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morning business briefing

Briefing highlights

  • Home ownership costs rise
  • China cuts tariffs, adds stimulus
  • BCE raises dividend, profit climbs
  • Toronto home sales surge
  • Twitter misses profit estimates
  • Toyota forecasts stronger profit
  • What analysts are saying today
  • Required Reading

Affordability erodes

Not that Prince Harry and Meghan need to worry, but residing in Victoria is a costly prospect.

As The Globe and Mail’s Nancy Macdonald reports, the Duke and Duchess of Sussex have been living on Vancouver Island as they step away from royal duties, in a beautiful $14-million estate in nearby North Saanich.

Like many other cities, housing affordability is a huge issue in Victoria, according to the latest measure by National Bank Financial.

For a house, the mortgage payment as a percentage of income rose in the fourth quarter of last year to 65.1 per cent from the previous three-month period, National Bank deputy chief economist Matthieu Arseneau and economist Kyle Dahms found.

That’s based on a “representative home in the metropolitan market” at about $854,300.

For a condo, it’s substantially lower at 37.3 per cent.

You’d need annual income of $177,346 to afford that representative home, and it would take 103 months of saving for a down payment, National Bank said.

Compare Victoria with Toronto, where a mortgage payment as a percentage of income came in at 61 per cent and it takes annual income of $193,550 to support a purchase.

Or Vancouver, where the corresponding numbers are 84 per cent and $222,381 (and 377 months of saving for a down payment).

Housing affordability statistics, Q4 2019

Non-condo homes

MarketMedian home priceDown paymentDown payment, months of savingMortgage payment as percentage of income
Toronto $934,902 $68,490 100.361.0%
Montreal $387,956 $19,398 36.432.4%
Vancouver $1,244,341 $248,868 376.984.0%
Calgary $490,528 $24,526 34.430.7%
Edmonton $416,004 $20,800 30.126.8%
Ottawa/Gatineau $461,393 $23,070 35.731.8%
Quebec $295,364 $14,768 23.120.6%
Winnipeg $324,094 $16,205 28.125.1%
Hamilton $626,519 $37,652 58.443.3%
Victoria $854,308 $60,431 103.365.1%


Across the country, affordability “deteriorated slightly” in the fourth quarter, Mr. Arseneau and Mr. Dahms said.

“While mortgage interest rates were essentially unchanged from Q3, income growth was unable to keep pace with the rise in home prices for the urban composite,” they said, referring to the group of cities they track.

“Among the 10 urban centres covered, only Vancouver and Winnipeg saw income increasing faster than housing prices during the quarter,” they added.

“Vancouver was the only market showing an improvement in affordability, the monthly mortgage payment as a percentage of income registering a fourth consecutive decline, a first since 2008-2009 when the global economy was mired in a recession.”

Their national composite index “stands on the cusp” of its 20-year average, they noted, but that comes with widespread differences among the cities measured.

“Indeed, despite some ameliorations over the past year, the Vancouver, Toronto and Hamilton markets are still exhibiting affordability concerns while all other markets are either in line with their historical norms or even better,” Mr. Arseneau and Mr. Dahms said.

“The widespread improvement in affordability occurred in 2019 thanks to an 85-basis-points decline in mortgage interest rates and one of the smallest increases in home prices among OECD countries,” they added, referencing Canada’s membership in the Organization for Economic Co-operation and Development.

“That said, we doubt that a further improvement in home affordability is possible at this point as we see interest rates levelling off and home prices should accelerate given tight supply in the resale market.”

Victoria, by the way, showed improvement where condos are concerned and deterioration for other types of homes.

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China cuts tariffs

China is taking action on two fronts, cutting tariffs and adding stimulus.

On the first front, Beijing said it would cut levies on US$75-billion in U.S. goods on Feb. 14. That’s the day after Washington cuts its own tariffs.

At the same time, authorities unveiled tax and credit measures aimed at juicing the economy during the coronavirus outbreak.

“The [tariff] move by Beijing is a nice way to take the pressure off the Chinese economy in light of the coronavirus situation, plus it’s a great distraction for dealers - it will take their mind off of the deepening health crisis,” said CMC Markets analyst David Madden.

“The reduction in levies from the Chinese side shows they are willing to play ball with the U.S., and it should help mend the frayed trade relations.”

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BCE boosts dividend

BCE Inc. boosted its dividend as it posted a hefty jump in fourth-quarter profit.

Profit attributable to common shareholders rose almost 11 per cent to $672-million, or 74 cents a share, from $606-million or 68 cents a year earlier.

On an adjusted basis, earnings per share edged down to 88 cents from 89 cents, BCE said.

BCE raised its annual dividend by 5 per cent to $3.33.

BCE also unveiled “our first 5G network equipment supplier agreement” with Nokia, saying it plans to launch initial 5G service across the country this year as “next-generation” smartphones become available.

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Toronto home sales surge

Toronto housing is seeing a return to “supply-starved market conditions” as sales rise and listings fall, Bank of Montreal says.

As The Globe and Mail’s Rachelle Younglai reports, sales in the Toronto area surged 15 per cent in January from a year earlier while the average price climbed to $839,363 from $747,175.

