Briefing highlights
- Housing affordability to worsen
- Toronto home sales rebound
- Bank of England raises key rate
- Powell expected to be named Fed chair
- Markets at a glance
- Bombardier loss deepens …
- … as its strikes C Series deal
- BCE profit rises in quarter
- Cenovus posts smaller loss
- Canadian Natural swings to profit
- Small grocers raised bread price alarm
Housing affordability: Ouch
Housing affordability is already at its worst in Toronto and Vancouver since the early 1990s. But, as the song goes, you ain't seen nothing yet.
Rising interest rates are going to bite deep in those two cities particularly - far more than they would have two decades ago, National Bank of Canada warns.
This comes not only as rates rise but as provincial and federal officials move to ease Canadian housing froth and debt concerns, the latest being new mortgage measures from the commercial bank regulator, the Office of the Superintendent of Financial Institutions.
"The Toronto and Vancouver housing markets are particularly more sensitive to rising interest rates compared to other cities," National Bank senior economist Matthieu Arseneau and economist Kyle Dahms said in their latest look at affordability across the country.
"This, combined with more stringent qualifying criteria for uninsured mortgages announced last week by OSFI, means that those markets are poised to experience home price declines in 2018."
Affordability across Canada worsened in the third quarter, National Bank's study found, based on the mortgage payment on a representative home as a percentage of income, or MPPI.
That measure rose two percentage points in the quarter. But, more dramatically, it climbed 5.4 points in Vancouver, 3.7 in Victoria and 2.5 in Toronto.
That came as the benchmark five-year mortgage rate rose by 28 basis points and median household income rose 1 per cent, National Bank said.
"The annual increase in the MPPI was 4.7 points, as a 1.9-per-cent rise of median income was more than offset by a 12.1-per-cent rise of home prices and a seven-basis-point upswing of the mortgage rate (a first increase in three years)," said Mr. Arseneau and Mr. Dahms.
Affordability has been a huge issue in both Toronto and Vancouver amid high and fast-rising prices - thus the measures from federal and provincial policy makers.
It got worse in the third quarter, National Bank said. So much so that affordability in Vancouver worsened at the fastest pace since 1994, hurt by both higher rates and prices.
Prepare for something even harsher
"Given the Bank of Canada's stated intention to continue the normalization of monetary policy over the coming year, we expect a cumulative increase of about 100 basis points for the five-year mortgage rates from the trough," said Mr. Arseneau and Mr. Dahms.
"Historically, such a change may have had a limited impact on the housing market, but this time could be different," they added.
"Twenty years ago, a 100-basis-points increase in mortgage rates would have caused a deterioration of our national affordability measure by 3.5 percentage points. Today, a similar increase has an impact 60-per-cent larger given much higher home prices."
In their latest look at the housing market, released Wednesday, Royal Bank of Canada chief economist Craig Wright and senior economist Robert Hogue flagged similar issues.
"Back-to-back hikes by the Bank of Canada in July and September suggested that a multiyear hiking cycle may be under way," they said.
"This sparked a run-up in bond yields and material increase in mortgage rates. The extent to which rates have risen to date pose a moderate risk to the housing market. Any further rate increases, however, could exacerbate affordability issues in some of Canada' major markets."
Read more
- James Bradshaw: Mortgage stress-test rules will make switching lenders harder, critics say
- Janet McFarland and James Bradshaw: Critics say new mortgage rules will push borrowers to unregulated lenders
- Janet McFarland: Toronto housing affordability now worse than Vancouver
- How much you have to earn under new mortgage rules (or how much less home you can buy)
Toronto sales rebound
And on that note, Toronto area home sales are rebounding after their short policy-induced slump, The Globe and Mail's Janet McFarland reports.
Sales climbed 12 per cent in October from September, according to the Toronto Real Estate Board, as the average price rose 0.6 per cent to $780,104.
