These are stories Report on Business is following Monday, July 8, 2013.
One year later
The Canadian government’s latest moves to prevent a housing bubble may have knocked up to 10 per cent of potential home buyers out of the market, Bank of Nova Scotia says in a new report that, like others, suggests a soft landing for the industry.
Among the new rules that went into effect a year ago tomorrow, by Finance Minister Jim Flaherty and the Office of Superintendent of Financial Institutions, was a cut to 25 years in the maximum amortization for insured mortgages.
That marked the fourth round of tighter rules and sparked a plunge in home sales over the past year, though prices have largely held up across the country.
Over the past few days, several local real estate boards have reported June sales that suggest the market has stabilized.
In Vancouver, for example, sales in the Vancouver area climbed by almost 12 per cent from a year earlier for the best showing in two years. And in Toronto, the other city that has sparked fears of a meltdown, sales slipped by less than 1 per cent.
Having said that, of course, the year-earlier period left a lot to be desired.
Still, many analysts believe Mr. Flaherty got just what he wanted, averting a crash.
“Canada’s housing market is proving remarkably resilient notwithstanding the barrage of negative headlines,” said economist Adrienne Warren of Bank of Nova Scotia.
“Based on a review of local real estate boards representing about 50 per cent of national activity, home sales in June were in line with year-ago levels,” she said in a new report.
“On a month-to-month seasonally adjusted basis, we estimate national sales rose for a fourth consecutive month. Market conditions remain well balanced: Average prices are up 4 per cent year over year but have levelled out in recent months.
National numbers are expected to be reported next week.
Most cities, Ms. Warren said, are posting “modest firming in sales and moderate single-digit year-over-year price increases,” though there are differences among the regions
“Sales in Vancouver are stabilizing at a level significantly below long-term trends, while activity in many other markets, including Toronto, is largely in line with the 10-year average,” she added.
“Calgary is outperforming the national trend, though the impact of the recent floods will impact activity in the coming months.”
So how much of a difference did last year’s restrictions make?
According to a survey released today by BMO Nesbitt Burns, they stabilized the market but didn’t kill it.
Some 66 per cent of potential first-time buyers polled by Pollara said Mr. Flaherty’s move didn’t alter their plans for when they buy, while 19 per cent said they’ll now wait longer. Fourteen per cent said they would buy earlier.
Ms. Warren said the latest restrictions may have “reduced the pool of potential buyers” by up to 10 per cent, but that “historically low interest rates, steady job gains and population growth continue to underpin housing demand.”
The next several months make forecasting a bit more difficult, however.
While “stable pricing” is attractive, mortgage rates have start to inch up, which could hurt the market in the second of the year, she said, particularly in the more costly cities of Toronto and Vancouver.”
“Meanwhile, the outlook for continued low short-term interest rates will provide a cushion to any potential further rise in long-term borrowing costs.”
Statistics Canada also reported today that the number of permits taken out by builders in May climbed 4.5 per cent from April.
That was driven by the residential construction industry in Ontario and the non-residential sector in Quebec.
Permits for residential construction alone rose 4.2 per cent, far slower than April's 21.6 per cent but still the third increase in a row.
Building permits, traditionally volatile, climbed 4.4 per cent for single-family homes and 4 per cent for multi-unit construction, such as apartments and condominiums.
Canada's condo market, in particular, has been a source of worry.
"Numerous apartments and apartments-condominium projects in Ontario, Alberta and Nova Scotia contributed to sustaining the advance from April," Statistics Canada said.
Chief economist Avery Shenfeld noted the "firm uptrend" in residential construction, though he believes that will cool.
"We still expect homebuilding to decelerate, but the evidence seems to be pushing some of that off into a 2014 story," Mr. Shenfeld said.
"Note that current permits and starts could still be responding, in the case of multiples, to pre-sales that took place months ago, so there could be a substantial lag before decelerating demand flows through to building."
- A funny thing happened on the way to the housing crash (It didn't crash)
- Building permits jump 4.5 per cent, mark fifth month of growth
- Vancouver real estate: The $1-million white picket fence
- Doug Porter's version of The Rant: 'We flatly reject' sell-Canada narrative
- Toronto housing sales fall slightly in June, prices jump 4.7% year over year
- Greater Vancouver housing market shows signs of revival
- Toronto’s soaring condo market ignites fears of a U.S.-style crash
- Sheryl King in Economy Lab: Prognosis grim for Toronto condo investors
- Rob Carrick: How risky is the Toronto condo market?
