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Briefing highlights

  • Condos: Towers of Babel or viable?
  • Three stages of the loonie?
  • Hydro One shares tumble
  • Stocks, Canadian dollar at a glance
  • What to watch for on trade war
  • Oil prices rally after drop
  • Michelin buying Canada’s Camso
  • U.S. annual inflation at 2.9 per cent

Condo craze

Canada is sprouting condos, from Victoria to Toronto to Montreal, raising the question of whether they’re towers of Babel of something sustainable.

Residential construction starts across the country surged almost 30 per cent in June to an annual pace of 248,000 units, driven largely by condominiums, the latest Canada Mortgage and Housing Corp. numbers show.

Look a little closer: Condo construction climbed 60 per cent in Victoria, 68 per cent in Montreal and a whopping 231 per cent in Toronto to hit a 30-year high for June.

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This comes amid a general softening in Canada’s housing markets after new provincial measures in British Columbia and Ontario and new regulatory mortgage rules aimed at preventing a collapse and bursting a debt bubble.

With prices still high, particularly in Vancouver and Toronto, buyers are opting for condos, sparking some concern, notably for Ontario.

“Either every wealthy family in the world is looking to get a toehold into the area, or the weight of excess supply is going to generate quite the price correction,” warned David Rosenberg, chief economist at Gluskin Sheff + Associates.

“The cranes in the sky are starting to resemble London in 1990, Bangkok in 1997 and Las Vegas in 2006.”

The Bank of Canada, too, is raising some red flags, noting in Wednesday’s monetary policy report the “pronounced decline” in house prices but ongoing strength in condos.

“While there has been some moderation in price growth and less speculative demand in the single-family home segment, prices for condominiums have continued to increase rapidly in some markets,” the central bank said.

“Thus, there remains a risk of a sharp decline in house prices in overheated markets, which would likely dampen residential investment and consumption.”

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Bank of Montreal economic analyst Priscilla Thiagamoorthy, for one, isn’t concerned.

“The fundamentals of demand are still there,” she said in an interview, adding BMO sees housing stabilizing.

In a report, Ms. Thiagamoorthy added that demand is running high for “the last affordable option” in Vancouver and Toronto among millennials, international migrants and “downsizing” baby boomers.

“Despite headwinds, including government zoning restrictions and rising material costs, construction activity should remain firm, supported by demographic demand and a healthy labour market.”

National Bank of Canada economist Kyle Dahms agreed.

“Although such elevated levels of starts might be worrisome, it seems that there is room for it as vacant new dwellings are well below their 10-year average,” he said, noting that total construction starts declined in the first quarter by 8 per cent, annualized, and were on track for a further loss of 9 per cent in the second.

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Three stages of the loonie?

Bank of Canada governor Stephen Poloz

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Hydro One stock in spotlight

Analysts expect some pressure on Hydro One stock after the board and chief executive officer agreed to step down, bowing to pressure from Ontario’s new premier.

Its shares tumbled at the open.

“While we maintain our constructive stance on Hydro One, the uncertainty surrounding a new board and CEO will likely weigh on the stock in the near-term,” Raymond James analysts said.

“We highlight that the company has been executing on cost controls and operational improvements leading to earnings growth, something that was apparent with [first-quarter] results,” they added.

“Accordingly, we advise investors to look beyond the noise and capitalize on the opportunity to add to positions near all-time lows in a company with solid long-term fundamentals.”

As The Globe and Mail’s Justin Giovannetti reports, the utility’s board and chief executive officer Mayo Schmidt are stepping down following pressure from Premier Doug Ford, who railed against Hydro One during the recent election campaign.

Raymond James has a target price on the utility’s stock of $24, and rates it “outperform.”

Canaccord Genuity, in turn, has a $22 target.

“Investors will likely view the management changes as positive, but the enthusiasm will ultimately depend on the new makeup of the [board] and who is chosen as the new CEO,” Canaccord said.

“While a complete replacement of the [board] was unexpected, we are not surprised with the retirement of Mr. Schmidt.”

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Markets, loonie at a glance

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What to watch for on trade war

How will the global trade war affect consumers?

The Globe and Mail’s Matt Lundy says you’ve got to keep an eye on U.S. producer prices, which Bank of Nova Scotia says “will be the canary in the coal mine.”

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