Bank of Canada Interest Rate Announcement

Today's interest rate announcement will be Mark Carney's last as Governor of the Bank of Canada, however that is the only meaningful change as the Bank once again opted to leave its overnight target rate at 1 per cent.  The Bank expects first quarter growth to be stronger then its original projection of 1.5 per cent, and forecasts that the remainder of the year will remain in line with its April projection. The Bank expects inflation will remain subdued before rising to 2 per cent in mid-2015 when the economy returns to full capacity. The Bank once again stated that the considerable monetary policy stimulus currently in place will remain appropriate for an unspecified "period of time" after which some withdrawal will likely be required. 

The Bank of Canada remains caught between the rock of a muddling economy and the hard place of elevated household debt burdens. If the second half of this year unfolds as most forecasters expect, economic growth should accelerate, helping inflation to get back on a path to the Bank's 2 per cent target. However, if that scenario does not unfold and the economy continues its slow growth trend, the "period of time" the Bank has noted may stretch out longer than the Bank currently has in mind. Our own analysis of the Canadian economy suggests there will not be any movement on interest rates until late 2014. 

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BC Commercial Leading Indicator Points to Stability in Second Half of 2013

 The British Columbia Real Estate Association (BCREA) Commercial Leading Indicator (CLI) bounced back in the first quarter of 2013, rising 0.4 points and partially offsetting the decline in the fourth quarter of 2012. The index is currently sitting at 112.2. On a year-over-year basis, the CLI is 0.2 per cent above the first quarter of 2012.

The increase in the index was the result of stronger economic activity, particularly in the manufacturing sector due to a large increase in wood products output. Momentum in Canadian real estate investment trusts (REIT) returns and narrower risk spreads translated to a positive contribution in the index’s financial component. The employment component of the index, however, continues to lag due to a sharp slowdown in manufacturing employment.

"The increase in the CLI following last quarter’s decline has meant an overall flattening in the index’s underlying trend,” said Brendon Ogmundson, BCREA Economist. “This indicates that the slowdown signaled previously for the first half of this year will likely give way to modest growth in the second half of 2013."

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Canadian Retail Sales

Canadian retail sales were flat in March. Higher sales were reported in 6 of the 11 retail sub-sectors. Inflation adjusted sales rose 0.7 per cent. First quarter retail sales increased just 1 per cent over the first quarter of 2012. 

Retail sales in BC continued to slump in March, rising just 0.9 per cent on a monthly basis and declining 0.1 per cent year-over year. For the first quarter, BC retail sales are 0.4 per cent lower than the first quarter of 2012.  Slower employment growth and high debt burdens are likely taking a toll on household spending this year. However, an expected acceleration in economic growth in the second half of the year should spur faster job growth and higher consumer spending. 

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Canadian Consumer Price Inflation

Canadian inflation remained remarkably muted in April. Consumer price rose only 0.4 per cent in the 12 months to April, a significant deceleration from the already low 1 per cent reading in March. The dip in inflation was primarily the result of lower gasoline prices, though inflation was broadly weak across all CPI components. Core inflation, which strips out the most volatile components of the CPI, such as food and energy prices, increased 1.1 per cent in April. Consumer prices in BC actually declined, falling 0.8 per cent as consumers paid over 4 per cent less at restaurants due to the expiration of the HST. 

Inflation is now running near the bottom of the Bank of Canada's 1-3 per cent control range, a situation which in normal circumstances would be a very strong sign of an impending interest rate cut. Indeed, if inflation continues to fall well short of the Bank's mandate of targeting 2 per cent inflation, it may become difficult for the Bank to continue to prejudice concerns about the state of household debt over the health of the wider economy. 

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Housing Market Update (May 2013)

BCREA Chief Economist Cameron Muir discuss the April 2013 statistics and take an in depth look at BCREA's Q2 Housing Forecast:

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Soft landing still likely

Recently Genworth Canada hosted a half-day seminar for Realtors and mortgage industry professionals. The seminar featured a review of Genworth Canada’s annual Homeownership Study – a survey that looks at homebuyer trends and behaviour and financial fitness levels of Canadians.

