Thursday, May 29, 2014

BC Commercial Leading Indicator Edges Lower, but Trend Still Points to Growth

The BCREA Commercial Leading Indicator (CLI) declined 0.4 points to an index level of 114.5 in the first quarter of 2014, breaking a string of four consecutive quarterly increases. On a year-over-year basis, the CLI was 1.5 per cent above the first quarter of 2013. The index reached an all-time high of 116.2 in the second quarter of 2007.

In spite of last quarter’s dip, the trend underlying the CLI continues to signal growth for the commercial real estate market. An upturn in the CLI trend is historically a good signal of expanding commercial real estate activity in the following two to four quarters.

"Although the CLI posted a modest decline in the first quarter, momentum in the underlying trend is still signalling a positive economic environment for the commercial market,” said Brendon Ogmundson, BCREA Economist. “Moreover, an expected acceleration in the BC economy this year means that the first quarter decline should be temporary."

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Canadian Consumer Price Inflation

Canadian inflation accelerated in April as consumer prices rose 2 per cent in the twelve months to April, a 0.5 point increase from March's inflation reading of 1.5 per cent and nearly a full percentage point higher than February. The increase was largely explained by rising energy prices, including a 6.6 per cent gain in gasoline prices and a 26 per cent gain in the price of natural gas.  The Bank of Canada's index of core inflation, which strips out the most volatile components of the CPI, such as food and energy prices, increased 1.4 per cent in April, a modest increase from 1.3 per cent in March. As noted in the Bank of Canada's most recent forecast, higher energy prices are expected to push headline CPI inflation higher in coming months. Therefore, the current pick-up in inflation is unlikely to sway the Bank toward a more hawkish stance as long as core inflation remains muted.

The impact of the elimination of the HST is finally starting to fade from inflation measured in BC. Consumer prices in the provinces rose 1.5 per cent in the 12 months to April. That increase follows several months of inflation reading at close to, or even below, zero.

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CMHC Housing Market Outlook –BC region


·         Housing starts are forecast to total 27,800 units in 2014 and 27,900 units in 2015, with a slight shift toward single-detached housing starts as the economy and labour market gain traction.
·         Existing MLS®2 home sales are forecast to total 76,200 resales in 2014 and 77,300 resales in 2015.
·         The MLS® average price is forecast at $550,400 in 2014 and $552,300 in 2015.

Canadian Retail Sales

Canadian retail sales edged 0.1 per cent lower in March, following advances in both January and February. Sales were lower in 7 of 11 subsectors, with the biggest declines occurring in the auto sector and clothing stores. In inflation-adjusted terms, retail sales fell 0.2 per cent. 

Retail sales in BC continued to grow in March, rising 1.1 per cent on a monthly basis and 3.6 per cent on a year-over-year basis.  Year-to-date, retail sales are up 3.7 per cent compared to just 2.4 per cent growth for all of 2013.

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Saturday, May 17, 2014

US Housing Starts

US housing starts jumped in April, reaching their highest level since November of last year. Total housing starts increased 13.2 per cent from March to a seasonally adjusted annual rate (SAAR) of 1.07 million units.

Shipments of lumber and other manufactured wood  products have struggled to start the year as severe winter weather in the United States slowed new home construction.  An increased pace of US housing starts should help to get BC's wood products sector back on track, boosting BC's export sector and associated employment.

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Canadian Manufacturing Sales

Canadian manufacturing sales rose for the third consecutive month, edging up 0.4 per cent in March.  Sales were higher in 11 of 21 manufacturing sub-sectors.

In BC, manufacturing sales fell 0.6 per cent on a monthly basis, but were 0.6 per cent higher than March 2013.   Through the first quarter of the year, manufacturing sales are 3.1 per cent higher than the first quarter last year. The durable goods sector, which includes wood products, mineral products and machinery and equipment manufacturing, continued to be a drag on manufacturing output as previous sources of strength such as wood products have struggled to start the year. Non-durable goods like paper, clothing, and food manufacturing, were also lower in March, but have posted a 9 per cent gain in the first quarter when compared to 2013. 

The manufacturing sector employs approximately 170 thousand people in British Columbia, or roughly 7.5 per cent of the BC workforce.  Therefore, growth in manufacturing output should help spur job growth which would support the BC housing market,  particularly in regions with a high concentration of manufacturing activity.

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Housing Demand Forecast to Rise Through 2015

BCREA 2014 Second Quarter Housing Forecast

The British Columbia Real Estate Association (BCREA) released its 2014 Second Quarter Housing Forecast.