- Canadian housing market defies doomsayers with spring surge
Quebec disaster could hurt Canada's railways: analyst
The fallout from the fiery crash of an oil-laden runaway train in Quebec that killed at least five people could end up hurting Canada’s two major railroads, says one analyst.
The accident in the centre of Lac-Mégantic early Saturday is believed to be the worst incident in the history of crude-by-rail transport, Desjardins Securities analyst Benoit Poirier said in a research note today, The Globe and Mail's Bertrand Marotte reports.
For Montreal-based Canadian National Railway Co. and Calgary-based Canadian Pacific Railway Ltd., the incident raises concerns over shipping oil by train and sharpens the debate over rail transport versus pipelines, said Mr. Poirier.
“We see no direct implications for CN or CP, but the accident will definitely raise questions in the public’s mind about the safety of crude-by-rail vs pipeline projects such as Keystone XL and may negatively affect CN’s and CP’s business,” he said.
Canadian businesses remain cautious in a period of extreme uncertainty for the global economy.
They have seen some sales growth over the past year, according to a Bank of Canada survey released today, but project just “modest improvement” over the next year.
“Responses to the summer survey provide further indications that uncertainty regarding the nature and timing of a notable improvement in growth prospects is bearing on firms’ expectations and investment decisions,” the central bank said.
“Firms generally report a targeted approach to increases in investment over the near term, and often cite plans to use modest hiring to meet any additional operational needs,” it said in its business outlook survey.
A separate survey of senior loan officers, the central bank said, “pointed to continued easing in overall business-lending conditions” in the second quarter of the year.
Economist Peter Buchanan of CIBC World Markets cited the impact on the business survey of uneven economic growth, weaker prices for commodities and the turmoil in the markets.
“Firms continued to express uneasiness about the outlook for domestic demand, notwithstanding continued optimism on the U.S.,” he said.
Greece, Portugal in spotlight
Its international lenders are poised to give Greece more of its bailout money.
The European Commission, European Central Bank and International Monetary Fund said today they ended their review of the books in Athens and, while the outlook remains “uncertain,” it’s still in line with projections, with a “gradual return” to economic growth next year.
Having said that, the lenders said some programs are behind, and that Greece has pledged to fix that to meet its targets for 2013-14. Further cuts appear probable.
“These actions include concrete steps to gain control over health sector overspending,” they said.
“The income tax, property tax, and tax procedure codes are being reformed, and the autonomy and efficiency of revenue administration is being strengthened,” they added in their statement.
“The authorities have also committed to take steps to bring public administration reforms back on track, such as by completing staffing plans by end-year, placing staff in the mobility and reallocation scheme, and meeting the agreed targets for mandatory exits.”
Greece has struggled, amid protests, to meet its targets since this crisis began several years ago.
Finance ministers of the euro zone, according to Reuters, met today and agreed to provide further funds, but that's conditional on certain pledges.
“It is continuing to become obvious to everybody, with the exception of Europe’s myopic politicians, that the crisis in Europe is anything but over,” said senior analyst Michael Hewson of CMC Markets in London.
“Last week’s melodrama in Portugal is a perfect illustration of that and while a government collapse appears to have been averted for now, with the appointment of the outgoing foreign minister Mr. Portas as the new deputy prime pinister in a cabinet reshuffle by Prime Minister Coelho, the likelihood of the country needing another bailout appears to be increasing by the day,” Mr. Hewson said, referring to the resignations last week of both the foreign and finance ministers.
“In any event Portugal’s problems are likely to be high on the agenda of today’s Eurogroup meeting in Brussels, with pressure likely to be brought to bear for an easing to austerity, across the board,” he said.
The Eurogroup refers to the finance ministers of the euro zone.
“This is likely to fall on deaf ears, given the upcoming September elections in Germany,” Mr. Hewson said.
“The agenda is also likely to include Europe’s perennial problem child of Greece where once again the government is falling short of its fiscal targets, with a new funding gap opening up as the government continues to delay in restructuring its public sector.”
- Greek state workers protest layoffs demanded by EU/IMF lenders
- Euro zone divided over cash for 'uncertain' Greece
Streetwise (for subscribers)
- Canada's weak market reflects Keystone, not the economy
- Cautious economic outlook expected from Bank of Canada
ROB Insight (for subscribers)