Almost Daily Grant's

“Almost Daily” is the end-of-day delectation from Grant’s.

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Tuesday, March 5, 2019

Deep freeze

Yesterday, the Real Estate Board of Greater Vancouver reported February results that could be classified as ghastly, with residential home sales plummeting 32.8% year-over-year to 1,484 units. That’s the lowest February sales total since 1985 and 42.5% below the 10-year average. Prices have also broken lower, with the composite index sinking by 6.1% year-over-year.  In addition, inventories have jumped, with total listings in metro Vancouver up to 11,590 homes at month end. That’s up 48.2% from February 2018. 
 
Toronto, Canada’s largest city, has held up better, with February prices rising 1.6% year-over-year, while new listings dropped 6.2% to outpace the 2.4% decline in sales. Nevertheless, TREB president Gurcharan Bhaura asked for regulatory relief from the mortgage stress test mandated by the Office of the Superintendent of Financial Institutions. These subject borrowers to the greater of the five-year benchmark rate or the contracted mortgage rate plus 200 basis points (Almost Daily Grant’s, May 31): 
 
The OSFI mandated mortgage stress test has left some buyers on the sidelines who have struggled to qualify for the type of home they want to buy. The stress test should be reviewed and consideration should be given to bringing back 30 year amortizations for federally insured mortgages. There is a federal budget and election on the horizon. It will be interesting to see what policy measures are announced to help with home ownership affordability.
 
On the score of home affordability, there is certainly room for improvement. According to Demographia’s International Affordability Survey for 2019, Toronto ranked 294th out of 309 metropolitan housing markets, with a median house price of 8.3 times median annual gross pre-tax household income, up from 7.9 times year-over-year.  For context, the United States national median multiple registers at 3.5 times, while the organization designates anything beyond 5.1 times to be “severely unaffordable.” Vancouver puts Toronto in the shade, ranked second to last by Demographia (only Hong Kong is more expensive) with a median multiple of 12.6 times.
 
As Canada’s long-running housing bull market teeters, economic data continue to disappoint.  Friday’s release of fourth quarter GDP showed annualized growth of just 0.4%, well below the 2% third quarter reading and the 1% consensus expectation, while December retail sales fell by 0.5% ex-automobiles, also worse than the expected 0.3% decline. M2 money supply growth registered 4.99% in December, down from 5.83% year-over-year and 8.65% in the final month of 2016.
 
Perhaps most importantly, total residential mortgage growth fell to just 3.1% year-over-year in December, the worst monthly reading since May 2001. That last data point may be especially concerning for Canada’s banks: Craig Fehr, investment strategist at Edward Jones & Co., told Bloomberg that the mortgages are, “in many cases, the largest and most profitable and steady of the businesses that these banks operate.” Fehr concludes: “The bread and butter of profitability for Canadian banks – is going to have a little less butter on the bread.”
 
Early indications bear that out, as a trio (the Bank of Nova Scotia, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce, or CIBC) of Canada’s five largest banks reported earnings shortfalls in the quarter ended Jan. 31. Increased credit losses figured in two of those reports, with Toronto-Dominion raising its loan loss provision to C$850 million ($645 million), up 23% year-over-year.  CIBC’s provision for credit losses jumped to C$338 million, more than double last year’s C$153 million and well above the expected C$258.5 million. 
 
CIBC CFO Kevin Glass told Bloomberg that “three big” non-performing loans across different sectors hurt the bank’s credit portfolio, while asserting that the jump “is certainly not representative of any sign of underlying problem.” 
 
Glass may not be worried, but an extended housing downturn may cause CIBC particular discomfort.  For more, see the Feb. 9, 2018 edition of Grant’s
 
In other news from formerly-booming housing markets, yesterday The Australian reported that Queensland-based bank Suncorp Group Ltd. warned that some investors in an A$120 million ($85 million) residential mortgage bond may not be repaid. The problem: An increase in borrowers at least 60 days past due on their mortgages to above 3% of the loan pool has triggered a clause prioritizing senior claims holders, potentially diverting principal repayment from those farther down the creditor food chain.  
 
Meanwhile, Australian new auto sales fell by 9.3% year-over-year in February, the eleventh straight decline. On Feb. 21, Fitch Ratings reported that Australian prime auto loan asset-backed securities in arrears rose to a record high in the fourth quarter, with loans past due more than 30 and 60 days rising to 2.05% and 1.03%, respectively.  That compares to a five year net loss rate of 0.51%. 

Recap March 5

Stocks mostly cruised sideways with the S&P 500 remaining in a tight range, though the Dow Transports Index broke lower late in the session to finish red for an eighth straight day.  Nevertheless, the transport index is up 12.5% year-to-date, topping the S&P’s 11% gain for 2019 so far.
 
Treasury yields finished little changed, though the long end was modestly bid and short yields ticked a bit higher to leave the curve flatter.  The VIX remained at 15, and gold managed to inch higher and snap a four-session losing streak. 
 
- Philip Grant

Friday, May 22, 2020

Angel eyes
Misery loves company.

Recap May 22

Thursday, May 21, 2020

Yellow ledbetter

Wishing well
These coins must have fallen through the couch cracks.

QE progress report

Recap May 20

Wednesday, May 20, 2020

Risk management 2.0

Paper pushers

Northern exposure
Now they tell us.

Recap May 20

Tuesday, May 19, 2020

Pounded dough
The mouse is out of the house.

57 days later
The undead are dancing.

Recap May 19

Monday, May 18, 2020

Noises off

Depreciation day
Grading on a curve, writ-large.

Correction:

Recap May 18

Friday, May 15, 2020

Shelf life
Today, biotech company Sorrento Therapeutics, Inc.

King me
Debt monetization is here.

Recap May 15

Thursday, May 14, 2020

She said it

Rock center
It's good to be king.

QE progress report

Recap May 14

Tuesday, May 12, 2020

Some type of synergy

Liquid courage
A brave new world.

Recap May 12

Monday, May 11, 2020

Bed check

A ripple in the desert
This morning, the Kingdom of Saudi Arabia announced

Recap May 11

Friday, May 8, 2020

He said it

Break on through
A step closer to the other side.

Recap May 8

Thursday, May 7, 2020

Mr. Market's Wild Ride

QE progress report

Recap May 7

Wednesday, May 6, 2020

Learning by doing

Solar city
From the counter-cyclical chronicles:

Pressed juice
What's old is new again.

Recap May 6

Tuesday, May 5, 2020

Green thumb
A closer look at "whatever it takes."

Just add water
The Mortgage Bankers Association

Recap May 5

Monday, May 4, 2020

Model X
Call it Uber diets.

Recap May 4

Friday, May 1, 2020

Thanks for nothin'

Codependency credit
Torrents of red ink down Mexico way.

Recap May 1

Thursday, April 30, 2020

Credit check

Security master
This morning, the Federal Reserve announced it will expand the scope

QE progress report

Recap April 30

Tuesday, April 28, 2020

State of nature
Yesterday, New York governor Andrew Cuomo

Recap April 30

Monday, April 27, 2020

Liquidity check

Something shiny

Smoke 'em if ya got 'em
On April 17, Howard Willard, CEO of tobacco giant Altria Group

Recap April 27

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