New listings fell 17 per cent from a year earlier, with active listings down 35 per cent.

“The sales-to-new-listings ratio looks to be pushing 70 per cent on a seasonally adjusted basis, which is firmly in sellers’ territory again” said BMO senior economist Robert Kavcic, citing the price gains.

“And, this is one of the biggest reasons why the Bank of Canada is hesitant to cut rates.”

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Twitter falls shy of profit estimates

From Reuters: Twitter Inc. hit US$1-billion in quarterly revenue for the first time, topping expectations and also beating user growth estimates in a rebound from previous troubles with ad platform bugs and unusually low seasonal demand. But the company also posted fourth-quarter net income lower than expectations, at US$119-million, or 15 US cents per share, down from US$255-million year-over-year. Twitter also forecast first-quarter revenue between US$825-million and US$885-million, behind many Wall Street estimates and said costs would grow about 20 per cent in 2020 as it increases headcount and builds out a new data center.

Toyota forecasts stronger profit

From Reuters: Toyota Motor Corp. nudged up its annual operating profit forecast by 4.2 per cent on favourable currency rates and better-than-expected sales, but added the impact of the new coronavirus was hard to gauge and had not yet been factored in. Japan’s biggest auto maker said it now expects operating profit for the year to end-March to climb to the equivalent of US$22.7 billion. Third-quarter profit, however, declined 3.2 per as the yen trended higher than expected during the period and due to softer vehicle sales, though the result was slightly higher than market expectations.

Barrick interested in Grasberg

From Reuters: Barrick Gold is not looking to merge with copper miner Freeport-McMoran, chief executive officer Mark Bristow said Thursday, although he is interested in the company’s Grasberg mine in Indonesia, and indicated he wants to expand in the Pacific Rim. Rumours the world’s second-largest gold miner planned to combine with Freeport are “completely wrong”, Mr. Bristow told Reuters on the sidelines of the Mining Indaba conference in Cape Town. But “people say, are you interested in Grasberg? I say I have to be, it’s a tier one asset,” he said. Tier one assets refer to high-grade, long-life mines.

Huawei accuses Verizon

From Reuters: Chinese tech giant Huawei accused U.S. phone carrier Verizon of violating its patents in a lawsuit filed Thursday, broadening efforts to defend company’s business in the United States amid government sanctions. Huawei Technologies Ltd. accused Verizon Communications Inc. of violating 12 patents on optical transmission, digital communications and other technology, according to a copy of the lawsuit released by the company. Huawei said it filed the lawsuit after negotiations failed to produce a licensing agreement.

German industry suffers

From Reuters: German industrial orders unexpectedly plunged in December on weaker demand from other euro zone countries, data showed, suggesting that a manufacturing slump will continue to hamper overall growth in Europe’s largest economy. Contracts for ‘Made in Germany’ goods fell by 2.1 per cent from the previous month, the Statistics Office said. That was the biggest drop since February

What analysts are saying today

“Bullish momentum continues to carry equities higher this morning, although strength has begun to wane as investors prepare for tomorrow’s [U.S.] non-farm payroll report. U.S. markets are back at record highs, while [Germany’s] DAX seems prepared to follow suit, even if it is displaying further caution around the 13,600 mark, the peak of the past two years. Some of the strength in European markets will be down to the utterly abysmal performance of the euro this week, which has conspicuously failed to follow up on the strength displayed at the end of January, and has instead fallen right back to $1.10. It has held this level religiously since November, but with this morning’s dire manufacturing figures from Germany weighing heavily the outlook seems grim.” Chris Beauchamp, chief market analyst, IG

“Day 2 of OPEC’s special joint technical committee meeting ended with no agreement so deliberations now head into an unexpected third day. The JTC meeting had raised expectation of some OPEC action to stabilize oil markets roiled by coronavirus. From Vienna, our head of commodity strategy writes ‘Saudi Arabia seems ready to push for a very proactive and immediate production response, potentially convening a full emergency meeting of ministers as early as next week. Russia, on the other hand, is once again much more reticent about making any sudden moves and is calling for a more cautious response until more data is available on the actual demand impact. Nigeria is also apparently balking at having to make additional cuts as it is not a major exporter to China.’” Elsa Lignos, global head of foreign exchange strategy, Royal Bank of Canada

“The global equity recovery has stepped up a gear in the last twenty fours. The economic threat of the coronavirus has probably been overblown. Even it hasn’t, central banks have signalled they will come to the rescue anyway. Soothing words and actions from global central banks and the WHO saying there is no pandemic has juiced up markets enough to put coronavirus fears aside.” Jasper Lawler, head of research, London Capital Group

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Required Reading

Hearings to resume

The Trans Mountain pipeline expansion project cleared a significant legal hurdle this week, but months of regulatory hearings lie ahead before the company’s construction contractors can begin work on vast stretches of the route across British Columbia. Justine Hunter reports.

Not so awful

Economics writer David Parkinson looks at last November’s awful job numbers to find out … they weren’t so awful.

Cynics have reason for hope

Even Alberta cynics have reason to be hopeful after this Trans Mountain legal win, Kelly Cryderman writes.