/Posthaste: Canada’s ‘ticking demographic time bomb’ is a problem — but it could solve a bigger one

Posthaste: Canada’s ‘ticking demographic time bomb’ is a problem — but it could solve a bigger one

Good Morning!

Housing prices are back on the Bank of Canada’s radar, Governor Stephen Poloz revealed in a fireside chat in Vancouver yesterday. “Should this housing rebound continue, we will be watching for signs of extrapolative expectations returning to certain major housing markets — in other words, froth.”

BMO senior economist Sal Guatieri points out that while housing prices haven’t returned to the 30% to 40% pace of early 2017, “they are clearly gaining steam,” with Toronto area home prices up 7.3% in December from the year before. “While the Bank may not be tempted to raise rates to skim off any ensuing froth, it will be disinclined to fan the flames,” Guatieri said.

Meanwhile, a solution, or relief anyway, for high housing prices may be found in Canada’s “ticking demographic time bomb,” suggests a recent report by RBC economics.

Canadian society is headed for massive change over the next decade as baby boomers age. RBC estimates that by the end of this coming decade, almost one in four Canadians will be seniors, up from 17% now. This will increase financial burdens on working-age Canadians and government, but may also help address the challenges in the housing market.

RBC expects baby boomers to “release” half a million homes over the next decade. Much of this “long awaited supply for new generations of buyers,” will be family homes near urban cores. These homes won’t go cheap but the turnover offers opportunities to transform and expand the housing supply, RBC says. A lot formerly occupied by one house could be turned into multiple units, for example. To make the most of this transition however, governments need to do more to modernize restrictive housing supply policies, the report says.

Here’s what you need to know this morning:

  • Vic Fedeli, Ontario Minister of Economic Development, Job Creation and Trade, will hold a media availability at Queen’s Park to discuss the latest release of Statistics Canada jobs numbers
  • Monte McNaughton, Ontario Minister of Labour, Training and Skills Development, will make an announcement about skilled trades in Toronto
  • Jim Carr, the prime minister’s special advisor for the Prairies, will make a funding announcement from the Protein Industries Supercluster in Winnipeg
  • The Lift & Co. Cannabis Business Conference and Expo continues in Vancouver
  • Notable earnings: Corus Entertainment
  • Today’s data: Canadian labour force survey, U.S. non-farm payrolls

The big surprise of U.S. markets’ banner year was the dismal earnings growth behind it. “It’s a rare feat for equities to completely shrug off the lack of earnings growth,” wrote CIBC chief economist Avery Shenfeld in a recent note. The chart below shows that 2019 was the only year of the top six years for the index since 1991 to see a year-on-year earnings retreat. Shenfeld said in retrospect the reason for the divergence was investors fleeing low or negative-yielding fixed income products for equities. The question is whether profits will return to the drivers’ seat? Shenfeld says stocks this year will face more competition from fixed income yields, and forecasts for earnings growth are not much brighter than in 2019.
Already there are signs that profits are coming back in fashion, he said. This past year the IPOs of many famous names light on the bottom line either flopped or were pulled. “If that’s a taste of what’s to come for the broader market, 2020 could be a year of minimal overall gains for U.S. stocks,” Shenfeld wrote.



— Please send your news, comments and stories to [email protected]. — Pamela Heaven @pamheaven

With files from The Canadian Press, Thomson Reuters and Bloomberg


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