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Briefing highlights

  • Six reasons behind wild housing market
  • RBC hikes dividend as profit climbs
  • Magna warns of Trump, Brexit impact
  • Inflation climbs to 2.1 per cent
  • MacDonald Dettwiler to buy DigitalGlobal

Why homes are dear

There’s a lot going on beneath the surface of southern Ontario’s wild housing market.

Realtors say there’s simply not enough supply, and that the provincial government should open up more protected land for development. Federal policy makers, in turn, have been attacking demand with tax and mortgage qualification changes.

But Bank of Nova Scotia says there are least six things going on, which help explain the incredible price surge in Ontario’s housing market, now the centre of attention given the rapid pace of real estate inflation in Toronto and its surrounding communities.

“For many years, many economists, housing analysts, and interested observers have been flummoxed by the march toward greater heights in housing markets,” said Derek Holt, vice-president of Scotiabank Economics.

“Every time concern reaches a crescendo, something happens to extend the cycle yet again,” he added in a recent report. “This is probably one of those times in the Ontario market.”

For awhile now, Mr. Holt has been giving clients a “quick list of the fundamental supports that have extended the cycle in a richly priced market.”

And, he added, “it is perfectly legitimate to be concerned about stretched valuations, but there have been fundamental supports for the latest cyclical extension.”

Here’s Mr. Holt’s quick list:

Coming home: “The people who left for better times in the resource-based and particularly energy-rich regions of the country like Alberta are returning home. Ontario suffered net population outflows for about a decade-and-a-half to other provinces and last year the tide turned. Net interprovincial migration to Ontario turned positive last year for the first time since 2001 and it is accelerating.”

Employment: “Canada has created a whopping 239,000 jobs over the past six months. ... Full-time job creation accounts for 141,000 of this total. Ontario has created 107,000 jobs over this same period.”

Immigration: “Compared to the rate at which the Greater Toronto Area forms new households, it doesn’t take much by way of increased immigration to boost housing. Most immigration to the country is concentrated upon two to three cities including Toronto. Immigration to Canada climbed by about one-third in the year to July 31, 2016, to 321,000, which was the largest total since 1971.”

Interest rates: Borrowing on the cheap has been easy as the Bank of Canada tries to buoy the economy with low rates. Said Mr. Holt: “Two rate cuts in 2015 breathed fresh life into housing.”

The loonie: The Canadian dollar is just shy of 76.5 cents, or 37 cents below its level of about five years ago. “Most of that depreciation occurred since mid-2014 when commodities tanked. To investors with [U.S. dollars], Canadian real estate went on sale.”

More spending money: Some Canadians are getting extra in child benefits, depending on their incomes and ages of their children. “This is an extra $375 per month or so of income they didn’t previously have, and that’s per child so scale it up by the number of children. ... The added income can then be leveraged through basic mortgage/bond math on the income/payment stream.”

RBC boosts dividend

For investors in Canada’s big banks, so far, so good.

Royal Bank of Canada is now the second to raise its dividend amid a stronger first-quarter profit, following a similar move by Canadian Imperial Bank of Commerce Thursday.

RBC posted a profit that topped $3-billion, or $1.97 a share, up from $2.4-billion or $1.58 a share a year earlier.

The bank hiked its quarterly dividend by 4 cents to 87 cents.

“As the operating landscape evolves, we are focused on our strategy of building a digitally enabled relationship bank to meet the changing expectations of our clients,” chief executive officer Dave McKay said in a statement.

Inflation jumps

Inflation stepped on the gas in January. Literally.

A jump in pump prices helped spark a rise in Canada’s annual inflation rate, which climbed in January to 2.1 per cent from December’s 1.5 per cent. Carbon taxes in Ontario and Alberta also played a role.

If you strip out gas prices, which climbed almost 21 per cent from a year earlier to mark the fastest pace since the fall of 2011, consumer prices rose just 1.5 per cent, Statistics Canada.

Food prices fell, as did the cost of electricity, while natural gas surged.

Magna warns on protectionism

Magna International Inc. is raising its dividend 10 per cent, but warning that Brexit and the election of Donald Trump could harm its business and the auto sector generally, The Globe and Mail’s Greg Keenan reports.

"The election of protectionist governments could lead to the withdrawal of some countries from, or renegotiation of, multilateral trade, economic or currency regimes such as the European Union, North American Free Trade Agreement and Trans-Pacific Partnership," Magna said in its fourth-quarter and year-end financial results.

"The automobile industry is a highly globalized industry which is currently dependent on open borders and the free movement of goods, services, people and capital, particularly in Europe and North America,” it added.

“The continued growth of protectionist sentiments and implementation of measures which impede the free movement of goods, services, people and capital could have a material adverse effect on our operations, profitability or results of operations."

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