Canada has fallen from grace on global housing markets.
That was supposed to happen, setting the stage for cooler, and hopefully more sustainable markets going forward.
Where once Canada ruled the roost, many markets have fallen in the quarterly rankings from Knight Frank, the latest report putting Toronto, Hamilton, Calgary, Edmonton and Winnipeg near the bottom of the list for house price gains.
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Vancouver still ranks high for the second quarter of the year, but that can be expected to change as the market slumps even further.
12-MONTH % CHANGE
SOURCE: KNIGHT FRANK
This is what federal and provincial policy makers wanted, the former bringing in new Canada-wide mortgage-qualification rules and the latter initiatives including taxes in foreign buyers of real estate in British Columbia and Ontario.
Those measures were meant to cool down bubbly areas such as Vancouver and Toronto, and, indeed, economists say they’ve largely succeeded in staging a soft landing.
“In some cities, the performance of the mainstream and prime market is diverging,” Knight Frank said.
“A lack of prime supply is cushioning the top segment of the market in Sydney and Dubai, where annual prime price growth is closer to 5.7 per cent and -0.8 per cent, respectively,” the real estate consulting group added.
“Elsewhere, tax stamp duty (Vancouver, Toronto, Hong Kong) has led to slower growth at the luxury end of the market.”
Compare this to a year ago, when Knight Frank’s report for the second quarter of 2017 put Toronto in the No. 1 spot, with an annual price gain topping 29 per cent, and Hamilton at No. 3 and almost 26 per cent. At that point, though, Vancouver was well down the list, with an annual price rise of about just 8 per cent.
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By the first quarter of this year, of course, as the new mortgage rules came into effect and as provincial policy measures had time to bite, the rankings had changed markedly where Canada is concerned.
Vancouver was then in the No. 4 spot, with a price jump of almost 15.5 per cent, while cities such as Toronto and Hamilton had faded from memory.
In time, Vancouver should fall further, as well. Note, too, the gap measured in the second quarter.
“Of those countries where a rate rise has taken place in 2018, a number have a significant gap between their strongest and weakest performing city (16 per cent in Canada, 11 per cent U.K., 10 per cent U.S.,” Knight Frank said.
These are second-quarter numbers, of course.
The latest reading of the Teranet-National Bank home price index shows costs “recovering some of the ground lost in previous months.”
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That’s largely because of Toronto, said National Bank senior economist Marc Pinsonneault, while Vancouver and Calgary continue to decline.
Montreal and Ottawa, though, are on fire, Friday’s measure showed.
“This is consistent with the performance of the home resale market,” Mr. Pinsonneault said.
Looking at those overall numbers, Capital Economics said home price inflation could temporarily “rise a touch further” in the short term,” but don’t expect much beyond that.
“On a nationwide basis, the sales-to-new listing ratio points to a further rise in house price inflation to more than 5 per cent,” said its senior Canada economist, Stephen Brown.
“We certainly wouldn’t bet on that,” he added.
“While the rebound in Toronto home sales earlier this year helped to support prices over the summer, sales appear have plateaued in recent months. And with many of the owners who are taking delivery of condos facing negative cash flows, there could well be a rise in new listings in the coming months.”
Toronto-Dominion Bank senior economist Brian DePratto also cited rising interest rates, with more to come, having an impact.
“More expensive debt crimps household budgets, with housing the most obvious point of impact (other rate sensitive areas, like auto sales, have also been moderating),” he said.
“As it stands, there doesn’t seem to be too much to get worried about.”
We’ll get more information today when the Canadian Real Estate Association (CREA) releases its report on September national sales and prices.
We’ve already seen reports from some local real estate boards, but Bank of Montreal senior economist Robert Kavcic expects today’s to show sales slumped 6.5 per cent from a year earlier, with average prices down 1 per cent but the MLS home price index, which is seen as a better measure, up 2.5 per cent.
Vancouver, of course, tends to skew the national picture.
“Indeed, Vancouver is the major weak spot currently, with sales down 43.5 per cent, year over year, and prices for both detached homes and condos correcting,” Mr. Kavcic said.
“Toronto is much more stable, but still subdued, while Ottawa and Montreal remain the most solid performers.”
Here, for the record, is the latest five-year outlook from Moody’s Analytics and RPS Real Property Solutions:
Average annualized projected single-family house price growth, per cent, 2018Q2-2023Q2
May 2018 forecast
August 2018 forecast
Source: RPS, Moody’s Analytics
What to watch for this week
The Trump administration is expected to ramp up its trade battle with China today, but with words rather than further action.
