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Business Briefing ‘The great moderation’: Luxury real estate laid low in Vancouver, Toronto

Briefing highlights

  • New luxury property rankings
  • Air Canada to buy Transat
  • Stocks, loonie, oil at a glance
  • Debt concerns easing, BoC says
  • Canadian manufacturing sales rise
  • Required Reading

‘The great moderation'

Vancouver and Toronto now sit well down in global rankings for luxury real estate.

Vancouver now sits at the bottom of a list of 45 cities tracked by Knight Frank, the consulting group, with prices for prime properties down 14.5 per cent over 12 months and 3.4 per cent over three months in the first quarter.

At No. 45, the latest ranking for Vancouver is down from 31st place in the first quarter of last year and No. 10 in the first three months of 2017.

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The first quarter of 2018, remember, marked the beginning of the federal bank regulator’s new mortgage-qualification stress tests, aimed at stopping a debt bubble.

Toronto actually rose three spots, to No. 15, in the first quarter from a year earlier, though remained well down from No. 3 two years earlier.

That’s based on a 12-month price increase in luxury real estate of 3.2 per cent and a three-month gain of 1 per cent.

Knight Frank considers “luxury” to include the top 5 per cent of a market by value.

Topping the international list were Berlin, Moscow, Frankfurt, Tokyo and Edinburgh.

Knight Frank noted the growing disparity between Toronto and Vancouver.

“In Canada, the gap between Toronto (3 per cent) and Vancouver’s performance (-15 per cent) continues to widen, with almost 18 percentage points now separating the two cities,” the consulting group said.

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“Whilst both operate a foreign buyer tax, Vancouver has seen a flurry of additional measures aimed at reducing speculation and cutting price inflation.”

Canada has unique circumstances but price growth for luxury properties is slowing around the world, gaining now at an average pace of just 1.3 per cent as “the great moderation continues,” Knight Frank said.

“Canada is seeing similar trends to a number of developed economies,” said Knight Frank partner Kate Everett-Allen.

“The rising cost of finance, tighter property market regulations and global economic uncertainty is influencing buyer sentiment, and, as a result, demand and price growth,” she added.

Mortgage costs in Canada have since eased somewhat, helping to boost national home sales in April, according to the latest measure.

“Both markets have seen tighter mortgage stress tests,” Ms. Everett-Allen said of Vancouver and Toronto.

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“What differentiates the two are a) the stringency and number of property market regulations and b) where each city is in its respective property market cycle.”

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Air Canada closes in on deal for Transat

Air Canada has struck what it says is a $520-million deal to negotiate a takeover of Transat A.T. Inc.

The airline said today it struck an “exclusive agreement” that would see Air Canada take control of Transat for $13 a share if a deal is done.

Canada’s airline industry is fast being remade, as the Transat deal comes hot on the heels of Onex Corp.’s agreement to buy WestJet Airlines Ltd.

The deal, Air Canada said, would ”create a Montreal-based global travel services company in leisure, tourism and travel distribution operating across Canada and internationally.”

Transat, in turn, said its board looked at several offers, but chose in the end to hold exclusive talks with Air Canada for the next month, The Globe and Mail’s Eric Atkins reports.

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Markets at a glance

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Debt concerns easing

Threats to the financial system from household debt and home prices are easing, but the Bank of Canada is grappling with a clutch of fresh worries, including rising corporate debt, climate change and a possible recession, The Globe and Mail’s Barrie McKenna reports.

Worries about overheated housing markets and Canadians with too much debt have “declined modestly” over the past year, the central bank said in its 2019 Financial System Review.

Still, the overall risk to the financial system has increased “slightly,” largely because the probability of a severe recession is “elevated and increasing,” the central bank warned.

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Manufacturing sales rise

Canadian manufacturers rebounded in March, with a sales increase of 2.1 per cent, a turnaround from February’s mild losses.

Sales rose in 12 of 21 industries measured, Statistics Canada said today. That accounts for about 56.4 per cent of the sector.

When you strip out price effects, volumes gained 1.6 per cent.

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Inventories rose for the fourth straight month, up 1 per cent, unfilled orders inched up, and new orders climbed 1.5 per cent.

“Today’s reading suggests a likely healthy advance in March monthly GDP, and will support the street’s view that growth will outperform the Bank of Canada’s pessimistic view for Q1,” said CIBC World Markets senior economist Royce Mendes.

Bank of Nova Scotia deputy chief economist Brett House noted how the stronger showing comes on top of strong gains in the jobs market.

“The soft patch really wasn’t so soft,” he said.

“We continue to struggle to reconcile the data with the Bank of Canada’s downgrade of Q1 growth.”

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Ticker

Walmart tops estimates

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From Reuters: Walmart Inc. reported its best comparable sales growth for the first quarter in nine years. Sales at Walmart’s U.S. stores open at least a year rose 3.4 per cent, excluding fuel, in the quarter ended April 30. Adjusted earnings per share increased to $1.13 per share, beating expectations of $1.02 per share.

U.S. housing starts rise

From Reuters: U.S. home building increased more than expected in April and activity in the prior month was stronger than initially thought, suggesting declining mortgage rates were starting to provide some support to the struggling housing market.

Required Reading

Canada nears tariff agreement

Canada is closing in on an agreement with the Trump administration to lift American steel and aluminum tariffs and end the countries’ nearly year-old trade war, Adrian Morrow and Campbell Clark write.

Fortress seeks fee payments

Fortress Real Developments Inc. is seeking large fee payments for work it has done negotiating new financing for some of its troubled real estate developments, even as syndicated mortgage investors are facing significant losses on some of the projects. Real Estate reporter Janet McFarland reports.

Good news complication

A growing list of economic good news is complicating the Bank of Canada’s interest rate outlook, economics columnist David Parkinson writes.

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