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business briefing

Briefing highlights

  • At risk of overheating
  • Stocks, Canadian dollar, oil at a glance
  • CIBC beats, raises dividend

At risk

Royal Bank of Canada is raising red flags about the Ottawa and Montreal housing markets, warning they’re in danger of overheating.

"Ottawa and Montreal have been Canada’s hottest markets in the past year,” RBC senior economist Robert Hogue said in a recent national report on sales and prices.

"They’ve also been the tightest. There are increasing signs that they are at risk of overheating."

This comes as the federal government adjusts the mortgage-qualification stress test to help make homes more affordable, though the change is expected to have just a modest impact on markets without fanning the flames again.

And price gains across Canada have been nowhere near the levels of a few years ago that put certain cities in bubble territory and prompted the federal stress tests, along with tax and other measures from the B.C. and Ontario governments.

Still, there are fears in some quarters of a return to the heady days.

There are several ways to measure housing markets. One is via the ratio of sales to new listings, which Mr. Hogue noted has topped 0.8 since October in each of Ottawa and Montreal.

"This usually indicates intense upward pressure on property values," Mr. Hogue said.

"Indeed, the benchmark price shot up 13.8 per cent year-over-year in January in Ottawa and 9.8 per cent in Montreal, ranking first and second in Canada, respectively," he added.

"In the last three months, the rate of increase has been closer to 22 per cent (annualized) in Ottawa and exceeded 13 per cent in Montreal. Any further acceleration could set off undesirable speculative dynamics."

Prices in Ottawa and Montreal still pale in comparison with other centres, such as Vancouver and Toronto, but the gains are sharp.

The average sale price of a home in Ottawa in January reached $516,229, while records are being set in Montreal.

The median price of a single-family home stood at $353,000 in January. On the Island of Montreal, half of the single-family homes went for almost $527,000, according to the local real estate board.

“The overheating market that we’re seeing on the Island of Montreal is causing significant price growth, which is prompting more and more buyers to turn to the peripheral areas of the Montreal [census metropolitan area],” Julie Saucier, chief of the Quebec Professional Association of Real Estate Brokers, said in releasing those numbers.

“As a result, active listings in these areas are steadily dropping and prices are steadily rising.”

Bank of Montreal senior economist Sal Guatieri also warned the change to the stress test qualifying rate could "add some unwanted heat" in the Toronto area and elsewhere.

"The same applies for other cities, including Ottawa, Montreal and London, where the dynamic duo of strong population gains and low interest rates are raising concern about a 2016 redux, when prices jumped 30 per cent to 40 per cent in one year in much of Southern Ontario," Mr. Guatieri said.

In a separate report on Montreal, Moody's Analytics associate economist Sebastian Mintah noted how the Montreal market is "outpacing" Toronto and Vancouver.

“The metro area’s house prices appreciated by 6.3 per cent [year over year] in the fourth quarter of 2019,” he said.

“This marks the strongest appreciation rate for aggregate house prices in Greater Montreal in almost 10 years. Homes are selling fast, with all major property types posting price increases.”

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CIBC beats, raises dividend

From Reuters:

Canadian Imperial Bank of Commerce reported better-than-expected quarterly profit on Wednesday, helped by gains in its capital markets business and as it set aside lesser money to cover bad loans.

Net income at the capital markets unit surged 63 per cent, driven by higher revenue and lower provision for credit losses.

Net income attributable to common shareholders rose 2.5% to $1.21-billion, or $2.63 per share, in the first quarter ended Jan. 31.

Excluding items, the bank earned $3.24 per share. Analysts on average had expected $3.00 per share, according to Refinitiv IBES data.

The bank also raised its quarterly dividend to $1.46 per common share, up from $1.44 per share.

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