Or, as JPMorgan Chase global foreign exchange strategist Daniel Hui put it, “no sticks, no stones, just harsh language.”
Observers believe the Treasury Department’s semi-annual report on those it accuses of fiddling with their exchange rates will again fall short of calling China a currency manipulator, though that’s a possibility.
“We think the monitoring list should remain unchanged, with the usual suspects getting a nod: China, Germany, Japan, Korea and Switzerland,” said Mark McCormick, North American head of foreign exchange strategy at TD Securities.
“We don’t think the report will label China a currency manipulator, which is the anticipation for markets,” he added.
“Indeed while Trump has lambasted both China and Germany for unfair currency practices, we suspect that rhetoric falls into the brinksmanship category rather than an official policy move.”
This latest report, the fourth under the current administration, covers the first half of the year.
“So if Treasury again fails to use the ‘manipulator’ label, it will be more likely to do so next April, as the yuan weakened more in the latter half of this year,” said BMO senior economist Jennifer Lee, also citing speculation that the U.S. and Chinese presidents may meet at the end of next month at a G20 gathering in Argentina.
That would be “a positive step,” Ms. Lee said.
“By then, China’s just-announced record trade surplus with the U.S. in September will be old news (we will have October data by then),” she added.
“That’s a good thing as it would have made for a more uncomfortable meeting, unless October trade is worse.”
Even a “manipulator” label wouldn’t change the game all that much, said JPMorgan’s Mr. Hui, because China and the U.S. have already hit each other with tariffs.
“There are no concrete additional actions that even an explicit currency manipulator finding would result in to further escalate the U.S.-China conflict,” Mr. Hui said.
“At most, it would only reinforce and validate the existing U.S.-China tension over broad economic policy,” he added.
“U.S. official rhetoric has already warned against a currency devaluation response to tariffs, although we still expect further [yuan] trend depreciation as one consequence of the likely further escalation of the trade war.”
The Treasury and CREA reports are just two things to watch for in what’s shaping up to be a busy week for investors, with quarterly corporate results also picking up steam, key after last week’s market turmoil.
And, of course, this is the week marijuana becomes legal in Canada.
Here’s what else is on tap:
The recent trade pact between Canada, the U.S. and Mexico will take some steam out of the Bank of Canada’s widely watched business outlook and senior loan officers surveys.
The uncertainty surrounding negotiations over what was previously the North American free-trade agreement had, of course, been weighing on the minds of businesses. That’s now settled but this third-quarter survey took place while the battle was still raging.
“The Q3 business outlook survey (BOS) could show some softening relative to a relatively upbeat Q2 report – but any such deterioration will likely be discounted given the Q3 survey was conducted prior to the Oct. 1 announcement of a renegotiated trade agreement between the U.S., Mexico and Canada,” said economists at Royal Bank of Canada.
“The BoC may also have conducted informal follow-up interviews following the agreement,” they added in a lookahead.
“Given the significant developments on trade between survey periods, though, it will likely be the Q4 BOS survey that will be viewed as providing a truer picture of underlying trends in business conditions. Our expectation is that policy, near term, will be more influenced by current indications of growth remaining close to the economy’s potential rate.”
Watch, too, for the U.S. government’s report on September retail sales, which economists generally expect to show a gain of 0.7 per cent from August.
Bank of America also kicks off the week as one of the first to report quarterly results.
Okay, here we go: Quarterly earnings reports will set the tone, with biggies including BHP Billiton Ltd., BlackRock Inc., CSX Corp.., IBM, Johnson & Johnson, Morgan Stanley and Netflix Inc.
Markets will also be watching for Chinese inflation and euro zone trade numbers.
No, Hump Day doesn’t mean you get to take the day off to smoke pot.
But you could if you want to, as marijuana becomes legal.
Besides consumers, legalization is obviously having a huge impact on everything from business to the markets, as documented by our coverage, below.
“This will show up in the fourth-quarter GDP statistics, with Statistics Canada set to include both legal and illegal cannabis sales for the first time,” said Mr. Brown of Capital Economics.
“Its estimates suggest sales will be $5-billion in annualized terms in the final quarter,” he added.
“That would boost the annualized growth rate by around 0.7 of a percentage point and provide a favourable base for growth in 2019.”
On perhaps less interesting but equally important matters, observers also project Statistics Canada’s monthly manufacturing report will show a drop of about 0.7 per cent or more in factory sales in August, though some expect to see a slim gain.
“After taking a step forward in July, factory sales likely took a similar sized step back in August,” said Royce Mendes of CIBC World Markets.
“Already released export data combined with information on auto production and the currency all point to a decline of 1 per cent in manufactured shipments,” he added.
