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Briefing highlights

  • Housing affordability improves
  • CannTrust shares plunge on Health Canada finding
  • Canfor shares soar on Pattison offer
  • Transat surges as Air Canada boosts bid
  • Stocks, loonie, oil at a glance
  • Aramco eyes stake in Indian refinery unit
  • Barrick profit rises in quarter
  • Required Reading

Affordability improves

Housing affordability has improved markedly across Canada, a new study shows.

Indeed, the National Bank of Canada report says, affordability improved in the second quarter by the most in 10 years, largely because of a drop in mortgage rates.

Of course, a house in Vancouver or Toronto is still out of reach for many buyers, according to the study being released today.

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Nonetheless, the National Bank affordability index, which looks at different measures, using a five-year mortgage and 25-year amortization, improved in the second quarter by the most since early 2009.

The “free fall in financing costs” was the most marked since the third quarter of 2010, National Bank deputy chief economist Matthieu Arseneau and economist Kyle Dahms said in their report.

"This, combined with a healthy labour market producing income growth on the scale of 1.7 per cent in the quarter and home prices declining 1 per cent, meant that all inputs contributed to the improvement in housing affordability," Mr. Arseneau and Mr. Dahms said.

"Vancouver experienced the largest progression in affordability among urban markets in Q2," they added.

"Toronto essentially mirrored the situation in Vancouver with a large improvement in the non-condo market and some progress also in the condo market."

Victoria and Hamilton also showed big improvements, while Quebec City and the Ottawa-Gatineau area lagged other regions of the country.

Notable, too, was that Calgary "is now at its most affordable level on record."

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Mr. Arseneau and Mr. Dahms looked at the mortgage payment on their representative home as a percentage of income.

This, they noted, declined 3.6 percentage points, having already eased 0.7 of a point in the first three months of the year. Along with income gains and lower home prices, a five-year mortgage declined by 45 basis points.

Consider this other measure, too: How long it takes to save for a down payment, assuming a savings rate of 10 per cent.

This declined by 11 months in Vancouver, albeit to a still-staggering 330.9 months, and by 3.8 months in Toronto to 88.4 months.

Here’s National Bank’s cross-country look for all types of homes, including condos:

Source: National Bank of Canada

The Globe and Mail

“Despite the recent progress in Vancouver and Toronto, these markets remain unaffordable on a historical basis,” Mr. Arseneau and Mr. Dahms said, citing the most bubbly regions that earlier sparked tax and other cooling measures by the B.C. and Ontario governments.

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"Moreover, while the contractual mortgage rate declined 68 basis points since last December, the qualifying rate declined only 15 basis points, meaning that most potential new buyers excluded by B-20 measures still are," they added, referring to the federal bank regulator's mortgage-qualification stress tests that came into effect in early 2018.

We'll learn more about the state of Canada's housing markets Thursday when the Canadian Real Estate Association releases its July sales and price report.

“Based on some early regional indications (Toronto, for example), sales could be on the stronger end in July,” said Veronica Clark, an associate at U.S. economics at Citigroup.

“This would be a positive sign for a continued stabilization in the housing market.”

Bank of Montreal senior economist Robert Kavcic expects that report to show sales across Canada rose 12 per cent in July from a year earlier, and about 10 per cent from June.

He also projects average price gains of 3 per cent from a year earlier.

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Among other things, "the winter was quite nasty across much of the country (even by Canadian standards), so there was some pent-up demand coming into the warmer months," Mr. Kavcic said.

"Also, five-year fixed mortgage rates have fallen roughly 80 basis points since last fall alongside the plunge in global bond yields, with downside likely extending into August."

Canada’s housing market has certainly come a long way from the heady days of a couple of years ago, and there’s less of a threat now, said BMO senior economist Sal Guatieri.

"Restrictive lending standards have curbed speculation in Toronto and Vancouver," Mr. Guatieri said

“A rapidly growing population and lower interest rates suggest Canada’s housing market is well positioned for at least moderate gains in sales and prices in the year ahead,” he added.

