Breaking News - BMO Economist Says Typical mortgage payment to climb more than 50%

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BMO Economist Says Typical mortgage payment to climb more than 50%

BMO Economist Says Typical mortgage payment to climb more than 50%

Scotiabank energy analyst Jason Bouvier provided an overview of sector earnings and reiterated his top picks.

“We continue to expect the valuation gap between Canada and US E&Ps to narrow over the next two years as Canadian exit [transport to U.S.] It’s getting better, and we’re getting more clarity on government policy with regard to carbon capture and storage. Furthermore, strong cash flows have allowed companies to quickly improve their balance sheets and many of our names are now increasing shareholder returns. We expect many companies to reach their long-term net debt targets over the next 2-4 quarters (some already in place) and we anticipate several special/variable dividend announcements in the second half/23. However, we expect expense budgets to rise Operational and capital appreciation due to inflation and decarbonization spending (largely in 2024+). Overall, we remain bullish on the Canadian oil-weighted group. Despite the decline in stock prices due to recession fears, we believe this presents a good opportunity for the company to aggressively buy back its shares. We still prefer E&Ps over owners because of the higher level of torque. Our top picks [Imperial Oil and Cenovus Energy Inc.] Into the big space and Vermillion Energy Inc. in the SMID space. “

Goldman Sachs’ chief US equity analyst has assessed the potential downside of S&P 500 earnings growth in the event of a recession.

GS Economics forecasts put a 30% chance of the US economy entering a recession over the next year. However, in the event of a recession, the potential negative revisions to the collective EPS estimates would be significant. If the consensus upward EPS estimate converges with our top-down stagnation earnings forecast, that would represent a 20 percentage point decline in growth in 2023 (from +9% to -11%). 

Sector-wide, decline in EPS growth will range from -1 pip (utility) to -65 pg (consumer estimation)… In our baseline forecast, we expect the S&P 500 to end the year at 4,300 (+14%). But in a recession scenario, we expect the S&P 500 to decline 17% to 3150 at the end of 2022, including a contraction of the P/E multiple to 14 times.”

Canadian Real Estate Was Just Delivered A Technical Knock-Out (TKO)
Canadian real estate was delivered a widely anticipated, but still fatal blow. On Wednesday, the Bank of Canada (BoC) hiked the overnight rate to the highest level since 2008. 

By doing so they’re hoping to reduce “excess demand” and tame price growth’s 40-year high. That (intentionally) will make it difficult for prices to continue climbing.

“Wednesday’s 100-bp rate hike by the Bank of Canada might be a TKO for the housing market (at least for anyone that had any doubt a correction is underway),” warns BMO senior economist Robert Kavcic. 

“The simple arithmetic makes it so,” he adds before comparing the absurd valuations. 

Canada’s Already Stretched Valuations Have Reached Absurd Levels
The bank’s napkin math shows how much prices would have to come down to make sense. He estimates an average-priced home in Ontario had a monthly mortgage payment of $3,000 last year. 

It was already very high, but assuming today’s mortgage hits 4.5%, that same home is $4,700/month. It’s a record that blows right past the late-80s real estate bubble.

Canadian Real Estate Just Blew Past The Late-80s Bubble, Now Making It The Most Extreme.

Canada’s late-80s real estate bubble was the most extreme in the country’s history. What followed was also the most extreme price correction. It resulted in real estate prices stagnating for nearly two decades afterwards. Today’s environment is much worse.  

“Even after deflating mortgage payments to account for income growth over the decades, the ‘real’ mortgage payment will eclipse those seen at the height of the late-1980s market.
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