The results of the survey were discussed in a panel discussion featuring some of prominent Canadian Real Estate industry leaders. The following provides a summary of key take-aways from the presentations and panel discussions:

* Canada has out-performed the U.S. during the economic recovery.

* The Canadian economy is expected to deliver moderate economic growth in 2013 and 2014.

* A soft landing is expected in Canadian real estate.  Home sales have fallen in response to the tightening of mortgage insurance rules and slower economic growth, but there has not been a price correction (outside of Vancouver). This reflects the fact that listings have declined in tandem with sales.  The result is balanced market conditions in most Canadian cities.

* The effects of the recent tightening of mortgage insurance rules will abate with time. There is no catalyst for a major correction in real estate, as Canada’s labour market will remain healthy and interest rates will remain low.

* Consumers have reduced their willingness to take on additional debt. This will constrain household spending, but it is a healthy outcome and spending will likely continue to advance at roughly the pace of income growth.

* TD Bank does not expect interest rates to rise until late 2014 to early 2015. The exception would be if the housing market rebounds and it leads to acceleration in debt growth, in which case the Bank of Canada could be forced to raise interest rates sooner or the government could tighten mortgage lending rules further.  An option that does not get attention, but could be prudent, is a change in the qualifying interest rate.

* People are putting more money down, but people are also buying smaller homes. Both are indications that people are opting for more affordable mortgages.

* There is still a need for increased financial literacy among Canadians (27 per cent do not even know what their credit rating is).

* The Canadian government was concerned with a rising debt-to-income ratio and changes to mortgage regulations in the past few years were a quick way to address the issue.

* This is likely not the end of changes in the mortgage industry; much depends on how changes made to date continue to affect the industry.

Kiki Sauriol-Roode is VP, strategic alliances for Genworth Canada

US Housing Starts

US housing starts fell to a five-month low in April, slumping nearly 17 per cent to 853,000 at a seasonally adjusted annual rate (SAAR). Housing starts had reached a 1.02 million (SAAR) pace in March. Slower construction activity in April likely reflects a temporary pause in the housing recovery underway down South. Building permits, a key proxy for future activity, increased 14.3 per cent.

The strong recovery in US home construction continues to boost BC wood product exports and manufacturing output. Sales of BC manufactured wood products rose 40 per cent year-over-year in March and are up 34 per cent through the first quarter.

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Canadian Manufacturing Sales

Canadian manufacturing sales edged 0.3 per cent lower in March, the third decline in the past four months. Sales declined in just under half of manufacturing sub-sectors  with declines driven by falling output in the petroleum, coal and chemical industries. In spite of this morning's weak manufacturing report, a slate of better than expected economic data has pushed our quarterly Canadian GDP growth tracking estimate to 2.2 per cent for the first quarter of 2013. 

In BC, manufacturing sales rose 1.2 on a monthly basis and were 2.6 per cent higher than March 2012. Provincial manufacturing sales have also risen 2.6 per cent through the first quarter of 2013. BC has been able to buck the national trend of declining manufacturing sales this year due to the sharp turnaround in the wood products sector. The sale of manufactured wood products rose an astounding 34 per cent year-over-year in the first quarter as a result of the strong recovery in US housing starts. 

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Housing Market Conditions Improve on the South Coast

The British Columbia Real Estate Association (BCREA) reports that a total of 6,904 residential sales were recorded by the Multiple Listing Service® (MLS®) in BC during April, up 1.9 per cent from March on a seasonally adjusted basis, but down 2.2 per cent compared to April 2012. Total sales dollar volume declined 3 per cent to $3.65 billion. The average MLS® residential price in the province was $528,507, down 0.8 per cent from a year ago.

