Toronto than in supply-constrained Central Toronto,” Mr. Guatieri said.

“This reflects the utter lack of affordability in the latter (and soon to be in the former if prices don’t pipe down), and utter desperation of buyers pining for a backyard.”

And here’s a fascinating statistic from Mr. Guatieri: “Across the GTA, there are just 300 new detached homes available in builder inventories today versus 12,000 a decade ago.”

The phenomenon is spreading well beyond Toronto as buyers are forced to look elsewhere. Then there are retirees.

“The leading edge of retiring baby boomers is cashing in their lottery ticket, and buying outside the GTA, which is likely driving prices higher in places like the Niagara Region, where housing supply is ample,” Mr. Guatieri said.

United slumps

Shares of United Continental Holdings Inc. slipped amid a mounting controversy over how a passenger was pulled off a flight.

A video seen around the world shows a man being dragged off United Flight 3411 by officers at Chicago O’Hare International Airport. His mouth was bleeding.

United said the airline first asked for volunteers to give up their seats, in exchange for compensation, on an overbooked flight, and that its employees acted properly.

The Chicago Department of Aviation, though, said one of its officers was out of line.

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