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Business Briefing Oh, the things they’re saying about Canada’s housing markets

Briefing highlights

  • Wither Canadian housing
  • Stocks, loonie, oil at a glance
  • Telus warns on Huawei ban
  • Bombardier rebounds to profit
  • Canadian Tire profit slips
  • Telus meets expectations
  • TransCanada boosts dividend
  • Manufacturing sales tumble
  • What to watch for today
  • Airbus to scrap A380
  • From today’s Globe and Mail

Wither the housing markets

Oh, the things they're saying about Canada's housing markets.

Most of the chatter among economists and housing officials relates to Vancouver's slump, but other cities are flashing warning signs, too, for a variety of reasons.

We'll get a broader picture Friday when the Canadian Real Estate Association releases its report on how sales and prices fared in January.

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That report promises to be interesting because the numbers compare to January, 2018, when new mortgage-qualification stress tests, known as B-20 rules, came into effect, dampening the markets.

"January home sales are going to look less weak on an easy comparison, as the first month of 2018 was ugly with the B-20 mortgage rules coming into effect," said Benjamin Reitzes, BMO's Canadian rates and macro strategist.

Several local real estate boards have already released January numbers, including Vancouver and Toronto, the former slumping and the latter rebounding.

Mr. Reitzes expects this national report to show sales fell 8 per cent from a year earlier, with average prices slipping 1 per cent.

That would be a far better showing than in December, when sales tumbled 19 per cent, and prices 4.9 per cent.

BMO also expects to see that the MLS home price index, which is considered a better measure, rose 1.3 per cent, a slower pace than December's 1.6 per cent.

"Vancouver continues to struggle and appears to be in full correction mode," Mr. Reitzes said.

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"The Prairies remain under pressure as oil prices had a tough run late last year and broader activity in the region is relatively soft," he added.

"Ottawa and Montreal are expected to be the bright spots amid decent affordability and firm economic activity. Toronto rebounded nicely in January, with sales showing their best monthly increase since July."

That's just one of several reports or comments about the housing markets over the past several days.

For example, the latest reading of the Teranet-National Bank home price index, released Wednesday, showed "the downward trend in home prices intensified in Western Canada's three largest metropolitan areas," those being Vancouver, Calgary and Edmonton.

"Home prices have been trending down in three of the past four years in Calgary and Edmonton, while Vancouver shows no growth for the first time in six years," National Bank senior economist Marc Pinsonneault said in releasing the numbers.

January marked the seventh consecutive month without a price gain in Calgary, the sixth such month in a row in Vancouver, and the fifth in Edmonton.

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In Calgary, Mr. Pinsonneault noted, the ratio of listings to sales was the highest for a January since the oil price rout of 2014.

"Both Calgary and Edmonton are facing an outsized number of vacant new dwellings and continued price weakness," he said, though pointed toward some stability in Vancouver.

"After seasonal adjustment, Vancouver home sales indeed stabilized when compared to December," Mr. Pinsonneault said.

"Solid labour markets in Greater Vancouver, where a near-record 72,000 jobs were added in the last six months, argue for a more stable listings-to-sales ratio and limited price deflation."

Of course, limited price deflation still means lower prices, but Vancouver could benefit from anything that would ease its affordability crisis.

Some key findings, notably in price changes since their respective peaks:

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Teranet-National Bank Composite House Price Index, by metropolitan area, as of January, 2019

Metropolitan area Index level Month-over-month change Year-over-year change Change from peak Peak date
Victoria 208.77 0.0% 4.9% -0.5% Sept., 2018
Vancouver 284.58 -0.3% 0.0% -3.2% July, 2018
Calgary 177.43 -0.5% -2.8% -5.8% Oct., 2014
Edmonton 176 -0.8% -2.4% -6.3% Sept., 2007
Winnipeg 208.27 0.1% 0.7% -1.5% Sept., 2018
Hamilton 233.96 0.0% 4.6% -1.5% Aug., 2017
Toronto 245.16 0.1% 3.6% -3.8% July, 2017
Ottawa-Gatineau 161 -0.3% 6.0% -0.3% Dec., 2018
Montreal 175.43 0.2% 4.5% 0.0% Jan., 2019
Quebec 184.58 1.3% 3.1% 0.0% Jan., 2019
Halifax 148.66 0.7% 1.7% -0.9% July, 2018


Certainly, January was better than December, said Stephen Brown, senior Canada economist at Capital Economics, referring to the Teranet-National Bank measure.