BC Multiple Listing Service® (MLS®) residential sales are forecast to increase 5.2 per cent to 76,700 units this year, before increasing a further 6.7 per cent to 81,800 units in 2015. The five-year average is 75,400 unit sales, while the ten-year average is 84,800 unit sales. A record 106,300 MLS® residential sales were recorded in 2005.

"BC Home sales are expected to trend higher this year and in 2015, as stronger economic conditions both at home and abroad bolster consumer demand,” said Cameron Muir, BCREA Chief Economist. “While historically low mortgage interest rates are a key market driver, population growth led by a strong upturn in net migration and more robust employment growth are expected to generate additional housing demand." 

The average MLS® residential price for the province is forecast to increase 4.3 per cent to $560,500 this year and a further 2 per cent to $571,500 in 2015. Increasing consumer demand combined with fewer homes for sale has created balanced market conditions in most BC regional markets, resulting in home price appreciation more in line with overall consumer price inflation.

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Tuesday, May 13, 2014

Record Low Mortgage Rates Push Home Sales Higher

The British Columbia Real Estate Association (BCREA) reports that a total of 7,730 residential sales were recorded by the Multiple Listing Service® (MLS®) in April, up 12 per cent from April 2013. Total sales dollar volume was $4.3 billion, an increase of 19 per cent compared to a year ago. The average MLS® residential price in the province rose to $561,613, up 6.3 per cent from the same month last year.

"BC home sales trended higher in April as the typically robust spring market unfolds,” said Cameron Muir, BCREA Chief Economist. “Rising consumer demand coupled with fewer homes for sale has most BC housing markets now exhibiting balanced conditions, where neither buyers nor sellers have any particular advantage."

"Housing affordability improved last month as intensifying completion for new business by financial institutions pushed the posted five-year fixed mortgage rate to a record low of 4.79 per cent” added Muir.

During the first four months of the year, BC residential sales dollar volume was nearly 28 per cent to $13.9 billion, compared to the same period last year. Residential unit sales were up 18 per cent to 24,165 units, while the average MLS® residential price was up 8.3 per cent at $573,965.

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Thursday, May 8, 2014

Canadian Housing Starts

Canadian housing starts jumped 24 per cent in April to 194,809 units at a seasonally adjusted annual rate (SAAR).  The six-month trend in Canadian new home construction is more or less stable at 183,000 units SAAR. That level of construction is in-line with Canadian household growth.

New home construction in BC urban centers dipped slightly in April, falling 5 per cent to 24,976 units SAAR. On a year-over-year basis, housing starts were up 9 per cent compared to April 2013. Single-detached starts rose 34 per cent while multiple units were down 1 per cent.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were down 2 per cent year-over-year in April. The decline was led by a 6 per cent decrease in multiple units while single-detached units rose 12 per cent. In the Victoria CMA, total starts fell 46 per cent compared with April 2013 due to a steep decline in multiple units starts. New home construction in the Kelowna CMA continued to enjoy solid growth in April, rising 13 per cent due to a 27 per cent rise in multiple starts. Housing starts in the Abbotsford-Mission CMA were up considerably from very weak construction levels in April 2013. Total starts rose to 103 units from just 12 in the previous April.

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Canadian Building Permits

Canadian building permits declined 3 per cent in March, following an 11.3 per cent decline in February.  Lower construction intentions in the non-residential sector overwhelmed smaller gains in residential permitting activity.

Construction intentions in BC rose 9.4 per cent month-over-month and 16.5 per cent year-over-year in March. The dollar value of residential permits rose 12.1 per cent on a monthly basis and 8.9 per cent year-over-year while non-residential permits were up 4.5 per cent over February and 34.2 per cent year-over-year. In unit terms, residential permits rose from 1,511 total units in February to 2,305 in March due to a jump in permits for apartment units. 

Building permit activity was up in three of BC's four census metropolitan areas (CMA) in March. In the Abbotsford-Mission CMA, permits more than doubled on a monthly basis and were up 91.8 per cent year-over-year.  Construction intentions in the Victoria CMA also more than doubled from February and were up 29.3 per cent year-over-year. In the Kelowna CMA, permits increased 8.4 per cent on a monthly basis and but were down 7.6 per cent from March 2013.  Finally, in the Vancouver CMA, permits fell 3.1 per cent from February but rose 14.4 per cent year-over-year. 

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US Employment

The US economy seems to have shaken off the impact of severe winter weather that depressed first quarter GDP growth.  US non-farm payrolls rose by an impressive 288,000 jobs in March while the US unemployment rate fell 0.4 points to 6.3 per cent.  Over the past three months, US job growth has averaged 238,000 jobs per month. 

We expect that the US economy will continue to accelerate in 2014.  That acceleration in growth should provide a significant boost to BC's export sector and the wider provincial economy.

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