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Briefing highlights

  • The state of housing markets
  • Toronto home sales soar in July
  • Stocks, loonie, oil at a glance
  • China fires back over ‘currency manipulator’
  • Transat slams bid
  • What to watch for today
  • Disney results in spotlight
  • Required Reading

CMHC’s housing market assessment

Canadian housing markets are generally faring better than they had been, but there are still warm and hot spots across the country.

The latest assessment by Canada Mortgage and Housing Corp. shows a "moderate degree of vulnerability" for the second straight quarter, having been at a "high degree" for 10 quarters in a row.

"Imbalances between house prices and housing market fundamentals have narrowed with prices continuing to adjust and fundamentals catching up," CMHC said.

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Vancouver was notable in this latest report in that CMHC knocked Vancouver down to "moderate" after 12 straight quarters with "a high degree of vulnerability."

All of this comes, of course, in the wake of new federal mortgage-qualification stress tests meant to head off credit troubles, as well as B.C. and Ontario taxes and other measures to cool down the Vancouver and Toronto are markets.

Here’s a cross-Canada look at what CMHC found, with three cities still standing out for their red flags:

Housing market vulnerabilities

Comparisons between May and August, 2019

Degree of vulnerability:  Low  Moderate  High
Overheating Price acceleration Overvaluation Overbuilding Overall
May Aug. May Aug. May Aug. May Aug. May Aug.
Canada
Victoria
Vancouver
Edmonton
Calgary
Saskatoon
Regina
Winnipeg
Hamilton
Toronto
Ottawa
Montreal
Quebec
Moncton
Halifax
St. John's

Victoria: “Overheating and price acceleration are still signaled. Moderate evidence of overvaluation continues to be detected.”

Vancouver: “While home price growth over the past few years significantly outpaced levels supported by fundamentals, these imbalances have narrowed through growth in fundamentals and lower home prices in different segments of the resale market.”

Edmonton: “Demand in the homeownership market continues to soften as unemployment remains relatively high and the inflation-adjusted personal disposable income declines. As supply continues to outpace absorption, the inventory of completed and unsold units (per 10,000 population) reaches a record high of over 20.”

Calgary: “Moderate evidence of overbuilding continues to persist in Calgary, however inventory in the new homes market is gravitating towards the historical average.”

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Saskatoon: “The Saskatoon housing market continues to exhibit a moderate degree of overall vulnerability due to overbuilding signaled by an elevated rental apartment vacancy rate.”

Regina: “Low evidence of overheating and price acceleration is maintained. Low evidence of overvaluation continues to be observed as house prices remain closely tied to economic and demographic fundamentals.”

Winnipeg: "While there is no evidence of overbuilding in the rental market, the inventory of completed and unsold new homes increased further and remained elevated in the first quarter of 2019, indicating evidence of overbuilding in the homeownership market."

Hamilton: “While overheating, price acceleration and overvaluation continued to be signaled, conditions for all three factors eased in the first quarter of 2019.”

Toronto: “Overheating, price acceleration and overvaluation continue to be flagged in Toronto. However, the conditions of overvaluation continue to ease as house prices are more in line with housing market fundamentals.”

Ottawa: “After showing little growth in most of 2018, sales in the resale market rebounded in the first quarter of 2019 as borrowing costs eased and the young-adult population exhibited strong year-over-year growth. As a result, the sales-to-new listings ratio climbed up and went above the level of concern in the first quarter of 2019. However, persistence of the evidence is not enough yet to signal overheating vulnerabilities.”

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Montreal: “House prices have remained in line with economic and demographic factors, such as personal disposable income and the young-adult population. Evidence of overbuilding also remains low, with both the inventory of completed and unsold new homes and the vacancy rate of rental apartments declining. However, Montreal’s resale market continues to show evidence of overheating as a result of the tightening between supply and demand.”

Quebec City: “Over all, data from the first quarter of 2019 do not raise concerns about overheating in the resale market or accelerating house price growth. With house prices remaining in line with economic and demographic factors, evidence of overvaluation also remains low.”

Moncton: “There is no evidence of overbuilding as the rental apartment vacancy rate remains low while almost all of the homeowner units have been absorbed upon completion. Housing demand continues to outpace supply in the resale market. As a result, overheating conditions persist.”

Halifax: “Sellers’ market conditions intensified during the first quarter of 2019 as the sales-to-new listings ratio climbed, reaching the highest point since the first quarter of 2007. Strong migration growth, especially evident in the young-adult population, is boosting sales, while the number of new listings remains low. Nevertheless, the sales-to-new listings ratio is still below the overheating threshold.”

St. John’s: “Despite improving employment levels and gains in the inflation-adjusted personal disposable income, housing demand remains lacklustre, affected by muted population growth. This has resulted in fewer sales, higher listings and flat price growth, therefore keeping the overheating, price acceleration and overvaluation below levels of concern. Moderate evidence of overbuilding continues to be observed in St. John’s.”

