Cognitive dissonance

The fundamentals in Toronto don’t point to continued accelerated growth in the housing market:

Toronto CMA unemployment went up by 0.1% in July to 7.0% — one of the highest u/e rates in the country and higher than the headline 6.0%.

Toronto’s wage growth was smack in the middle of national wage growth at 3.6% for year-to-date (as of July?). Much of that would come, I’d guess, from collective agreement wage hikes coming through.

From the Toronto Star: “Toronto’s population was pegged to grow by 170,000 from 2001 to 2011, a half-million by 2031. But the reality so far isn’t even close. Toronto grew by just 0.9 per cent – fewer than 22,000 – in the last five years.” Immigrants are settling elsewhere in the Golden Horseshoe.

Interesting story in the Guardian today about bonuses in London’s financial sector. If the growth at the high end is coming from the same source in Toronto — and it seems likely a great deal of it is — this is relevant to the local real estate and consumer markets as well”

City bonuses hit record high with £14bn payout Ashley Seager
Tuesday August 28, 2007

City bonuses have increased by 30% to a record £14bn this year. The rise is twice as big as in 2006 and likely to exacerbate the widening gap between executive and shop-floor pay. The bonuses come against a background of record debt, rising bankruptcies and home repossessions. Analysis by the Guardian of preliminary data from the Office for National Statistics (ONS) shows that bonuses across the economy rose 24% this spring to £26.4bn, comfortably exceeding the country’s entire transport budget. More than half, £14.1bn, was earned by the 1 million people in the financial services sector. The figure for 2006 bonuses was £10.9bn.

The bonuses have fuelled unprecedented demand for luxury goods and high-end property. Bonuses are regularly cited by estate agents as a key factor in pushing up property prices in London.

The estate agent Savills says that prime London property prices have risen 30% in the past year while prices in almost all other regions stagnated. According to the Royal Institute of Chartered Surveyors, City buyers were behind a 20% surge in farmland prices last year as the high-rollers moved to buy up a chunk of the countryside, often surrounding a weekend retreat.

The waiting list for a new Rolls-Royce is now five years and there is a shortage of crew members for superyachts. Worldwide, 688 yachts measuring more than 80ft were launched and there will be 250 more this year.

The majority of the £14.1bn will have been earned by a few at the top of the City tree pulling in hundreds of thousands or even millions in spring bonuses at the end of a year which saw growth in the City account for more than half of all growth in the economy.

A recent survey of hedge funds estimated last year’s bonuses of Noam Gottesman and Pierre Lagrange, both 44 and directors of London-based GLG Partners which manages £40bn of hedge funds, at between £200m and £250m each.

Last year saw a continued boom in mergers and acquisitions, hedge fund activity and private equity buyouts, peaking with the recent £10bn buyout of Alliance Boots.

Bonuses across the economy rose sharply because profits are at a record high at British firms following several years of strong growth in the world economy. Figures from the ONS on Friday showed profits growth of 16% in the second quarter of the year, the biggest rise for nearly 13 years, while wage growth of just 3.6% was the slowest in more than five years.

In spite of a big increase in welfare payments to those at the bottom end of the income scale over the past decade, inequality in Britain has started to widen.Sir Ronald Cohen, one of Britain’s richest men and a founder of private equity group Apax warned recently that the gap between rich and poor could lead to riots. But analysts say the record bonuses may represent the peak for some time to come. Some have estimated that the recent turmoil in financial markets, which led to some big losses for hedge funds and a drying up of private equity buyouts, could mean bonuses paid early in 2008 will fall by 20%.