"Nevertheless, the local sales-to-new listing ratios paint a picture of divergence between Canada’s main cities," he added.

"The ratio in Montreal points to annual house price inflation rising from January’s 4.5 per cent to the high single digits. By contrast, the ratio for Vancouver points to annual falls in prices of 5 per cent."

Look, too, at the latest findings from Canada Mortgage and Housing Corp., which studies levels of vulnerability in various cities, in terms of price inflation and other measures.

Keep in mind, of course, that the B-20 stress rules were aimed at cooling markets and preventing a credit bubble.

The latest CMHC report found a better picture, but trouble spots remain, to be sure.

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The agency still cited a "high degree of vulnerability" in Vancouver, Victoria, Toronto and Hamilton, though the situation is improving.

"Over the past year, evidence of overvaluation continues to be detected in these four centres, since house prices are higher than the price levels supported by fundamentals," CMHC said.

"However, with price growth moderating and the young-adult population growing, the conditions of overvaluation are easing in all four centres. Most notably, the evidence of overvaluation has changed from high to moderate in Toronto and Victoria."

The agency cited Edmonton, Calgary, Saskatoon, Regina and Winnipeg for "a moderate overall assessment of vulnerability," with "evidence of overbuilding" fading somewhat in the first three of those centres.

Ottawa, Quebec City, Moncton, Halifax and St. John's are all on the straight and narrow, with low vulnerability and where "house prices remain consistent with fundamentals."

But watch Montreal, which Mr. Brown also flagged.

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"A low degree of overall vulnerability is also maintained for Montreal, but its resale market is very close to overheating as a result of a tightening between supply and demand, creating significant upward pressure on house prices," CMHC said.

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Markets at a glance

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Telus warns on Huawei ban

Telus Corp. is warning of a “material” risk to its business if the Canadian government bans wireless carriers from working with equipment vendor Huawei Technologies Co., The Globe and Mail’s Christine Dobby reports.

In a filing along with Telus’s fourth-quarter financial results, the company said it is working with the government on a cybersecurity review related to Huawei and has not yet selected a vendor for its 5G network.

“A decision prohibiting the deployment of Huawei technology without compensation or other accommodations being made by the Government of Canada could have a material, non-recurring, incremental increase in the cost of Telus’ 5G network deployment and, potentially, the timing of such deployment,” it said.

“In the case of a ban, there is a risk that the Canadian telecom market would undergo a structural change, as a reduction to an only two global supplier environment could permanently affect the cost structure of 5G equipment for all operators.”

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Bombardier rebounds

Bombardier Inc. rebounded to a fourth-quarter profit.

The Canadian plane and train maker posted a profit of US$55-million, or 2 US cents a share, compared to a restated loss of US$188-million or 9 US cents a year earlier.

Revenue declined 7 per cent to US$4.3-billion.

“As we begin the fourth year of our turnaround journey, Bombardier is a much stronger company,” chief executive officer Alain Bellemare said in releasing the numbers.

“Our major program risks are retired, our heavy investment cycle is behind us and our franchises are well positioned for growth.”

Bombardier is just one of several major companies reporting results today.

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Factory sales sink

Canada’s manufacturing sector is taking it on the chin, marking its third consecutive month of tumbling sales.

Shipments fell 1.3 per cent in December, largely on declines in petroleum and coal products, Statistics Canada said today.

If you strip those out, sales fell 0.3 per cent.

“The surprising fall in factory activity will take Q4 GDP tracking forecasts below 1 per cent, particularly with next week's retail sales report not expected to show much strength,” said CIBC World Markets senior economist Royce Mendes.

“Soft GDP prints to close out last year and begin this one will keep the Bank of Canada on the sidelines for at least the next few months.”

What to watch for today

Brexit’s back as Prime Minister Theresa May faces Parliament again:

"While Parliament may yet try to take control of the Brexit proceedings on Thursday – when MPs have the chance to vote on, and possibly amend, the PM’s Brexit statement – there is little evidence of a consensus building behind an alternative plan," said observers at Capital Economics.

And this being Valentine's Day, we'll see if Chinese and American negotiators can get any closer to settling their trade dispute when they meet in Beijing for two days.

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From today’s Globe and Mail
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