"BC home sales trended higher again in April, with seasonally adjusted unit sales now 8 per cent higher since the beginning of the year," said Cameron Muir, BCREA Chief Economist. "Market conditions were at or near balanced conditions in Victoria, Vancouver, the Fraser Valley and the North last month, leading to a firming up of home prices." The MLS® Home Price Index edged up 0.7 per cent over the past month in the Lower Mainland, and 1.5 per cent over the past three months.

Year-to-date, BC residential sales dollar volume was down 16.6 per cent to $10.8 billion, compared to the same period last year. Residential unit sales dipped 13.9 per cent to 20,476 units, while the average MLS® residential price was down 3.1 per cent at $529,785.

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6035 Woodward Rd Winlaw, BC

The Choice is yours: ski, swim, bike or hike. Close to a variety of outdoor recreation opportunities, this home is within easy walking distance of Winlaw central and is located on a secondary road. Meticulously maintained and energy efficient, it sits on a very private and flat 2 acre property complete with fenced garden area and shed. The main floor has been recently renovated and features beautiful hardwood floors. The excellent water is provided via a reliable gravity fed shared system. Don’t let the compact size fool you; this home utilizes all of its space through the use of built-ins and its well designed floor plan. Well insulated, air tight and with a large, efficient wood stove, stay warm and comfy in the winter and cool in the summer. Call your REALTOR© today to arrange a showing.  

April Housing Market Update

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Canadian Employment

Canadian employment was little changed in April, increasing by 12,500 following a decline in March. The level of Canadian employment has grown just under 1 per cent over the past 12 months while the unemployment rate remains at 7.2 per cent.

The BC economy added 9,500 jobs in April, with an impressive 17,500 new full-time positions partially offset by a decline in part-time work. The jump in full-time jobs helped to recover some of the 22,400 full-time jobs lost March. The provincial unemployment rate declined 0.6 points to 6.4 per cent. Through April, employment has been flat compared to last year, though we anticipate job growth to accelerate in the second half of 2013.

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Transition Year Expected for BC Housing Market

BCREA 2013 Second Quarter Housing Forecast

Vancouver, BC – May 9, 2013. The British Columbia Real Estate Association (BCREA) released its 2013 Second Quarter Housing Forecast today.

BC Multiple Listing Service® (MLS®) residential sales are forecast to edge up 1.9 per cent to 68,900 units this year, before increasing a further 6.5 per cent to 73,400 units in 2014. The five-year average is 74,600 unit sales, while the ten-year average is 86,800 unit sales. A record 106,300 MLS® residential sales were recorded in 2005.

"Stricter mortgage credit regulation combined with slower economic growth has kept BC home sales at a cyclical low over the past three quarters," said Cameron Muir, BCREA Chief Economist. "However, a faster growing economy is expected during the second half of the year and through 2014 which will support a growth trend in provincial housing demand."

"The BC average home price forecast is revised upward for 2013, from a decline of 1 per cent to remaining unchanged, as a result of stronger than expected market conditions in Vancouver," added Muir. The average MLS® residential price in BC is forecast at $515,800 this year, before rising 1.7 per cent to $524,500 in 2014.

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Canadian Housing Starts

Canadian housing starts dipped 3.5 per cent to 174,858 new units at a seasonally adjusted annual rate (SAAR) in April.  New home construction continues to trend lower, averaging approximately 183,000 units over the past six months.  On a year-over-year basis, housing starts were down 29 per cent. 

New home construction in BC urban centres fell 5 per cent month-over-month in April to a seasonally adjusted annual rate of 23,000 units. On a year-over-year basis, total starts were 4 per cent higher than April 2012. Single-detached starts were 10 per cent lower over last year, while multiples increased 11 per cent.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA declined 8 per cent compared to last year  with multiple starts falling 13 per cent while single-detached starts were up 20 per cent.  New home construction in the Abbotsford CMA fell 80 per cent year-over-year, though that number was significantly skewed by a relative lack of building activity in multiples, which can be volatile. Housing starts in the Victoria CMA were down 1 per cent compared to April 2012 as an 18 per cent rise in multiples was offset by a 27 per cent decline in single-detached starts. Conversely, housing starts in the Kelowna CMA increased 11 per cent year-over-year in April, driven by a 20 per cent rise in multiple starts. 

