Housing market still has room to fall
A look at average property price, EU trade arrangements on deck, Cineplex quarterly profit declines
There really isn’t a reason to buy a Toronto house right now, unless you have to.
Only because many buyers do indeed have to relocate, from out of town or elsewhere in the GTA, are prices still as high as they are after a four-month decline beginning in April, when one of the longest booms in Toronto housing sales and prices finally cracked.
What’s worrisome is that it took legislative efforts of all three levels of government, plus a rate hike by the Bank of Canada and the near failure of alternative mortgage lender Home Capital Group Inc., to finally put a brake on the market’s irrational exuberance.
And the market still has more room to fall. July sales plunged 40 per cent, the biggest decline in 17 years. That’s attention-getting, for sure. But even with that drop, the average price for all property types actually rose in July, by 5 per cent, to $756,2018.
With the July drop of 4.6 per cent, to $773,000, for the benchmark Toronto property price, prices have tumbled all the way back to where they were in, er, March, when the market was scorching hot. And those “depressed” July prices are still 18 per cent higher than July 2016.
With an effective zero-per-cent vacancy rate for apartments, pressure on builders to go where the market is — in affordable rental units and genuine starter homes (that is, priced at $150,000 thereabouts) — should build, pushing the price of existing housing stock down still further as supply of what the market most needs is finally addressed. The decline of the American empire Brexit and two years of isolationist rhetoric from Donald Trump has only galvanized the resolve of world leaders to protect existing mega free-trade zones and create still more of them.
The latest of these is a prospective trade deal between Japan and the European Union, the Japan-EU Economic Partnership Agreement (JEEPA). JEEPA could be agreed in principle as soon as November and would embrace about 40 per cent of global trade.
Not to be left out, China is seeking its own mega trade arrangement with the EU.
Canada already has its EU deal, of course, and the Canada-EU Comprehensive Economic and Trade Agreement (CETA) is something of a template for the EU-Japan and EU-China talks. And Canada, a founding member of the proposed Trans-Pacific Partnership (TPP) from which Trump withdrew the U.S., has quickly backed Japanese Prime Minister Shinzo Abe’s bid to go ahead with the TPP without the U.S.
As we noted earlier, the counterreaction to the anti-globalization forces has since gained further momentum.
The end game is that the U.S., which was able to write the rules underpinning the world economic order in the 20th century, is at risk of sidelining itself.
It’s true that a future U.S. that has recovered from Trumpism will strive to join these mutually beneficial trade zones. But the terms and conditions of latecomer America’s membership will be set by those zones.
If Wallonia could come close to aborting CETA, Vietnam alone could nix an American bid to join the TPP, and Portugal could block a U.S.-E.U. deal. There will be an alarmed U.S. reaction to this pending loss of world influence, on Capitol Hill and among Fortune 500 companies.
But it will come too late to prevent a long-term and possibly permanent decline in U.S. global relevance. Cineplex’s coming distractions Cineplex Inc. will take a timeout this year from its stock-market darling status of the past few years.
The Canadian movie-theatre chain’s stock dropped 8.2 per cent in daily trading Aug. 2 after it missed Bay Street second-quarter profit targets and is down 13.6 per cent this year.
The dismal second quarter’s 81-per-cent plunge in profit, accompanied by a 2.2-per-cent decline in attendance, signals continued weakness in movie-going for 2017, after several boom years.
Cineplex faces too many challenges to bet otherwise. Moviegoers across North America have grown weary of Hollywood’s fixation with big-budget franchise sequels. (The industry term is “sequel-itis.”)
There are more of these scheduled for the all-important Christmas season.
Once-predictable box-office winners such as Transformers, The Mummy and Jack Sparrow have yielded disappointing box-office receipts this year, a bad sign for the balance of 2017.
Hollywood and exhibitors had been expecting big things from a Blade Runner sequel, another Marvel superhero movie, and another Star Wars entry — the most recent retread in that creaky, 40-year-old franchise.
Cineplex has taken modest steps in diversification. But Cineplex is still hostage to Hollywood output.
Too many costly flops this year, including King Arthur and Valerian, will likely push Cineplex attendance this year down a percentage or two below the 2016 level.
That might seem a slight decline. But when Bay Street prices a highflyer such as Cineplex to perfection, even minor disappointments in attendance and financial performance have an exaggerated negative impact on the stock.
Longer term, there’s also competition from original programming by Netflix Inc. and its ilk to worry about, along with the social-media distractions of Facebook, YouTube and Snapchat.
That said, just two blockbusters next year and, say, three sleepers, could reward patient investors with a Cineplex stock in recovery mode. dolive@thestar.ca