BMO economist’s contrarian view on housing affordability

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

BMO senior economist Robert Kavcic has a contrarian position on domestic housing affordability,

“Domestic demographic fundamentals were producing strong and manageable market conditions, before deeply negative real interest rates and an explosion in population growth took prices and rents to the moon. This has been a very contrarian position as the popular narrative has focused solely on supply shortfalls… affordability will return to pre-pandemic norms through a combination of market dynamics, income growth, a modest reduction in borrowing costs and firm construction activity … A strong but fundamentally well-behaved pre-pandemic market exploded when the Bank of Canada cut interest rates to zero and promised Canadians that they would remain low … Canada’s population was surging by nearly 1.3 million people per year (3.2 per cent) at the height in 2024. The massive inflow of non-permanent residents was a policy oversight sitting in plain view… Canada’s population was surging by nearly 1.3 million people per year (3.2 per cent) at the height in 2024. The massive inflow of non-permanent residents was a policy oversight sitting in plain view. Now, the temporary resident caps announced in November 2024 (and carried on by the current government) will cut that group’s share of the population to 5 per cent from above 7 per cent, resulting in net outflows of more than 400k per year over the next two years … There is a near-record 350k units under construction in Canada, which surpasses even the 1970s building boom in per-capita terms … Normalized interest rates, immigration controls and an aging Millennial all suggest peak demand stress is passing. A full pipeline of supply and sturdy housing starts means the market should balance in the years ahead, even without a doubling of completions”

“Focus: Supply, Meet Demand” – BMO Economics

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RBC analyst Michael Harvey prepares investors for lower cash flow in the energy sector as reporting season approaches,

“Q2/25 reporting season kicks off on July 14 with PrairieSky reporting after market close. Despite fluid geopolitics, we expect to see limited capex or guidance changes, with other themes including the startup of LNG Canada (see more here) and accompanying views on pricing. Additionally, we expect that FCF generation and execution of RoC programs will continue to be focal points … CFPS [cash flow per share] estimates down 20 per cent quarter-over-quarter. Our checks through the pre-Q update resulted in only minor revisions to our quarterly outlooks, reflective of outages and select company specific factors … Production growth in 2025E maps to up 15 per cent. Our estimates currently call for 15-per-cent/11-per-cent year-over-year aggregate growth across 2025/26 (including the effects of M&A), mapping to 2025/26 cash flows of $16.0bn/$17.1bn. We expect 100 per cent of our coverage universe to grow volumes in 2025/26 based on our current outlook. While AECO spot prices have weakened quarter-over-quarter (down 29 per cent), futures strip remains strong … Top ideas and recent thematic research. ARC Resources and PrairieSky Royalty”

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Raymond James analyst Tavis McCourt describes the state of play for markets with the third quarter set to begin,

“All three core indexes now above their 50/200 DMA for the first time since early February. The post-”Liberation Day” rally was very tech, very large cap, very narrow, and very U.S. centric, which some will say is just a return to normal, while some will say it is a sign of limited conviction to the bullishness. On the week, commodities came back down from ‘danger’ levels of last week, credit spreads narrowed back to all-time lows, and the U.S. dollar continued to weaken. 3Q begins Tuesday this week, and along with payrolls on Thursday, a lot of tariff/trade news is likely in early July before the real data, 2Q earnings/ revision season begins … The Rally Has Been Sharp, Narrow, Growth, Tech, Large Cap Centric: mid-April through the end of June was just a modest rally in most equities as bond yields came down, but the narrow and dramatic rip in parts of the market is a little concerning. Some broadening would be helpful, but that will take a strong earnings season … Fear Of Data Center Capacity Glut as Equinix ramps up long term capital spending plans meaningfully."

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Bluesky post of the day:

Diversion: “A neural brain implant provides near instantaneous speech” – Ars Technica