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business briefing

Briefing highlights

  • Speculators raise bets against the loonie
  • Toronto home prices climb, Vancouver eases
  • RBC hikes some fixed mortgage rates
  • Speculators raise bets against loonie

    Speculators are raising their bets against the Canadian dollar, which is now trading for about 74 cents (U.S.).

    The latest report from the U.S. Commodity Futures Trading Commission shows the net short position against the loonie has climbed to $1.6-billion, the highest in months.

    The report was just released, but the numbers are as of last Tuesday, the day of the U.S. election that put Donald Trump in the White House.

    The latest rise in the shorts wasn’t particularly large, but the trend was clear for the loonie, which has been hurt by speculation over the path of interest rates in Canada and the United States, a stronger American dollar and freshly lower oil prices.

    Markets expect the Federal Reserve to raise its benchmark rate in December, leaving the Bank of Canada sitting on its hands for some time, which would make the loonie less attractive.

    “CAD sentiment has deteriorated in eight of the past 10 weeks and 11 of the past 14, widening the net short to $1.6-billion at levels last seen in March,” Bank of Nova Scotia chief foreign exchange strategist Shaun Osborne and his colleague Eric Theoret said of the CFTC report, referring to the loonie by its symbol “The broader turn appears to be one of capitulation on the part of bulls and increasing confidence on the part of bears, the latter rebuilding their position to half the record (108,000 contracts) level reached in late 2015,” they added.

    “The bears have room to run.”

    Toronto home prices surge

    Toronto now rules the roost among Canada’s housing markets by a wide margin, with home prices surging in October.

    And while Vancouver prices are up sharply on an annual basis, they slipped 0.6 per cent last month to mark the first decline in almost two years, according to the latest reading of the Teranet-National Bank home price index.

    This comes amid mortgage and tax measures by the federal government to cool the overheated markets, though the first phase came into effect only in mid-October.

    The B.C. government’s 15-per-cent tax on foreign buyers of Vancouver area homes, however, was slapped on earlier and is believed to already have had an impact.

    “Sales should continue to decline in Vancouver due to the new rulings,” National Bank economist Marc Pinsonneault said in a commentary accompanying the report.

    “We expect home prices to decline 10 per cent over all (20 per cent for detached dwellings) over the next 12 months.”

    According to the index, prices in Toronto rose 1.2 per cent in October from September, and at a record pace of 17.4 per cent from a year earlier.

    Vancouver prices were still up 22.5 per cent from a year earlier.

    Other monthly readings: Hamilton up 1.4 per cent, Quebec City up 1.1 per cent, Calgary up 0.5 per cent, Winnipeg up 0.4 per cent, Victoria up 0.3 per cent, Ottawa-Gatineau and Halifax down 0.2 per cent, and Montreal down 1 per cent. Edmonton was flat.

    Other annual readings: Victoria up 17.9 per cent, Hamilton up 15 per cent, Winnipeg up 3 per cent, Ottawa-Gatineau up 1.3 per cent, Halifax up 0.6 per cent, Montreal down 0.6 per cent, Quebec City down 0.8 per cent, Edmonton down 0.9 per cent, Calgary down 4.9 per cent.

    Across the country, according to a separate monthly report from the Canadian Real Estate Association, home sale climbed 2.4 per in October from a month earlier and 2 per cent from a year earlier.

    Average prices rose 5.9 per cent over the year, and the MLS home price index, deemed a better measure, surged 14.6 per cent.

    “The tight balance between housing supply and demand in Ontario’s Greater Golden Horseshoe region is without precedent (including the GTA, Hamilton-Burlington, Oakville-Milton, Guelph, Kitchener-Waterloo, Cambridge, Brantford, the Niagara Region, Barrie and nearby cottage country),” the realtors group said.

    “In October, the number of months of inventory ranged between one and two months in many of these housing markets, and has slipped to below one month in Mississauga, the Durham Region, Orangeville, Cambridge and Guelph.”

    Economists believe that, while the Greater Toronto Area and its environs are the strongest markets in the country, these, too, will ease in time.

    “Given increasingly stretched affordability, we expect the latest tightening in mortgage qualifying rules will lead to a cooling in GTA housing demand over the coming year,” Bank of Nova Scotia senior economist Adrienne Warren said in a new forecast Monday.

    “At the same time, severely constrained supply - the ratio of sales to new listings climbed to a seven-year high in September - will likely keep upward pressure on prices in the near term.”

    As for Vancouver, home sales have already plunged by 40 per cent since February and are “trending below their decade average,” Ms. Warren said.

    “A severe lack of affordability compounded by recent policy changes has curtailed both domestic and foreign purchases, most notably for single-family homes,” Ms. Warren said, citing the various new rules and taxes that have come into play.

    “Benchmark home prices in October were up a staggering 25 per cent year over year, but have begun to soften on a month-over-month basis,” she added.

    “We expect Vancouver home prices could face further downward pressure in the year ahead, with overall market conditions moving back into balance amid the sharp drop in sales.”

    Calgary, meanwhile, appears to be hitting bottom.

    “While the region’s better affordability suggests it will be less impacted by the new mortgage rules than Vancouver or Toronto, weak labour market conditions and softening demographics will continue to suppress housing demand,” Ms. Warren said.

    Some economists, Ms. Warren among them, aren’t convinced that measures to stem the flow of foreign money into Canada’s housing market will succeed over time, though they will in the short term slow speculation.

    “Evidence from other jurisdictions that have imposed new taxes or other measures to stem foreign purchases, including Australia, New Zealand and the U.K., have not experienced a notable sustained falloff in demand or prices,” Ms. Warren said.

    “Canadian real estate will likely remain popular with international investors looking for relative safety of capital and diversification, as well as with new immigrants.”

    RBC boosts rates

    Royal Bank of Canada is boosting its five-year mortgage rate, a move that follows rival Toronto-Dominion Bank and responds to spiking bond yields as well as Ottawa’s tighter mortgage rules, The Globe and Mail’s Tim Kiladze reports.

    Starting Thursday, a new RBC five-year mortgage with an amortization period of 25 years or less will cost 2.94 per cent, up from 2.64 per cent. The bank also increased its three-year and four-year rates for these mortgages to 2.69 per cent and 2.79 per cent, respectively.

    For mortgages with amortization periods longer than 25 years, the rates climb even more quickly. The annual cost of a five-year mortgage of this length will rise 40 basis points to 3.04 per cent.