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Canadian Building Permits

Canadian building permits rose 8.6 per cent in March to $6.5 billion, the third consecutive monthly advance. Much of the increase was a result of large increases in the Ontario and Alberta non-residential sector which pushed non-residential permits 19 per cent higher while residential permits posted a 1.7 per cent increase.

After a significant decline in February, BC building permits increases a modest 1.7 per cent in March, with balanced contributions to growth from the residential and non-residential sectors. However, on a year-over-year basis, total building permits were close to 7 per cent lower.

Looking at permit activity in BC's four major census metropolitan areas (CMA),  permits rose 43 per cent in the Kelowna CMA from February, but were 14 per cent lower year-over-year. In the Abbotsford-Mission CMA, permits jumped 70 per cent on a monthly basis but were 21 per cent lower than March 2012. In the Vancouver CMA, permits fell 12 per cent on both a monthly basis and year-over-year. Finally, in the Victoria CMA, permits more than doubled compared to February and were 9 per cent higher than March 2012. 

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US Unemployment

The US economy added a better than expected 165,000 jobs in April while the unemployment rate ticked lower from 7.6 to 7.5 per cent.  Moreover, jobs numbers were revised significantly higher for both February and March by a combined 144,000 jobs.

So far in 2013, US job growth have averaged 196,000 per month and the unemployment rate has fallen 0.3 percentage points.  We anticipate some degree of slowing over the next two quarters as the result of legislated declines in government spending, but the US economy is clearly on a persistent recovery path that should gain strength over the coming year. 

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Finance Minister Announces Stephen Poloz as New Governor of the Bank of Canada

In somewhat of a surprise move, Finance Minister Jim Flaherty passed over presumptive favourite Senior Deputy Governor Tiff Macklem in naming Stephen Poloz as the new governor of the Bank of Canada. 

Mr. Poloz spent 14 years with the Bank of Canada in numerous roles including Chief of the Bank's Research Department before moving on to Export Development Canada (EDC) where he served as the Chief Economist and, since 2011,  as the EDC's CEO and President. 

While Mr. Poloz has been outside of monetary policy-making for some time and his views are relatively unknown, we do not expect the Bank's approach to change in a material way in the near future. The Bank will still operate under a flexible inflation targeting regime with a focus on medium-run inflation of 2 per cent and our view remains that interest rates will remain on hold over the next year while the Bank's forward guidance on rates will remain neutral.

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3 Home Buying Tips

If you’re thinking of buying your first home or upgrading to a new one, the inventory of homes on the market every Spring is definitely plentiful – providing for a great selection of homes to serve your unique needs.

Still, there are also generally more people out looking at homes in the Spring as well. And while some homebuyers feel anxious about securing their dream home as soon as possible, it’s important to take the time to be patient and make sure the home is a good fit for you and your family.

After all, home-buying is likely the largest investment you’ll ever make, and doing your due diligence when determining which house to buy ensures that fewer surprises arise after your moving day.

Following are three top considerations to keep in mind when looking for your new home:

1. Get preapproved for a mortgage. Not only will this step help you compete against other buyers who have not been preapproved, but it will also ensure you only look at home’s within your price range – saving you the trouble of falling in love with a home you can’t afford. Your mortgage broker or lender will be able to get you preapproved before you start browsing homes.

2. Think about what you need. Jotting down specifics regarding what you “need” in a home – as opposed to what you “want” – will help determine the types of homes you should be viewing. It’s rarely possible, however, to find a perfect home for your needs, tastes and budget. While it’s important to weigh your priorities before you start your home search, it’s equally important to be flexible and willing to change your mind once you see what your true options are – viewing properties can shift your priorities. And remember that if you can only find places that require too many compromises, it’s okay to keep looking – new homes come on the market daily!

