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Canadian housing frothier than U.S. at peak: Economist

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Home prices frothy: Economist A new study of global housing markets by The Economist warns that markets in Canada and some other countries still appear "uncomfortably overvalued." Indeed, the magazine calls it downright frothy in its latest update of house prices indicators.

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Overall, the report shows prices falling in eight of 16 countries studied in terms of a price-to-income ratio, which measures affordability, and a price-to-rent ratio.

By averaging the two readings, The Economist warns that prices are overvalued by 25 per cent or more in Canada, Australia, Belgium, France, New Zealand, Britain, the Netherlands, Sweden and the ever-unfortunate Spain.

Here's a really troubling bit: For Canada, Australia, Belgium and France, housing "looks more overvalued than it was in America at the peak of its bubble."

The magazine notes that some economists dismiss its measures, citing the fact that lower interest rates - Canada is such an example - can justify fatter prices because they allow heftier mortgages. The magazine responds to that just as Bank of Canada Governor Mark Carney and others have: It will not always be thus, and rates will inevitably rise.

Here's another warning, also along the lines of what we've been told for months now: "Australia, Britain, Canada, the Netherlands, New Zealand, Spain and Sweden all have even higher household-debt burdens in relation to income than America did at the peak of its bubble."

Canadian housing markets have been cooling down, and many forecasters project a continued softening, though not a crash.

AT&T to take big hit AT&T Inc. and Deutsche Telekom are scrambling today to save a $39-billion (U.S.) deal, but the outlook is grim and the U.S. company expects to take a hefty hit.

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Earlier this week, the Federal Communications Commission in the United States threw up a roadblock to the sale of Deutsche Telekom's T-Mobile USA unit to AT&T. The companies said today that have withdrawn their application to the FCC but will "focus their continuing efforts" on winning antitrust clearance from the Department of Justice.

"As soon as practical, AT&T Inc. and Deutsche Telekom AG intend to seek the necessary approval," they said.

Still, AT&T said that "as a result of the FCC's action," it expects to take a hit of $4-billion in the fourth quarter to account for break-up fees if the deal dies.

Leaders meet The leaders of Germany, France and Italy met in Strasbourg today, and made all the right noises about fighting to the death to save the euro zone. France and Germany also said they were working toward a plan to alter treaties in the European Union, but, as always, details were slim.

French President Nicolas Sarkozy also appeared to be bending in his fight with Germany's Angela Merkel over the powers of the European Central Bank. Mr. Sarkozy had been pushing for the ECB to step up to the plate in the midst of the debt crisis, but Ms. Merkel was having none of that.

Today's meeting followed yesterday's troubled bond auction by Germany, where the sale fell short of what the government was looking for.

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"Yesterday's buyer's strike for German bunds sent chills of fear through Europe as investors saw the first signs that Germany was exhibiting the initial signs of contagion, from Europe's debt crisis," said CMC Markets analyst Michael Hewson.

"It also begs the question that if the strongest economy in Europe can't shift 10-year bonds, what does that mean for everyone else in Europe trying to raise funds in the open market? The European Central Bank's job could be about to get even more complicated, not only for countries, but also for banks."

Portugal downgraded Well, there goes the neighbourhood.

The Fitch ratings agency today cut Portugal's credit rating by a notch to BB+, citing the country's debt levels and troubling economic outlook.

The move by Fitch came amid a general strike in Portugal that has shut down commuter service in Lisbon and hobbled air travel.

Like elsewhere in Europe, unions are protesting anti-austerity measures in Portugal, where unemployment now tops 12 per cent.

Iceland getting its groove back Before there was Portugal, Ireland, Italy, Greece and Spain, there was Iceland.

But Standard & Poor's, the rating agency that loves to hate everyone, upgraded its outlook for the tiny nation yesterday, moving it to stable from negative, though its actual rating remains in the dumpster. And today, Statistics Iceland released a new forecast that projects the economy will expand by 2.6 per cent this year and 2.4 per cent next, helped along by a struggling currency.

"Increased consumption and investments are the driving forces of economic growth during the forecast period," the statistics agency said. "The Icelandic króna is expected to remain weak which will support a substantial trade surplus."

Statistics Iceland also projected inflation of 4.1 per cent this year and 4.2 per cent in 2012, though declining after that, and high unemployment that will gradually come down as the economy grows.

Iceland, of course, was the original poster child, its economy collapsing amid a banking crisis a few years ago. Now, according to projections from the International Monetary Fund, its growth will outpace that of the euro zone, which many believe is already in recession.

(Just a coincidence but the swans in the accompanying photo, taken this year at a park in Reykjavik, are white.)

Tims to leave Kandahar Tim Hortons Inc. is joining the Canadian troops pulling out of Afghanistan.

After four million cups of coffee and three million doughnuts (and about 500,000 Ice Caps and bagels), the Canadian icon said today the Tim Hortons shop at the Canadian Forces base in Kandahar will close at the end of the month.

Tims has been operating there since 2006, and said it has served 2.5 million customers from more than 37 countries. It added that soldiers have been able to take part in the Roll Up the Rim to Win contest since 2007, and have won food prizes, cash, gift cards, laptops and other items such as Tims camouflage hats.

"It has been an absolute privilege and honour for Tim Hortons to be associated with the military and bring a little taste of home to the brave Canadian soldiers serving overseas," said chief executive officer Paul House.

The Kandahar outlet was run by the Canadian Forces Personnel and Family Support Services, and the company waived the usual fees and costs linked to franchises.

Griffiths files for IPO Griffiths Energy International, the African oil company financier Brad Griffiths was working on when he died, filed for a planned initial public offering and disclosed that it has formed a special committee to investigate the "background, propriety and circumstances" of consulting agreements that the company entered into as well as transactions by the company's founders, columnist Boyd Erman reports today in Streetwise.

The disclosure of the investigation will make the deal a tougher sell. For any investor looking at Africa, the risks of corruption are high on the list of things to consider. Griffiths Energy prominently lists the risk of corruption in Chad as one the things prospective shareholders must consider, saying "corruption in Chad is pervasive at many levels, including government."

Business ticker

In International Business As Europe's debt crisis escalates to dangerous new levels, there are signs that even Sweden's star economy is losing some of its shine, Naomi Powell reports from Stockholm. Housing markets are cooling off, industrial orders are slipping and consumer confidence has taken a hit.

In Economy Lab It's possible to focus too much attention on productivity, because other things are not necessarily always equal, Stephen Gordon writes.

In Globe Careers No one likes a boss who excessively scrutinizes work and constantly checks in, but if you have a controlling boss you don't have to suffer, says Harvard Business Review.

From today's Report on Business

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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