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Toronto home sales soar

Toronto home sales defied the normal summer lull to soar in July, outpacing even June sales levels as buyers are increasingly overcoming tougher mortgage-qualification rules and returning to the market, The Globe and Mail’s Janet McFarland reports.

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The Toronto Real Estate Board said 8,595 homes were sold in the Greater Toronto Area last month, a 24-per-cent increase over July last year, and a 5-per-cent increase over June after adjusting for seasonal variations.

With new listings slow to come onto the market, prices rose in July as demand outpaced supply. TREB said the average home price climbed by 3.2 per cent, with detached houses the only category of homes to not see a price increase last month.

“With new listings up a more modest 3.7 per cent year over year, the market continues to tighten,” said Bank of Montreal senior economist Robert Kavcic.

“In fact, the sales-to-new listings ratio (a good proxy of market balance) looks to have settled at just under 59 per cent in July, right in line with the average of the past decade - it’s no longer a buyers’ market in Toronto, as it had been for much of the past two years.”

“That said, we continued to see relative strength in condos, towns and semis - condo prices are up 8.4 per cent year over year, accelerating a full percentage point from the prior month. Single-detached prices remain soft, but even they are up a decent 2.5 per cent year over year now.”

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Markets at a glance

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China fires back

China’s central bank fired back at the U.S. Treasury Department today, saying it “deeply regrets” the U.S. decision to label Beijing a “currency manipulator.”

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“This label does not meet the quantitative standards of the so-called ‘currency manipulators’ formulated by the U.S. Treasury,” the People’s Bank of China said in a translated post on its website.

“It is a wayward unilateralism and protectionist behaviour that seriously undermines international rules and will have a major impact on global economic finance.”

This followed a move lower in the yuan, in turn after President Donald Trump’s pledge to put 10-per-cent tariffs on Chinese imports not already caught up in previous levies.

The actual fallout from the U.S. decision is modest, said JPMorgan Chase global foreign exchange strategist Daniel Hui, but “in the current context, this latest move carries much symbolic weight and suggests that the White House is increasingly pushing the envelope on conventionality and seeking new and more policy tools in the pursuit of the trade war with China.”

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Don’t tender: Transat

Transat AT Inc. is urging shareholders not to tender their shares to a hostile bidder, calling Group Mach’s attempt to block the Air Canada takeover “coercive” and “misleading,” The Globe and Mail’s Eric Atkins reports.

Transat, a Montreal-based airline and tour operator has agreed to a purchase by Air Canada worth $520-million, or $13 a share, despite complaints from some large shareholders the price is too low.

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Mach, a real estate developer in Montreal, has made several attempts to purchase Transat, the most recent one being a $14 offer last week for 19.5-per-cent of Transat shares. The move is seen as an attempt to align with unhappy Transat shareholders and block the Air Canada purchase.

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Ticker

Barneys files for court protection

From The Associated Press: Barneys New York is filing for Chapter 11 bankruptcy protection, the latest retailer to buckle as shoppers move online.

Apple to roll out credit card

From The Associated Press: An Apple-branded credit card designed primarily for mobile use will start rolling out on Tuesday.

Mastercard in deal

From Reuters: Mastercard Inc. said it would buy a majority of the corporate services businesses of European payments company Nets for about US$3.19 billion.

What to watch for today

The earnings parade continues, with Canaccord Genuity Group Inc., Indigo Music and Books Inc. and Walt Disney Co. all reporting quarterly results.

“The performance in the Disney share price in recent months is testament to the high expectations, around the launch of its new streamlining service Disney+, which is due to launch on Nov. 12 this year,” said CMC Markets chief analyst Michael Hewson.

“At a cost of US$6.99 a month, it appears deliberately designed to undercut Netflix’s pricing model, with the shares up over 30 per cent in the last six months,” he added.

“The biggest problem Disney will have, in what is becoming an increasingly crowded and fragmented market, is one of limited consumer appetite for multiple subscriptions. This isn’t likely to be too big a problem in the short term given the company’s multiple revenue streams, from its theme parks as well as the acquisition of Sky, which suggests that in the short term they might look to use it as a loss leader, to squeeze the competition.”

Required Reading

Caisse seeks change at SNC-Lavalin

SNC-Lavalin Group Inc.’s biggest investor sharpened its criticism of the beleaguered engineering company, saying it needs to shake up its culture to improve its project execution and reverse its stock-price slide. Nicolas Van Praet reports.

Farmers struggle with China ban

The hardship is mounting for Canadian farmers hurt by China’s decision to stop buying certain agricultural exports from Canada in the wake of Ottawa’s arrest of a top Chinese tech executive, Steven Chase writes.

Deals near $40-billion

Acquisitions in Canada by foreign buyers are already approaching the dollar value for all of 2018, as confidence in the economy trumps rising global trade tension and a dearth of deals in the oil patch. Jeffrey Jones reports.

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