“While Canadian factories still have a bit more room to run before bumping up against capacity constraints, already high inventory levels could see production cool down, a negative for GDP.”
Markets will also scour the minutes from the last Federal Reserve meeting for clues.
Earnings: Kinder Morgan Canada Ltd. and U.S. Bancorp are among the biggies.
European countries were to have given their budget plans to the EU Commission at the beginning of the week, setting the stage for a European Council summit in Brussels.
Watch for whatever Italy does, given that its fiscal stance has already helped roil markets, and, of course, the latest developments on the Brexit front.
“The Italian budget will be presented to the EU Commission (Monday), but the EU reportedly sees the draft as a significant deviation from the 1.9-per-cent budget deficit as recommended by the EU rules, and thus we expect the EU to officially reject the proposal,” observers at Citigroup said in a report.
At the summit, they added, “we should expect more clarity on the key issues of the Irish border and a potential trade deal between the two sides after Brexit.”
Earnings: American Express Co., Canadian Pacific Railway Co., Philip Morris International Inc., The Blackstone Group LP and The Travelers Cos.
OTTAWA — Canada Post has issued what it calls a “time-limited” contract offer to its employees in hopes of ending rotating strikes that have created a historic backlog of undelivered parcels.
The offer Wednesday to members of the Canadian Union of Postal Workers came just hours after online sales and auctioning giant eBay called on the federal government to legislate an end to the contract dispute.
The Crown corporation’s four-year offer includes annual two-per-cent wage hikes, plus signing bonuses of up to $1,000 per employee.
The proposal, which the agency said was worth roughly $650 million, also contains new job-security provisions, including for rural and suburban carriers who have complained about precarious employment, and a $10-million health-and-safety fund.
But Canada Post said the offer was only viable if it can be agreed to before the holiday shopping rush. It has imposed a deadline of Nov. 17 for Canadian Union of Postal Workers members to accept the deal.
“This measure is to ensure we can reach a just-in-time resolution and deliver for Canadians ahead of the holiday rush,” the Crown corporation said in an email.
“The time limit is necessary as this offer is only affordable if we can clear the backlogs caused by the union’s strike activity and effectively deliver the quickly arriving massive Black Friday and Cyber Monday volumes.”
The head of eBay Canada sent a letter to the prime minister late Tuesday, urging him to force an end to the labour dispute. Andrea Stairs, eBay’s general manager for Canada, also warned that quick action was needed to ensure retailers don’t lose out on the Black Friday and Cyber Monday sales.
“I encourage the government to explore all available legislative solutions to alleviate the current situation,” Stairs wrote in the letter, which was also sent to Labour Minister Patty Hajdu and Public Services Minister Carla Qualtrough.
Continued rotating strikes at Canada Post will result in significant losses for small and medium-sized businesses across the country, Stairs warned, noting that smaller firms are unable to negotiate lower shipping fees with other delivery services.
While many businesses have adapted as best they can since the strikes began on Oct. 22, Stairs said adjustments online sellers have made so far to avoid delivery disruptions are unsustainable.
“Black Friday and Cyber Monday are critical sales opportunities for Canadian small and micro retailers, particularly those that sell into the U.S. — the largest consumer market in the world,” she wrote.
“Should the Canada Post service disruptions continue through this key retail moment, these (smaller businesses) will be seriously disadvantaged in competing for U.S. demand.”
Black Friday and Cyber Monday, which are annual shopping days known for their deep discounts, fall this year on Nov. 23 and 26.
Prime Minister Justin Trudeau warned last week that his government would look at “all options” to bring the Canada Post labour dispute to an end if there was no significant progress in contract talks. Trudeau did not elaborate on what actions could be taken, although the previous Conservative government passed legislation to end a two-week lockout of postal employees in 2011.
A spokeswoman for Hajdu said Wednesday the government recognizes Canadians and small businesses rely on the postal service, and encouraged corporate and union negotiators to keep talking.
“We urge both parties to reach a deal soon to reduce the impacts to Canadians, businesses, Canada Post and their workers,” Veronique Simard wrote in an email.
Canada Post said Wednesday it was facing an unprecedented backlog of shipments and warned the situation could escalate quickly.
Postal union members picketed in Toronto on Tuesday for the third time in the past two weeks. The latest job action in Toronto was over by Wednesday morning, but the shutdown added to the backlog of items already waiting to be sorted and shipped, said Canada Post spokesman Jon Hamilton.
“We have now surpassed 260 trailers of parcels and packets waiting to be unloaded,” Hamilton wrote in an email, referring to the Gateway parcel processing plant in Toronto.