Read more
Super (Duper) Thursday
Today is what markets usually refer to as Super Thursday, when the Bank of England releases its rate decision, meeting minutes and inflation report.
I added "Duper" because it could be a heck of a day for both the Bank of England and the Federal Reserve.
First, the Bank of England today raised its benchmark bank rate by one-quarter of a percentage point to 0.5 per cent, the first increase since the financial crisis.
Governor Mark Carney and his colleagues also pointed to several uncertainties, notably Brexit.
"The decision to leave the European Union is having a noticeable impact on the economic outlook," the central bank said in its decision.
"The overshoot of inflation throughout the forecast predominantly reflects the effects on import prices of the referendum-related fall in sterling," it added.
"Uncertainties associated with Brexit are weighing on domestic activity, which has slowed even as global growth has risen significantly. And Brexit-related constraints on investment and labour supply appear to be reinforcing the marked slowdown that has been increasingly evident in recent years in the rate at which the economy can grow without generating inflationary pressures."
The central bank also pegged economic growth at 1.6 per cent next year, and 1.7 per cent in each of 2019 and 2020.
"The pound and gilt yields slid sharply on the back of the removal of the line that interest rates may have to rise faster than markets currently expect," said CMC Markets chief analyst Michael Hewson.
"The removal of this line suggests that any further hikes are likely to come much further out into 2018. This is about as much as a dovish hike as you can get ."
Next, across the pond, as they say, President Donald Trump is expected to name the next Fed chair to replace Janet Yellen.
Current Fed governor Jerome Powell is widely believed to get the nod, and reports say the Trump administration has already told him.
Federal Reserve governor Jerome Powell
Joshua Roberts/Reuters
Mr. Powell is in line with Ms. Yellen's policies, so there wouldn't be that much change in that sense, though there are also three board of governors seats to be filled, including the vice-chair position.
"Powell would be an underwhelming choice, but his nomination won't alter the monetary policy outlook," said Paul Ashworth, chief U.S. economist at Capital Economics.
Markets, though, are "looking past" the President's other big decisions for the Federal Open Market Committee, the U.S. central bank's policy-setting panel, said Bipan Rai, executive director of macro strategy at CIBC World Markets.
"True, the Fed chair yields considerable power over policy and directing the meetings of the FOMC, but one of the primary responsibilities of the chair is to corral consensus," Mr. Rai said.
"Failure on the part of the Fed chair to corral consensus amongst the board would result in a loss of confidence and, possibly, the Fed chair being outvoted on a rate decision," he added.
"There is a precedent for this. In early 1986, then Fed chair Paul Volcker was outvoted, though his decision stood. Still, the inability to convince others on the board to vote with him led Volcker to tender his resignation to then-treasury secretary James Baker (Baker would manage to convince Volcker to stay on for another year)."
Read more
- Bank of England hikes rates for first time in a decade
- Trump set to nominate Jerome Powell as Fed chair: report
Markets at a glance
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Bombardier loss deepens
Bombardier Inc. posted a deeper loss today as it heralded a big deal for its C Series program.
The Canadian plane and train maker, which has handed control of the C Series to Airbus, reported a quarterly loss of $117-million, or 5 cents a share, diluted, compared with a loss of $94-million or 4 cents a year earlier.
Revenue rose to $3.84-billion from $3.74-billion.
Bombardier also said it signed a letter of intent with an unnamed European carrier for 31 C Series planes, with options for 30 more, which would come to $4.8-billion after all is said and done.
"Looking forward, as Airbus joins the program, and with the C Series continuing to prove itself in service, we expect sales momentum to accelerate quickly," chief executive officer Alain Bellemare said in a statement.
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Earnings pour in
- BCE’s profit rises as it adds more wireless subscribers
- Cenovus posts smaller loss as production more than doubles
- Canadian Natural swings to profit on higher production, prices
- Shell beats expectations as profit jumps on refining
- SNC-Lavalin profit more than doubles on WS Atkins deal