The Globe and Mail’s market strategist offers eight thoughts on the research, analysis and ephemera that’s crossed his desk this week.
1. Scotiabank strategist Hugo Ste-Marie highlighted the release of the U.S. leading economic indicator index this week which, at minus-7.6 per cent year-over-year, is consistent with economic contraction and recession. The coincident leading indicator, however, is up 1.3 per cent year-over-year, and needs to decline in order to reaffirm the leading indicator signal.
2. BofA Securities analyst Ebrahim Poonawala wrote an update on Canadian bank stocks after describing them a “dicey proposition” in his 2024 report on the sector. He noted that almost half a trillion dollars in mortgages are scheduled to renew at much higher rates in 2024 and 2025, a blow to consumer financial health. The analyst expects “noisy” earnings reports from the banks as restructuring charges blur operating profit growth. Every 10 basis-point rise in provisions for credit losses represents a roughly 6-per-cent decline in profits. Consensus earnings estimates for 2024 have been reduced by 11 per cent so far this year. His notable ratings include a “buy” rating on TD Bank TD-T and an “underperform” on CIBC CM-T.
3. BMO chief economist Doug Porter noted that domestic credit growth came in at 2.9 per cent year-over-year, the lowest rate in 30 years. It’s also the first time in 30 years that credit growth has trailed disposable income improvement.
4. J.P. Morgan global equity strategist Mislav Matejka expects that weakening U.S. economic growth and falling corporate pricing power will place downward pricing pressure on banks, autos, consumer discretionary and (non-aerospace and defense) industrials.
5. CIBC economists Benjamin Tal and Katherine Judge published a report called Trying Times, an in-depth look at the domestic housing market with some remarkable data points. For one, new listings are up 31 per cent from the March, 2023, lows. The authors attribute this in part to “increased distress sales as owners list their properties due to financing issues as mortgages payments increase rapidly.” In the condo market, speculative investors owning multiple units are listing their properties aggressively as rising mortgage payments result in negative cash flow positions. Default rates generally remain low so far but CIBC also reports that “the current pace of slowing in mortgages outstanding is the fastest on record.
6. Goldman Sachs U.S. equity strategist David Kostin analyzed third-quarter executive conference calls and uncovered the four most common themes. These are concerns about higher interest costs, the importance of paying down debt, concerns about the negative effects of inflation on consumer demand and continued, broad investment in artificial intelligence.
7. Also from BofA Securities, oil and gas analyst Doug Leggate made two remarkable observations, one of which is very bullish for Canadian producers. One, he calculates that at current futures prices, 40 per cent of his coverage universe has zero upside from today’s stock prices. Second, he writes “Increasingly we see Canadian oils displacing midcap [U.S. exploration and production companies ] as the incremental investment opportunity to leverage [our] commodity outlook.”
8. TD economist Shernette Mcleod estimates that U.S. holiday spending will rise 4.5 per cent this year, down from 6.0 per cent in 2022. Wage gains and pandemic-era savings are supportive, offsetting weak sentiment and a shift toward services-related spending (like restaurants) that are not included as holiday spending.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