3. Look past the staging. Many sellers enlist staging professionals to help sell their homes faster and at a higher price. While this often makes listings more visually appealing to buyers, some major flaws may be covered up through staging. And while minor cosmetic issues can often be overcome with a simple fix such as a coat of paint, larger, more costly issues can arise with a home if you don’t notice poor conditions before you buy. Some things to look for include: leaks around plumbing fixtures and ceilings (thanks to upper floor bathrooms); stains on walls or ceilings; evidence of mould; poor workmanship on flooring, moulding, windows and doors; or aging and worn seals around windows and doors.

Owning a Home During a Seperation

We all know that marriage isn't always forever. And when a separation occurs, a home is often involved. Since most couples have a joint mortgage – one where both names are on the mortgage and title of the home – when separation or divorce proceedings occur, many wonder what will happen with the home.

When the marriage comes to an end, there are two obvious options concerning the home: 1) sell the property and split the proceeds according to your agreement and go your separate ways; or 2) one person buys the other party out of the mortgage and the title of the property.

The first option is a straight-forward transaction where you put the house up for sale, sell and split the proceeds. The second option, however, is slightly more complicated.

The decision between the options is a personal one borne out of the specific circumstances of the parties involved. Perhaps there are young kids involved that need to stay in the house, the market is down and there will be a loss on the property that neither party can afford, one party can afford to buy the other party out, etc.

Once the decision is made, how do you go about buying the other person out of a mortgage?  Well, essentially, you’re refinancing your mortgage using a single income (the person who is buying the other party out of the house) and qualification, versus the original purchase, which was based on joint income and qualification. 

If you’re the one buying your partner out, the first step is to ensure that you can afford the mortgage payments. This is imperative because the lender will ask for proof that you’re capable of covering the mortgage in order for you to apply on your own. In addition to covering the mortgage amount, you’ll have to come up with whatever dollar amount you have agreed on to buy the other partner out. This may come out of the equity in your home if it’s sufficient.

In essence, if you can afford the mortgage on your own, the most common means of buying out your partner post-separation and transferring title out of the joint name and into your name, is to refinance.

If you’re not in a financial position to buy your ex-partner out of the house, and you agree to both stay on title and have payment arrangements, there is one warning to be taken very seriously. Just because one person is responsible for the payments (even with a court order), if the mortgage goes into default, both parties on the mortgage will be affected.

The most important piece of advice when dealing with a mortgage during a separation is to become informed. Know your options, talk to professionals about your options, and make an informed decision regarding your home and mortgage.  

Canadian Monthly GDP Growth

The Canadian economy grew 0.3 per cent in February, building off of a similar gain in January.  At the industry level, economic growth was led by natural resource extraction activities but also received a boost from construction, forestry, and manufacturing. 

Economic growth has been stronger than expected over the first two months of the first quarter. As a result., we have revised our first quarter GDP growth estimate upward from 1.5 per cent to between 1.5 and 2 per cent. 

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US Q1 Real GDP Growth

The US economy grew 2.5 per cent in the first quarter of 2013, falling short of consensus expectations of 3 per cent. Most of the shortfall in growth was the result of an 11.5 per cent drop in defense spending, which led US government spending lower for the tenth time in the past eleven quarters.  On the positive side, consumer spending posted its largest increase in two years, expanding 3.2 per cent.   

It is worth noting that today's release is a preliminary estimate and will be revised in subsequent months. The recent trend has been upward revisions and so it is likely that the US economy actually grew at a slightly faster pace than initially estimated. That said, we do expect some weakness in the second and third quarter of this year due to further declines in government spending. However, that weakness should give way to stronger growth later in 2013 and into 2014 when we forecast the US economy will grow at a rate of above 3 per cent. 

