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.
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.”
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.
Read more
- Vancouver’s detached-home market hits a rough patch
- Brent Jang: Vancouver housing sales drop as prices flatline
- Kerry Gold: Recycled listings around Vancouver obscure a major market correction
- Victoria Gibson: Toronto housing market begins to stabilize after months-long slump
- When you can’t afford to sell your home because you can’t afford the next one: A cross-Canada look at what it takes
- A 5-year, 33-city home price forecast (which you’ll like unless you live in Sudbury, Regina or Moncton)
- Whack-A-Mole: Housing speculators leap from singles to condos, sparking new threat
- David Berman: Higher rates, stricter mortgage rules curbing home prices but debt still a key risk: BoC
- The arresting number that says it all about Toronto’s housing market slump
- The ‘sea change’ in Canadian mortgages is going to really hurt
- Remember halcyon days and times a-changin’? Canadian baby boomers now face a housing crisis
- Refuse to sell your house at these prices? Join the (growing) club
Three stages of the loonie?
Bank of Canada governor Stephen Poloz
Read more
- Canadian dollar bounces, sinks as BoC speaks. (Oh, how like the loonie)
- Barrie McKenna: Bank of Canada hikes interest rates
- I can’t wait a year (or more!) for an 80-cent Canadian dollar
- David Parkinson: Canadian economy is booming, but trade, debt clouds loom on horizon
- What if … Trump’s not bluffing, trade is crippled, Canada sinks into recession, markets are roiled, you pay more
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.”
Read more
- David Berman: Analysts still upbeat on Hydro One stock as board, CEO exit
- Justin Giovannetti: Hydro One board, CEO Mayo Schmidt step aside, bow to pressure from Ontario Premier Doug Ford
- Andrew Willis: Doug Ford kneecaps Hydro One
Markets, loonie at a glance
Read more
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.”
Read more
More news
- Oil rallies as IEA warns of output capacity limits
- Michelin buying Canada’s Camso for $1.45-billion
- U.S. consumer prices barely rise in June
Michael Babad