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Canada's housing market ‘inching towards instability,’ U.S. bank warns

Theglobeandmail.com
May 2, 2016
By Michael Babad

Briefing highlights

A big U.S. bank is warning that Canada’s housing market is “inching towards instability” amid low interest rates and a lack of listings.

The recent report by Emanuella Enenajor, the North America economist at Bank of America Merrill Lynch, is yet more evidence of the frothy nature of some markets, though she’s not warning of a crash.

Ms. Enenajor also said she expects further action by the federal government to cool things down.

Housing markets differ across the country, of course. But, as The Globe and Mail’s Tamsin McMahon reports, the national housing agency threw up cautionary flags for several in a quarterly report last week.

“Canada’s housing market is overheating,” Ms. Enenajor said.

“House prices have reaccelerated along with mortgage credit outstanding. This is the result of a low-rate policy both domestically and abroad and a lack of adquate supply to satiate demand.”

Ms. Enenajor’s report is in-depth, tracking everything from foreign buyers in the hot Vancouver and Toronto markets to job losses in the hard-hit resource provinces.

Of note, she said that, while the market may be overheating, there’s not a construction boom, as others have suggested.

And, perhaps more importantly, she noted that “it’s different this time” because the Federal Reserve is in the midst of gradually raising interest rates.

“Economists and investors have become numb to signs of housing excess, as the sector has defied gravity for years,” Ms. Enenajor said.

“However, as the Fed gradually exits its accommodative policy, medium-term rates in Canada could also rise.”

This, she warned, heightens the threat of a correction in Canada’s housing market.

“Thus, the Bank of Canada is unlikely to raise rates over the next few years as this could exacerbate housing market weakness,” she said.

“We expect a regulatory response via tighter mortgage lending rules, but only once the economy has stabilized from the oil shock. In the meantime, house prices will likely continue to accelerate.”

BCE to buy MTS

A huge deal in Canada’s telecommunications industry today.

BCE Inc., one of the country’s big players, struck a deal for Manitoba Telecom Services valued at about $3.9-billion, including debt.

BCE is paying $40 a share.

It’s a two-pronged deal, with BCE also selling one-third of the MTS postpaid wireless customers to Telus Corp.

Stocks on rise

Several stock exchanges are closed today, but others are faring just fine so far.

But for Tokyo, where the Nikkei shed 3.1 per cent.

In Europe, though, where London’s FTSE 100 is on holiday, the Paris CAC 40 and Germany’s DAX were up by between 0.6 and 1 per cent by about 7:45 a.m. ET.

Australian says he's behind bitcoin

Bitcoin is all the buzz this morning in the wake of an Australian businessman’s claim that he’s the founder.

The BBC reports that Craig Wright, a technology entrepreneur, told the broadcaster he is the person behind the digital currency, and that he provided proof. He told other publications the same thing.

“I was the main part of it, but other people helped me,” he told the BBC.

The founder of bitcoin has simply been identified as Satoshi Nakamoto.

“Our conclusion is that Mr. Wright could well be Mr. Nakamoto, but that important questions remain,” The Economist magazine said.