“The union just took down their pickets but we are backed up beyond anything we’ve ever seen in our history. With Toronto out on strike, we also missed two days of customer pickups, which will likely push that trailer total over 300 today.”
The previous peak for backlogged trailers reached 220 during last year’s Black Friday and Cyber Monday shopping period, he said.
The union is negotiating contracts for 50,000 of its members in two divisions — urban carriers and rural and suburban workers. It said Tuesday that Canada Post had failed to address key issues, including health and safety, staffing levels and job security.
The two sides have been negotiating for almost a full year, with little success despite the assistance of government-appointed mediators.
Canopy Growth Corp., Canada’s largest cannabis producer, saw its sales slide and its losses widen in the quarter that immediately preceded the launch of the legal recreational marijuana market.
Shares in the Smiths Falls, Ont.-based grower plunged more than 10 per cent Wednesday after the company revealed a $330-million net loss on revenue of $23-million in the quarter ended Sept. 30, an 11-per-cent drop in revenue from the previous quarter.
Co-chief executive Bruce Linton said the company took a deliberately cautious approach to the legalization of recreational cannabis on Oct. 17 – a tack that likely had a negative effect on sales. Just $700,000 of the company’s quarterly revenue came from deliveries to the recreational market – to stock shelves ahead of legalization. Canopy said it prioritized wholesale shipments to markets in Alberta and Quebec, which have bricks-and-mortar retail outlets, over online-only operations such as Ontario. He said Canopy stocked retailers with mostly flower to start, before expanding to soft-gel capsules and now prerolled joints, a category that proved to be among the most popular with consumers in the early days of legalization.
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The focus, Mr. Linton said, is on the long term.
“We want to be like a sustaining, winning race rather than a flash out of the gate,” he said on a call with analysts Wednesday.
Canopy is the third of the sector’s largest firms to report earnings this week, joining Aurora Cannabis Inc. and Tilray Inc. Together, the three companies – valued collectively at almost $30-billion – booked $66-million in total revenue and operating losses of $353-million.
Analysts had predicted that cannabis growers would sell more than they did in September to the recreational market, which launched two weeks after the reporting period ended. They expected Canopy to show revenue of as much as $91-million, according to a research note by Cowen Inc.
“It’s the first [time] in our history that I’m aware of where we actually had a slowdown,” Mr. Linton said, attributing the sales dip to lower medical sales in Canada and Germany. “But it was more of a distraction than a pattern.”
Canopy’s stock tumbled 10.9 per cent Wednesday in New York, falling to US$34.30 a share. Investors were dumping other pot stocks, too: Tilray fell 8.3 per cent, Aurora’s shares were down 8 per cent, and Aphria Inc. dropped 7.4 per cent
Despite supply issues plaguing the industry as a whole, Canopy is not low on product. As of Sept. 30, its inventory levels grew to 31,214 kilograms of cannabis flower, 21,499 litres of oil and 1,497 kilograms of soft-gel pills. That inventory and large production footprint may put Canopy “ahead of many other licensed producers (LPs) in its ramp and ability to supply adult-use channels,” analysts at BMO Nesbitt Burns Inc. wrote Wednesday. “We believe there is significant uncertainty for the industry’s ramp schedules.”
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But accelerating for recreational sales and overseas expansion isn’t coming cheap. Canopy posted operating losses of $215-million for the quarter. It took a net write-off of $16-million related to culling plants because it didn’t have a processing licence at one of its facilities.
Canopy is aiming to capture a 30-per-cent share of Canada’s recreational market. “Now, it’s crank time,” Mr. Linton said. “And the provinces are starting to gain their momentum as well.”
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Last Updated Wednesday, November 14, 2018 5:13PM EST
OTTAWA — Canada Post has issued what it calls a "time-limited" contract offer to its employees in hopes of ending rotating strikes that have created a historic backlog of undelivered parcels.
The offer came just hours after online sales and auctioning giant eBay called on the federal government to legislate an end to the Canada Post contract dispute.
The Crown corporation’s four-year offer, provided to The Canadian Press, includes annual two-per-cent wage hikes, plus signing bonuses of up to $1,000 per employee.
The $650-million proposal also includes new job-security provisions, including for rural and suburban carriers who have complained about precarious employment, and a $10-million health-and-safety fund.
But Canada Post says it’s only affordable if it can be agreed to before the holiday shopping rush, so it has imposed a deadline of Saturday, Nov. 17 for Canadian Union of Postal Workers members to accept the deal.
The prime minister warned last week that his government would look at "all options" to bring the labour dispute to an end if there was no significant progress in Canada Post’s contract talks with the union.