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Bank of Canada rate cut will put already hot real estate market ‘on steroids’

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A home that is sold is photographed along Runnymede Rd. in Toronto on Wednesday, March 4, 2020.

Tijana Martin/The Globe and Mail

The Bank of Canada’s interest-rate cut threatens to overheat the country’s booming housing markets, making it easier for home buyers to borrow and further driving up real estate prices.

A number of cities, including Toronto and others in Southern Ontario, Ottawa, Montreal and Victoria, were already under pressure with strong demand for homes and dwindling supply inflating property values.

But with the coronavirus spreading around the world and business activity slowing, the central bank slashed its key interest rate Wednesday to 1.25 per cent from 1.75 per cent in an attempt to keep the economy humming. That followed deep anxiety in public markets where investors sought protection in bonds, sending yields down.

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“The dramatic rate cuts and the related bond rally to record low yields will put housing on steroids,” said Douglas Porter, chief economist with Bank of Montreal. “This will probably override consumer caution related to the coronavirus, although there may be a temporary chill in activity due to those concerns.”

Realtors in the Toronto region say the market was active in January and February because of the shortage of home listings and growing demand. They say the climate is reminiscent of 2017, when prices were increasing rapidly and frantic buyers were making offers well over asking. The average selling price of a home reached $910,290 last month, a 17-per-cent increase over the previous year.

In the Niagara area, the benchmark selling price has nearly doubled over five years as investors have flocked to the U.S. border region because of the relatively low house prices. “Rate cuts typically increase interest and give buyers more buying power,” said Brad Johnstone, a realtor with Royal LePage who has worked in the Niagara region for more than two decades. “Low inventory and high demand are still fuelling a strong real estate market. … Prices keep going up,” he said.

In Montreal, the number of sales hit a record high last year and the area’s real estate board has said the city has entered a “phase of exuberance.” In Victoria, the benchmark selling price is up 4 per cent over the past year and the national housing agency, Canada Mortgage and Housing Corp., has said the region has a “high degree of vulnerability” because of accelerating prices and overvaluation.

In the greater Vancouver area, sales are rebounding dramatically and the average selling price is starting to rise again after housing policies slowed activity in 2018. “Demand has been picking up steadily and supply is low. Anytime that happens there is upward pressure on prices,” said the area’s real estate board president Ashley Smith, calling the rate cut helpful for buyers.

The federal Finance Department announced changes to its stress test last month for insured mortgages by making it more responsive to market mortgage rates, which have been falling. Some economists had warned that move alone could overstimulate hot markets.

Wednesday’s rate cut, the first since the oil crash in 2015 when the central bank reduced the key interest rate twice to ward off a recession, and the change in the mortgage stress test are expected to further stimulate the real estate market.

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“It will accelerate an already active market. … Multiple offers and competition are rampant across Southern Ontario and Ottawa,” said Christopher Alexander, Re/Max’s regional director for Ontario and Eastern Canada. “Even before this rate cut, mortgage rates were historically low.”

Corinne Lyall, a broker owner of Royal LePage Benchmark in Calgary, said prospective home buyers are asking “Should I take advantage of this and how long do you think it will last?” Ms. Lyall expects the rate cut to give buyers an opportunity to lock in preapproved mortgage rates and get into the Calgary market, which has suffered from the oil slump and economic downturn.

The lower interest rate will make it easier for consumers to get a bigger mortgage, refinance their home loans and take out lines of credit. That is expected to drive up household debt, which is at a record high of $2.3-trillion and had been one of the Bank of Canada’s top concerns. In its statement announcing the rate decision, the central bank did not mention household debt or the real estate markets.

Consumers had been reducing their lines of credit since the Bank of Canada raised interest rates three times in 2018. The higher borrowing costs made it harder for consumers to service their debt, leading to an uptick in delinquency rates. Equifax said the Bank of Canada has given those consumers a temporary reprieve, but warned against loading up on debt on the expectation that rates would remain at this level.

“That stress should go down,” said Bill Johnston, vice-president at Equifax Canada. “Our concern is that they start to grow that line of credit again.”

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

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