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CannTrust plunges

Shares of troubled CannTrust Holdings Inc. collapsed today after the company disclosed its plant in Vaughan, Ont., was been found by Health Canada to be “non-compliant with certain regulations.”

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The shares were down about 25 per cent heading into the New York and Toronto opens.

“CannTrust has accepted Health Canada’s findings and remedial actions are under way,” the cannabis company said in a statement.

The government’s rating was based on a July inspection, according to the company, which has already put a “voluntary hold” on shipments.

The Company’s CEO Robert Marcovitch stated: “We are continuing to work hard to regain the trust of Health Canada, our patients, shareholders and partners,” said chief executive officer Robert Marcovitch.

“We have retained independent consultants who have already started addressing some of the deficiencies noted in Health Canada’s report,” he added in a statement.

“We are looking at the root causes of these issues and will take whatever remedial steps are necessary to bring the company into full regulatory compliance as quickly as possible.”

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Pattison bids to take Canfor private

Canfor Corp. shares soared today after last night’s unsolicited bid from Jim Pattison’s Great Pacific Capital Corp.

As The Globe and Mail’s Brent Jang reports, Mr. Pattison is offering $16 a share, or almost $1-billion, in cash to take Canfor private. He already owns 51 per cent of the lumber company.

Among other things, Great Pacific said in a statement, “the elimination of the significant administrative expenses incurred in maintaining a public company listing in Canada will allow for reinvestment of these funds into stabilization of the company’s operations, particularly in British Columbia, where the industry environment remains particularly uncertain and challenging."

Canfor has struck a special committee of independent directors to review the bid.

Read more

Air Canada boosts Transat bid

Shares of Transat A.T. Inc. are also surging after Air Canada threw more money on the table last night.

Air Canada boosted its bid to $18 a share from $13 and announced it has the support of Transat’s biggest shareholder, Letko Brosseau and Associates Inc., which had been holding out.

“After extensive consultations with Letko Brosseau and several other large shareholders of Transat, we agreed to materially increase our price to ensure the transaction receives the necessary level of support at the special meeting of shareholders of Transat,” Air Canada chief executive officer Calin Rovinescu said in a statement.

Air Canada is not alone as Montreal developer Group Mach also wants to get its hands on Transat.

Read more

Markets at a glance

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Aramco eyes stake

Saudi Aramco is looking to take a 20-per-cent stake in the refining business of India’s Reliance Industries Ltd. as the former gears up for an initial public offering.

The two companies signed a letter of intent suggesting the proposed investment in the refining, petrochemicals and fuels marketing operations, Reliance said.

No potential price was given, but Reliance said the division in question has an enterprise value of US$75-billion, and that the deal would see “one of the largest foreign investments ever made in India.”

Aramco crude has been processed at a Reliance refinery in Jamnagar, India, for years.

Read more


Barrick profit rises

Profit at Barrick Gold Corp. rose in the second quarter as it reached a deal to end a multiyear standoff between its subsidiary Acacia Mining PLC and the Tanzanian government. Niall McGee reports.

South Korea slaps Japan

From The Associated Press: South Korea said it has decided to remove Japan from a list of nations receiving preferential treatment in trade in what was seen as a tit-for-tat move following Tokyo’s recent decision to downgrade Seoul’s trade status amid a diplomatic row.

Outlook darkens, Germany’s IFO shows

From Reuters: The economic outlook has deteriorated worldwide as the trade dispute between the United States and China escalates, a survey showed.

Required Reading

Meet Canada’s first legal small-scale cannabis growers

Nearly nine months after applications were submitted, Canada’s first legal small-scale recreational cannabis growers are finally open for business – but so far, there are just three of them. Jack Denton reports.

Cryptocorrency cases in spotlight

Cryptocurrency transactions and exchanges are increasingly coming under the microscope of regulators and law enforcement agencies as the popularity of virtual currencies grows. Alexandra Posadzki reports.

Collision course

The U.S. is on a collision course with China, David Parkinson writes, and Canada could get hit.

Dangerous times

“We are living in dangerous times,” economist David Rosenberg warns. So be as liquid as possible.

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