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business briefing

Home prices up

Toronto home prices are surging, with no end in sight of satisfying the “pent-up demand.”

Sales in the area climbed 6.3 per cent in May to 11,706 from a year earlier, the Toronto Real Estate Board said today, while the average price for all types of homes rose 11 per cent to $649,599.

The average price for a detached home in the so-called 416 area code now tops $1.1-million, up more than 18 per cent from a year earlier, the realtors group said.

You can see what’s happening by looking at new and active listings, which fell from a year earlier by 0.8 per cent and 10.1 per cent, respectively.

“Tight market conditions, especially for singles, semis and town homes in the [Greater Toronto Area], have resulted in strong price growth regardless of the price metric being considered,” Jason Mercer, the group’s director of market analysis, said in today’s report.

“With no relief so far on the listings front, expect similar rates of price growth as we move through the remainder of 2015,” he added.

“At this point, a number of months where listings growth outstrips sales growth would be required to satisfy pent-up demand.”

Toronto and Vancouver are Canada’s two hot spots.

As The Globe and Mail’s Brent Jang reports, prices for detached homes in the Vancouver area climbed 16.3 per cent in May to more than $1.4-million.

Economists, too, see Canada’s housing markets holding up, though those in Alberta and other oil-producing regions have been hit by the slump in crude prices.

“The Bank of Canada’s decision to cut interest rates in late January led to mortgage rates being notched downward and likely contributed to the revival in activity,” Royal Bank of Canada said in a report today, referring to sales levels in March and April.

“Another annual rise in average home prices would exert pressure on affordability; however, the deterioration will likely be limited by historically low interests,” its economists said.

“In 2016, the combination of price gains and rising rates will likely put sufficient stress on affordability levels that resale activity will begin to soften.”

If Alexis Tsipras were Mick Jagger

Trade deficit slims

Canada’s trade deficit narrowed in April, but a revised reading for March showed a far heftier shortfall.

Imports fell 2.5 per cent, and exports 0.7 per cent, to bring the trade gap to $3-billion, the second-biggest on record.

But, according to Statistics Canada’s report today, the March shortfall was revised to show a $3.9-billion gap.

Export volumes rose 0.5 per cent, while prices dipped 1.2 per cent. On the other side of the ledger, import volumes fell 1.8 per cent, and prices 0.8 per cent.

The drop in exports marked the seventh fall since last July.

“After the trade deficit swelled to a record in March, a bounce in energy exports brought some relief,” said Nick Exarhos of CIBC World Markets.

“The bad news is that because the prior month’s deficit was revised to the tune of nearly a billion dollars more in the red ... the improvement still left the trade balance showing a massive deficit,” he added.

“The $3-billion shortfall was also nearly a billion wider than the Street had been expecting.”

Word of the day

The latest term to follow ‘Grexit,’ a Greek exit from the euro zone. Among market players, it means Athens missing a payment to the International Monetary Fund. In plain English, it means … oops.

Debts rise

Canadians are now a record $1.82-trillion in debt, having gobbled up $81-billion more by April from a year earlier.

That’s 4.6 per cent more than in April of 2014, Royal Bank of Canada economist Laura Cooper said in a report based on the latest numbers from the central bank.

“A reluctance to spend, as evident in softer consumer expenditures in Q1/15, has done little to curb demand for credit, with the annual increase in April matching the pace of growth reported in each of the past three months,” Ms. Cooper said.

Consumer credit excluding mortgages rose 3 per cent, following a 2.9-per-cent jump in March.

“A bump in outstanding credit card balances in the month accompanied ongoing accumulation on personal lines of credit to boost overall non-mortgage loans by $15-billion from a year ago to $532-billion,” Ms. Cooper said.

“By contrast, the robust pace of housing activity recorded in recent months did not spur an uptick in mortgage loans in April (given the one- to six-month lag between a home sale and the reporting in mortgage data) as growth in this component remained unchanged at 5.3 per cent for the third consecutive month.”

Having said that, Ms. Cooper added in an interview that the overall 4.6-per-cent rise in April is low on a historical basis.

The key measure of household debt to disposable income in Canada now stands at a hefty 163.3 per cent, a record level.

Many observers have warned over the past few years that our swelling debts are an issue.

And some borrowers would certainly be vulnerable should interest rates rise quickly, which isn’t in the cards.

Quote of the week (so far)

“Trench warfare between bulls and bears has been the order of the day on Wall Street for some weeks now.”
Chris Beauchamp, IG analyst

New forecasts bleaker

Two new economic forecasts today paint a weak picture for Canada’s economy.

As The Globe and Mail’s Brian Milner reports, the Organization for Economic Co-operation and Development projected Canada’s economic growth will slow this year to about 1.5 per cent.

Separately Royal Bank of Canada issued a new prediction that’s a bit more optimistic than that of the OECD, though still below 2 per cent.

RBC now forecasts economic growth in Canada of 1.8 per cent this year, and 2.6 per cent in 2016.

“Our outlook for Canada’s economy reflects a positive read on expectations for consumption and housing, and the notion that a strengthening U.S. economy and a more competitive domestic currency will fuel increased demand for Canadian exports,” said chief economist Craig Wright.

Which brings us to the loonie, which RBC expects will tumble to 77 cents (U.S.) from its 81 cent average so far this year.

Stat of the day

Unionization rate in Canada in 2014, down from 37.6% in 1981

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