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Canada's new Finance Minister urged to act on hot housing market

A call to arms

The country’s new Finance Minister had better look soon, and possibly act, given what’s happening in soe of Canada’s hot housing markets, the chief economist at HSBC Bank Canada warns.

David Watt studied the numbers and “I don’t like some recent trends in housing.”

Mr. Watt believes Bill Morneau, the rookie Finance Minister named to the post just this week, may need to take a page from one of his predecessors, the late Jim Flaherty, and move to cool down the market.

Certain regions, like Vancouver and Toronto, are oft cited for their frothy nature, though economists are not suggesting a meltdown. They are, though, keeping an eye on stability amid other questions about affordability.

Video: Morneau needs to watch house prices

“What is not clear is what the Liberal government will do regarding housing,” Mr. Watt said this week in a report on Prime Minister Justin Trudeau’s new cabinet.

“In our view, there is a strong case for further macro-prudential measures to manage potential risks to economic growth and financial stability from the housing sector,” he added.

“We await Mr. Morneau’s comments on this issue.”

Mr. Watt provided me with several charts, notably the one below, suggesting I look at the trends and “try not to get just a little nervous.”

Mr. Watt looked at house prices, the ratio of prices to disposable income, and residential investment as a percentage of gross domestic product, the latter as a moving average.

“Can Canada sustain a rate of roughly 7 per cent of nominal GDP?” he said.

“If not, what level can be sustained, and how do we get there in an orderly fashion?” he added.

“Note that the rise in residential investment as a percentage of GDP between 2002 and 2008 was in the backdrop of a generally rising terms of trade ... With the terms of trade now worsening, it suggest that these trends should cool off, not accelerate.”

As Mr. Watt sees it, officials like Mr. Morneau may want to “tap the market on the shoulder.”

Jobless rates dip

Big surprises today from the jobs reports on both sides of the borders.

The Canadian economy churned out 44,000 jobs last month, Statistics Canada said, and the unemployment rate dipped to a still-elevated 7 per cent.

And note this: Employment topped 18 million for the first time, Statistics Canada said.

Notable, too, is the surge in full-time jobs, with a drop in the ranks of the self-employed, The Globe and Mail’s Rachelle Younglai reports.

Canada’s jobs reports frequently swing by big numbers.

“Much of the gain in employment in October came from a 32,000 jump in public administration that coincided with the federal election and will likely be at least partically retraced in November,” said Royal Bank of Canada senior economist Nathan Janzen.”

“With that said, excluding this component, employment was still up 12,000 in the month.”

The U.S. also scored a much stronger-than-expected gain of 271,000 jobs, with the unemployment rate dipping to 5 per cent.

BHP under pressure

BHP Billiton is under mounting pressure in the wake of a tragic collapse of a dam at a mine in Brazil.

Two people are dead, many injured and others missing after the dam burst and swamped a village near the site.

“The disaster in Brazil has seen BHP Billiton’s iron ore operations shut down, adding to the pressures the mining company has felt with weak commodity prices,” said IG market analyst Alastair McCaig.

Quote of the week

“We got worse terms on key parts than we were originally told.”
Flavio Volpe, Automotive Parts Manufacturers’ Association chief, on the TPP

Video: It's getting more expensive to rent

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