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  • Morneau’s balancing act
  • Stocks, loonie, oil at a glance
  • Economy slumps in fourth quarter
  • From today’s Globe and Mail

Balancing act

Finance Minister Bill Morneau faces a delicate balancing act when it comes to any housing measures in his March 19 budget.

And there’s “no magic bullet,” Royal Bank of Canada says.

There has been some chatter of late about what Mr. Morneau may unveil in this pre-election budget related to housing affordability. That has included the possibility of a return to 30-year amortizations for those buying their first homes.

The idea would be to help millennials, in particular, as first-time buyers are priced out of the market in costly cities such as Vancouver and Toronto.

But RBC senior economist Robert Hogue has a warning for the Finance Minister:

“While that generation does facing housing-related challenges, especially in some larger and more expensive Canadian cities, we urge him to tread carefully,” Mr. Hogue said.

“On the surface, ideas like relaxing the mortgage stress test, extending the maximum amortization period of insurance mortgage, or increasing the amount of RRSP take-out for a first home down payment might bring short-term relief to buyers,” he added in a study this week.

“But they do nothing to address what we believe is the root of Canada’s housing woes: gaps in the mix of housing options in some of Canada’s larger markets. Meanwhile, the measures won’t address the issue of high household debt, and may actually inflate home prices.”

Canada has had those mortgage-qualification stress tests in place for more than a year now, while the governments of British Columbia and Ontario moved earlier to deflate a housing bubble.

Mr. Hogue, for that matter, doesn’t even believe Canada has troubles with home ownership. The issue, he said, is one of supply.

On average, more than 40 per cent of Canadian households headed by those under age 35 own their own homes, Mr. Hogue said. “And the proportion of all Canadian households who own a home is one of the highest among advanced economies,” he added.

“Even Toronto and Vancouver – the least affordable markets in the country – rank near the top of global cities on home ownership and have home ownership rates that are about double cities like Paris and Berlin.”

And while the rate of ownership among Canadians has dropped markedly in the past 10 years, it’s still “high historically” in Canada and when compared with other nations.

The recent decline is because of housing options that have dried up.

“What millennials in Vancouver and Toronto really need is more inventory of homes they can afford, and a better mix of housing options – be it to own or rent,” Mr. Hogue said, which isn’t just Ottawa’s responsibility in that it includes other levels of government.

“At the very least, the collective goal should be to remove barriers (regulatory, administrative or otherwise) inhibiting home developers and builders to respond quickly to the demand for new housing – especially when that demand is rising rapidly.”

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Economy slumps

Canada’s economy hit the skids late last year.

Gross domestic product contracted marginally in December to mark the third such decline in four months, Statistics Canada said.

That brought down economic growth in the fourth quarter to an annual pace of just 0.4 per cent, the slowest since the second quarter of 2016 and well shy of the third quarter’s 2 per cent, pushed down by a drop in investment spending, while exports also dipped.

Growth in household spending slowed, and the housing market weakened, Statistics Canada said.

“The ‘R’ word will be on minds as Canada's economy barely skirted the start of a recession in Q4,” said CIBC World Markets chief economist Avery Shenfeld, noting that December’s decline of 0.1 per cent points to a “weak handoff” for the current quarter.

“If not for a huge employment gain in January we’d be worried about an outright recession, but at this point, its best described as a stalled engine,” he added, citing, too, the hit to production of goods.

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