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5 reasons Canadians should care what the Fed does tomorrow: Don Pittis




Expect a change in tone from the world’s most powerful central banker tomorrow when U.S. Federal Reserve chair Jerome Powell offers his latest outlook on interest rates. 

Powell has instituted a new system where he will give a news conference after every policy meeting, providing better insight into his thinking month to month.

Analysts are expecting that a gloomier economic outlook means the Fed will hold off on interest rate increases, continuing to be “patient and flexible” on new rate hikes.

But the Fed’s reaction to renewed fears of a global recession could turn out to be good for Canadians. Here are some reasons why.

1. Stronger loonie

Tourists walk at the beach in Varadero, Cuba. Other things being equal, a lower path of U.S. interest rates will make the loonie go further on winter holidays. (Fernando Medina/Reuters)

​Market indicators are telling us that the chance of the Fed chair announcing a rate hike Wednesday is now pretty much zero.

But there is some chance Powell could do more to stimulate the economy, including dropping hints that the pace of future rate hikes will be more moderate.

The growing differential between the Canadian and U.S. interest rate is one factor keeping the loonie soft.

If currency traders foresee a narrower gap between the two rates, the Canadian dollar should remain stronger than if the spread continued to widen — making imports cheaper and winter beach holiday spending go further.

2. Higher wages

Skilled workers have been in short supply for awhile, but employers are now complaining even unskilled employees are hard to find at current wages. (Mark Blinch/Reuters)

In both Canada and the U.S., there are early signs that a labour shortage is beginning to push wages higher. Industries in many places have complained that even unskilled workers are unavailable at current wages.

Most economists seem to think U.S. rates are still low enough to keep stimulating the economy. That means profitable businesses can still afford to borrow and expand, increasing demand for workers that are in short supply.

With the porous Canada-U.S. border, rising wages in the U.S. can flow through to Canada, as Canadian workers take up the slack created by U.S. shortages.

3. Increased inflation

Economic theory says a lower path of interest rates should allow not just wages, but prices to creep up — which can be both good and bad for Canadians. (Chris Helgren/Reuters)

Holding off on a U.S rate hike could well let a little more inflation creep into the economy.

Usually we think of inflation as a bad thing, because the prices of the things we buy go up. But there are a number of reasons why inflation can be good for Canadians, especially if wages keep pace with prices.

For one thing, higher inflation reduces the risk of deflation — falling prices — that many economists say discourages people from spending or from borrowing to invest.

Inflation reduces the amount heavily borrowed Canadians must pay back, because while the total debt is the same, you are paying it back in dollars that are worth less than your rising salary. On the other hand, people with cash assets lose, and inflation causes a small transfer of wealth from savers to borrowers and net spenders. 

4. Lower mortgage costs

Canadian houses are shown under construction last winter. A lower path of U.S. rates can also mean lower costs for Canadians who lock into five-year mortgages. (Mark Blinch/Reuters)

While the Bank of Canada benchmark rate — set by our own central banker Stephen Poloz — has an immediate effect on variable-rate consumer loans and mortgages, mortgages that are locked in for a longer period are more directly determined by international bond markets.

Generally, for a five-year fixed mortgage, lenders make their calculations based on what money is earning over a five-year period in New York — and those rates are, in turn, based on the Fed rate.

Lower five-year rates are reassuring to homebuyers who have been worried by previous Fed predictions that rates would be rising sharply. That means expectations of a slower path for U.S. interest rate hikes could help to stabilize the Canadian market for new and resale housing. 

5. Higher stock markets

It was another down day on markets yesterday, as companies warned of the effects of China’s economy on their balance sheets. (Brendan McDermid/Reuters)

At the end of last year, as stock prices were falling, a lot of market watchers, including U.S. President Donald Trump, blamed Powell for raising interest rates more quickly than necessary.

While keeping markets from falling is not officially part of the Fed’s mandate, a plunging market could hurt jobs and prevent the U.S. central bank from hitting its two per cent inflation target — two things that are part of its mandate.

A “dovish” tone — one that seems to expect rates to stay lower for longer — might boost share markets.

More recently, the long-term program now in effect to get rid of the bonds that the Fed bought to stimulate the economy using quantitative easing have been blamed for market sell-offs.

Ending the gradual and predictable process of unloading those bonds would, in theory, add a little more stimulus to the economy. But Powell may be reluctant to interfere with a system that as been working well ever since it was put in place by his predecessor Janet Yellen 16 months ago.

