Observers outside Canada are ringing (loud) alarm bells (again) over inflated house prices.
Both Moody’s Analytics and The Economist issued fresh warnings within days of each other, each citing swollen household debt.
Moody’s Analytics, the rating agency’s sister group, pointed fingers specifically at Vancouver and Toronto, which have long been the focus of angst.
“The risks are less around the rapid house price appreciation per se than the fact that, relative to incomes, homes in Toronto and Vancouver are increasingly becoming unaffordable either to own or to rent,” Moody’s economist Paul Matsiras said in his report.
“Canadian household debt has risen faster than disposable income since 2011, greatly increasing the debt burden for consumers and the risks of a pullback in spending as interest rates rise.”
He warned of difficulties as the key measure of household debt to disposable income rises, now standing at almost 165 per cent.
“The song I’m Forever Blowing Bubbles, popularized by English soccer team West Ham United F.C., describes how extravagant dreams fade away once reality sets in,” Mr. Matsiras added.
“Increasingly, it seems this is being felt in Canada, which has seen some of the fastest house price growth in the world over the past year in cities such as Toronto and Vancouver.”
As for The Economist, its big fear is that the uncertain economy “makes inflated debt and housing values more dangerous.”
Indeed, homes are overvalued to the tune of 34 per cent against disposable income, as measured by the magazine’s indicators, it said, saying Canadian housing now appears “scarily overpriced.”.
Canadians can juggle those debts now, but an economic shock would spell trouble.
Economists at home don’t fear a housing crash. Nor does the Bank of Canada, although it’s keeping a close eye on the market The Economist, too, said we shouldn’t fear a U.S.-style meltdown because, even amid all this, Canadians are still “relatively sober,” with only about 5 per cent of mortgages deemed subprime and two-thirds are insured either by Canada Mortgage and Housing Corp. or private firms.
Not only that, we don’t use our properties “as ATMs” to borrow for what we spend. And our banks know what we’re borrowing because they operate on both the mortgage and home equity line of credit sides of things.
But while any economic slump might not mean doom, it would be “very unpleasant.”
A Conservative Party campaign ad I'd love to see
“Help me, Obi-Wan. You're our only hope.”
And on that note ...
It’s a huge day for Disney as tickets go on sale for the latest in the Star Wars saga.
Accompanying the tickets is a new, widely-anticipated trailer for Star Wars: The Force Awakens, which will be aired on ESPN during Monday Night Football.
Suncor bid rejected
Canadian Oil Sands Ltd. has formally rejected Suncor Energy Inc.’s hostile bid, saying it “substantially undervalues” the company.
Calgary-based COS said today its board has unanimously recommended that shareholders reject the “undervalued, opportunistic and exploitive Suncor offer,” The Globe and Mail’s Bertrand Marotte and Jeff Lewis report.
China's growth slows
Today’s measure of the Chinese economy came in better than the markets had projected, but only just.
As The Globe and Mail’s Nathan VanderKlippe reports from Beijing, economic growth slowed to 6.9 per cent in the third quarter, which would be a blockbuster number for any other country but is the softest for China since the financial meltdown.
“Over all, today’s data suggest that while the economy is almost certainly not growing as rapidly as the official GDP figures claim, conditions nonetheless appear to have stabilized, with healthy service sector activity helping to offset continued weakness in industry,” said Julian Evans-Pritchard, the China economist at Capital Economics.
“With stronger fiscal spending in the pipeline and credit growth accelerating, we continue to see some potential upside to growth over the coming quarters.”
'That Bautista home run'
CIBC’s chief economist says there won’t be much economic payoff from the Blue Jays run for the World Series.
But hold that thought.
Here’s how Avery Shenfeld sees it: Sporting events like baseball don’t bring in much outside money. And while we’re packing sports bars, we’re ignoring those without televisions. If we’re watching the game at home, we’re not spending on pay-per-view or the theatre.
“For that matter, recent games scheduled during working hours may have cut into productivity in Toronto office towers, not to point a finger at anyone I know.”
Back to his calculations: We could be spending more on entertainment during the playoffs but there’s no impact on permanent employment. And past studies have found “no statistically significant impacts” on a World Series host city. (We’re not there yet, but I’m betting we will be.)
But ... Game Three of the ALCS is tonight, when many of us are supposed to be voting.
“Younger cohorts already are less inclined to vote than their elders, and a rush to get a seat at downtown sports bars could give them another excuse to skip going to the polls after work,” Mr. Shenfeld said.
“Polls suggest that the Liberals and NDP would have more to lose from a drop in younger-voter turnout than the incumbent Conservatives. Amidst a closely fought election, that Bautista home run could end up having economic consequences after all.”
What to watch for this week
Today marks the end of a long election campaign, and tonight’s results aren’t expected to have a meaningful impact on the markets.
But it’s certainly worth watching, particularly for any election-related moves in the Canadian dollar.
“Canadian markets have barely paid attention to this election cycle, it would seem,” said Shaun Osborne, Bank of Nova Scotia’s chief foreign exchange strategist.
“There has been little sign that investors at home or abroad are factoring the election into investment decisions in a significant way at this point,” he added.
“The [Canadian dollar] has been generally well-behaved and recent movements can be readily attirubtable to the ebb and flow of ‘normal’ market developments to a very large extent.”
The bigger deal for the dollar may come Wednesday, when the Bank of Canada releases its interest rate decision and monetary policy report.
It’s not likely to change the benchmark overnight rate, which now stands at just 0.5 per cent, but it will probably lower its economic growth projections for next year,” said National Bank of Canada.
“That would reinforce expectations of rate remaining low through next year,” the bank said.
This will be followed up Friday with Statistics Canada’s report on consumer prices in September.
Economists believe the report will show annual inflation dipping to just about 1 per cent.
Overseas, the European Central Bank meets on Thursday, but no change in policy is expected.
It’s also a huge week for corporate earnings, including the latest from IBM, Canadian Pacirfic Railway, Verizon, Yahoo, American Express, General Motors, Husky Energy, Amazon.com, AT&T and Thomson Reuters, to name but a few.