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Canadian Retail Sales

Canadian retail sales rose for the second consecutive month, advancing 0.8 per cent in February. Higher sales were reported in 7 of the 11 retail sub-sectors. However, inflation adjusted sales were flat. Even with a relatively strong start to the year for the retail sector, we are still tracking first quarter real GDP growth in the Canadian economy at around 1.5 per cent

Retail sales in BC diverged from the national trend, falling 0.3 per cent on a monthly basis and declining 1 per cent year-over-year. We anticipate that BC retail sales will post below average growth in 2013, perhaps around 3 per cent but with some risk to the downside. 

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Consumer Price Inflation

Canadian consumer prices rose just 1 per cent in the 12 months to March, a slight deceleration from 1.2 per cent in February. The dip in inflation was primarily the result of lower gasoline prices, though inflation was broadly weak across all CPI components. Core inflation, which strips out the most volatile components of the CPI, such as food and energy prices, increased 1.4 per cent in March. Inflation in BC was also muted with consumer prices rising just 0.5 per cent on an annual basis. 
Inflation continues to trend well below the Bank of Canada's 2 per cent target rate, a trend we expect to continue through 2013 due to sluggish economic growth and muted inflationary pressure from wages. This low rate of inflation will keep the Bank of Canada sidelined through  at least the remainder of 2013 and likely for much of 2014. 

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Multi-Stakeholder Workshop Generates Action Plan for Floodplain Mapping

The British Columbia Real Estate Association (BCREA) today published its Floodplain Maps Action Plan following its March 8, 2013 multi-stakeholder workshop on floodplain maps. With 69 per cent of existing floodplain maps available online from the provincial government being 20 to 25 years old, outdated floodplain maps compromise the ability of decision makers to effectively assess and manage flood risks, putting BC communities in jeopardy.

Flooding poses catastrophic risks to BC’s economic vitality, safety, environment, property owners and communities, so flood protection is an important issue for the Association,” said BCREA Chief Executive Officer Robert Laing. “By working with other stakeholders, we wanted to generate consensus around key actions to update existing floodplain maps and keep them current.”

Nearly 70 decision makers and practitioners involved with flood management, land use and emergency management attended the March 8 workshop in Vancouver. Attendees expressed their shared concerns for BC communities and discussed technical, financial and political perspectives in terms of challenges and opportunities.

The floodplain maps workshop fits right into our fresh water sustainability grant focus area,” said Kelly Lerigny, Chair of the Real Estate Foundation of British Columbia, which financially supported the event. “Coupled with the fact that there was such a wide range of stakeholders involved, we were excited to fund the workshop and help make the Action Plan possible.”

The event was also supported by Simon Fraser University's ACT (Adaptation to Climate Change Team). "Up-to-date information is essential if we are to adequately plan and prepare for the impacts of climate change," said ACT Executive Director Deborah Harford. "BC needs current floodplain maps that incorporate climate change projections to ensure the well-being of our citizens and our economy."

A floodplain map is a tool that shows areas that are subject to high flood hazard, and they help form the foundation on which many decisions are made about how and where communities grow. There are currently 87 existing floodplain maps available through the BC Ministry of Environment website. Experts recommend that floodplain maps should be updated every ten years.

If we don’t know what the risks are, we can’t adapt to changes in the environment. Climate change is one thing, but since the plans were last updated, we’ve also seen dramatic population growth, and changes to the actual contours of rivers,” said Anna Warwick Sears, Executive Director of the Okanagan Basin Water Board. “If we act now, BC communities can protect homes and businesses, and save a tremendous amount of future heartbreak and expense.”

Key points in the Action Plan include creating a Working Group to move the actions in the plan forward; assessing the capacity of local governments to update floodplain maps; recommending that the provincial government take back responsibility for floodplain mapping, with maps being updated every ten years; expand the scope of the Flood Protection Program to include technical studies and leverage funds to create a province-wide plan to complete floodplain mapping.

The Floodplain Maps Action Plan can be found here: www.bcrea.bc.ca/docs/floodplainmaps_action_plan.

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