Follow Don on Twitter via @don_pittis 

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Real Estate

Montreal real-estate prices climbing much faster than Toronto or Vancouver: study





MONTREAL — The cost of housing per square foot has skyrocketed in Montreal while other cities saw little change over the last year, according to a new national survey.

The study found that condominium prices in downtown Montreal are up 13.5 per cent from last year to, on average, $805 per square foot.

That’s not as high as other cities, but it’s catching up — and Montreal’s rate of growth is outpacing other major Canadian cities.

Toronto’s condo prices grew to $1083 per square foot, an increase of just under 10 per cent, according to the study. In Vancouver, where you can find some of Canada’s most expensive condo prices, rates are down 4 per cent to $1192 per square foot.

To make the comparisons, Canadian real estate giant Century 21 collected data from real estate boards across the country to calculate the home costs per square foot.

“It’s important to compare apple to apples,” said Todd Shyiak, the company’s vice president of operations.

Montreal’s rise was even more explosive for detached homes and townhouses.

Detached houses in Montreal’s downtown and southwest rose to $958 per square foot, 40 per cent up from last year.

“It’s wild,” said Century 21 broker Angela Langtry. She says the pandemic raised demand.

“People had a lot of time to figure out they don’t like the home they’re in,” she said. “They all want pools.”

There was a big spike in sales, she noted, following a pause in brokerage during the spring, at the peak of the pandemic.

Experts say the pandemic will push people into the suburbs as they search for affordable housing and home office space.

“A huge portion of our society’s housing needs changed overnight,” said Shyiak. People “no longer need to be 10 minutes from the office.”

He says that could mean less demand for condos in the future. “People want their own front door,” he said.

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Real Estate

Carttera buys prime downtown Montreal development site





Carttera has acquired a prime downtown Montreal site at 1455 De La Montagne St. which will mark its third development on the thoroughfare.

“We think it’s probably one of the best, if not the best, locations in the whole city,” Carttera founding partner Jim Tadeson told RENX. “We’ve had great success on De La Montagne.”

The two earlier projects are: L’Avenue, a building with 393 residential units, 84,000 square feet of office space and 34,000 square feet of retail that was developed with Broccolini and occupied in 2017; and Arbora Residences, a two-phase development with 434 rental and condominium units in three buildings being built in partnership with Oxford Properties.

Thursday’s latest acquisition, for $48.5 million from 630745 Ontario, is a 31,750-square-foot surface parking lot with flexible mixed-use zoning on the corner of De La Montagne and De Maisonneuve Boulevard West.

The site is near the Vogue Hotel Montreal Downtown, the new Four Seasons Hotel Montreal and high-end retail.

“It’s zoned for up to 203,000 square feet of density, which we’re going to take advantage of,” said Tadeson. “Our vision for the site is a condominium project with some retail.”

Since there is no demolition required and no heritage issues to contend with, Toronto-based Carttera plans to move ahead quickly with the luxury project.

It’s in the concept design phase and Tadeson said it could take six months or more before it’s prepared to make a submission to the city.

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Real Estate

Montreal Has the Hottest Real Estate Market in Canada Right Now





If you thought Toronto’s real estate market was on fire, it’s time for a second take, because the market in Montreal is the hottest in all of Canada right now.

A newly-released annual report from CENTURY 21 Canada reveals that, following an early-spring decline due to the COVID-19 pandemic, sales numbers are bouncing back and house prices across the country are maintaining their strength. The study compared the price per square foot of properties sold between January 1 and June 30 of this year, compared to the same period last year.

In Toronto and Vancouver, unsurprisingly, prices remain high. But while regions across the country are seeing varied stories when it comes to their housing market fluctuations, Montreal stands out — there, prices have increased dramatically since 2019. While the numbers remain lower than Toronto and Vancouver, that housing market is proving to be the country’s strongest right now.

In Quebec’s largest city, prices have increased significantly since last year, particularly in the downtown detached house and townhouse markets. For example, the price of a detached house in Montreal’s downtown and southwest rose 42.14% to $958 per square foot, while townhouses went up 44% to $768, and condos, 13.55% to $805. Comparatively, in Toronto and Vancouver, prices saw more modest increases or, in some cases, even declines.

“Even though real estate in Quebec was not considered an essential service, we have seen strong demand and a jump in prices in 2020,” said Mohamad Al-Hajj, owner of CENTURY 21 Immo-Plus in Montreal.

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