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Business Briefing Housing affordability at ‘crisis levels’ in Vancouver and Toronto, with Montreal pushing the limits

Briefing highlights

  • Housing affordability improves
  • But several cities still stressed
  • Stocks, loonie, oil at a glance
  • Economy expands 0.3 per cent in January
  • Required Reading: Huawei, Lyft, Bombardier
  • BlackBerry results top estimates
  • From today’s Globe and Mail

Affordability relief

Here’s some good news for potential home buyers: Affordability is improving – slightly.

Of course, you probably still can’t afford it, particularly in Vancouver, Toronto, Victoria and, now, even Montreal, according to Royal Bank of Canada.

RBC’s latest affordability study, released this week, showed the cost of owning a home “dipped almost everywhere” across the country in the fourth quarter of last year.

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“An easing in property values brought most of the affordability relief,” said RBC chief economist Craig Wright and senior economist Robert Hogue.

“The mortgage stress test, earlier increases in interest rates and policy tightening in British Columbia pushed many buyers to the sidelines. Home prices declined for only the second time in five years.”

They were referring to new mortgage-qualification rules brought in by the federal bank regulator in early 2018, aimed at preventing a credit bubble, which cooled housing markets.

The proportion of income needed declined by 0.7 of a percentage point to 51.9 per cent in the last three months of 2018, Mr. Wright and Mr. Hogue said.

Of course, that’s a cross-country look. Here’s what individual cities look like:

Keep in mind, too, those are numbers for all types of housing. They go up from there for single detached homes.

In Vancouver, for example, it’s 115.5 per cent for a single-family detached, 79.1 per cent in Toronto, 65.9 per cent in Victoria, and 45.7 in Montreal.

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“The fourth-quarter relief barely made a dent in Vancouver and Toronto,” Mr. Wright and Mr. Hogue said.

Affordability is still at crisis levels in these markets and pressure is intensifying in Montreal.”

Federal Finance Minister Bill Morneau, of course, recently introduced budget measures to help young people crack the market. We’ll see how those play out, but for now it’s tough for many.

“Buying a home in Vancouver, Toronto, Victoria and, increasingly, Montreal is still a stretch for ordinary Canadians,” Mr. Wright and Mr. Hogue said.

“Despite all four markets seeing some degree of improvement in the fourth quarter of 2018, RBC’s aggregate affordability measures remain close to record-high levels in the first three, and well above the long-run average in Montreal.”

That doesn’t mean homes are out of reach everywhere.

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“A small majority of the markets that we track, in fact, boast affordability levels that are within historical norms,” the RBC economists said.

“These include Calgary, Edmonton, Saskatoon, Regina, Winnipeg, Quebec City, Saint John, Halifax and St. John’s. So the affordability strains present in Canada are still confined to a few – but large – markets.”

More relief is probably on the way nationally, Mr. Wright and Mr. Hogue said, noting what’s expected to be a lower “profile” for interest rates and “very little scope” for higher home prices.

“Our forecast for Canada calls for prices to remain unchanged. Current trends even point to likely declines in Vancouver and Alberta markets. And with the tight labour market poised to keep household income growing, the stars are aligning for more affordability relief in the period ahead.”

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Markets at a glance

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Economy expands

Canada’s economy fared better than expected in January, kicking off the first quarter on a more optimistic note.

Gross domestic product expanded 0.3 per cent, as opposed to the flat reading, or even possible contraction, economists had projected.

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“Oil production was the hole in a surprisingly high-calorie doughnut for the Canadian economy in January, as the rest of the economy performed much better than expected,” said CIBC World Markets chief economist Avery Shenfeld.

“Over all, a better than expected start to Q1 after a near zero growth rate in Q4, and reason enough for the Bank of Canada to hang on to its hopes that the growth stall late last year will prove temporary.”

The expansion, Statistics Canada said, offset the disappointing readings in November and December.

Not only that, the gain was “widespread,” with 18 of 20 industrial sectors chalking up increases, including manufacturing, whose output climbed 1.5 per cent.

Construction, too, gained for the first time in eight months, the federal agency said.

“The residential construction subsector rose 3.1 per cent, the second consecutive monthly gain,” Statistics Canada said.

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“There was continued growth in home alterations and improvements, multi-unit housing construction and a pick-up in single and semi-detached housing construction.”

The energy patch was hit, however, the result of Alberta’s forced, though temporary, production cuts.

“Oil and gas extraction fell 2.6 per cent as all types of extraction were down in January,” the agency said.

“Oil sands extraction (-4.1 per cent) was down for a third consecutive month, partly as a result of the government of Alberta's imposition of a temporary cut in oil production starting in January 2019,” it added.

“This also influenced the 1.2-per-cent decline in oil and gas extraction (except oil sands), which was partly offset by the continued ramp up in production in Newfoundland and Labrador, following weather-induced shutdowns and maintenance in late 2018.”

Required Reading

Huawei tops $100-billion

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The U.S. campaign against Huawei Technologies Ltd. isn’t slowing the Chinese company down any.

Its latest annual sales tally topped US$100-billion, though the pace of profit growth slowed.

The company also took the opportunity to slam the U.S. again for its push against Huawei technology in 5G telecom networks for security reasons.

“The U.S. government has a loser’s attitude,” said chairman Guo Ping.

“It wants to smear Huawei because it cannot compete against Huawei.”

Lyft heads to market debut

Lyft Inc. begins trading on Nasdaq today, having raised US$2.3-billion in its initial public offering, valuing the company at more than US$24-billion.

Bombardier executives reap millions

Bombardier Inc. chief executive Alain Bellemare sold a majority of the securities he put into the company’s controversial automatic share-disposal program last fall, reaping total gains of more than $13-million on the transactions, The Globe and Mail’s Janet McFarland reports.

Insider-trading disclosures filed recently by the company show Mr. Bellemare exercised 52 per cent of the 7.04 million stock options he placed in the disposition program for a gain of $10.6-million last year.

The disclosures show some other top executives disposed of even more of the securities they placed into the automatic disposition program.

Bombardier wouldn’t comment.

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