Canadian Retail Sales and Inflation

The Consumer Price Index (CPI) rose 0.9 per cent in the 12-months to May, a modest increase from 0.8 per cent in April. Low energy prices continue to drag total CPI lower as the energy component of the index fell close to 12 per cent.  The Bank of Canada's core CPI index, which excludes the prices of energy, food and other volatile components, increased 2.2 per cent in May, a notch lower than the 2.3 per cent rate of 12-month core inflation registered in April.  In BC, inflation registered just 0.8 per cent.

Canadian retail sales dipped 0.1 per cent in April following two consecutive months of gains. Sales were down in just 4 of 11 sub-sectors but those sectors accounted for 43 per cent of total retail trade. In BC, retail sales were mostly flat on a month-over-month basis, albeit down 0.1 per cent. On a year-over-year basis however, retail sales in the province were up 7 per cent over April 2014.

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Canadian Manufacturing Sales

Canadian manufacturing sales tumbled 2.1 per cent in April, the third decline in the last four months. Sales were dragged lower by declining sales in the food, aerospace, and petroleum and coal products industries.  In total, only 8 of 21 sub-sectors saw lower sales in April, but those industries account for two-thirds of Canadian manufacturing.  In BC, where manufacturing employs close to 170,000 people, manufacturing sales were down 0.7 per cent on a monthly basis in April, but were 3.6 per cent higher year-over-year. 

This morning's manufacturing data implies that the impact of low oil prices on the economy continued into the first month of the second quarter, with oil producing provinces suffering large declines in manufacturing sales. We expect that Canadian economic growth will rebound from disastrous first quarter in coming months, however it looks like the second quarter is off to a slow start. 

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BC Home Sales Continue at Brisk Pace

The British Columbia Real Estate Association (BCREA) reports that a total of 10,174 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in May, up 16.6 per cent from the same month last year. Total sales dollar volume was $6.4 billion, a 30.4 per cent increase in comparison to the previous year. The average MLS® residential price in the province rose to $632,182, an 11.8 per cent increase since last May.

“Home sales for the month were at an eight year high for the month of May,” said Cameron Muir, BCREA Chief Economist. “Strong consumer demand is pushing home sales up in most of the large urban areas of the province.”

“A dwindling inventory of homes for sale in the face of strong demand is putting upward pressure on home prices in many regions, with the single-detached market segment experiencing most of the gains. We haven’t experienced inventories this low since prior to the financial crisis,” added Muir.

Year-to-date, BC residential sales dollar volume increased 35.5 per cent to $25.5 billion, when compared with the same period in 2014. Residential unit sales climbed by 22.4 per cent to 40,265 units, while the average MLS® residential price rose 10.5 per cent to $631,941.

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BC Commercial Leading Indicator Continues to Rise

In the first quarter of 2015, the BCREA Commercial Leading Indicator (CLI) rose 1.1 index points to 120.9, the fourth consecutive quarterly increase. The continued positive trend in the CLI is a strong indicator of future growth in the commercial real estate market.

“The BC economy is positioned to be a growth leader in 2015,” said BCREA Economist Brendon Ogmundson. “A strong economic environment will be very encouraging to growth in commercial real estate activity this year.”

A rising trend in the CLI generally points to increased investment, leasing and other commercial real estate activity two to four quarters ahead.  Therefore, the momentum underlying the CLI for the past several quarters is a very positive sign for the BC commercial real estate market in 2015.

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Pre-approvals, more important and less concrete than ever

Going through the pre-approval process is more important than ever to both you and your Realtor, but the actual term ‘pre-approval’ is potentially misleading.

You may be pre-approved for a certain mortgage amount, however there are still a number of variables that can enter the picture once an offer is accepted. That’s why it is imperative that one always include a clause in the offer along the lines of ‘subject to receiving and approving financing’. (There are variations to be discussed around the specific wording.)

Often clients are reluctant to write the initial offer on a property without feeling like they are 100% pre-approved.

An understandable desire. The risk, though, is that some may falsely believe that they have a guarantee of financing. They don't.

A lender must review all related documents – not just those of the clients, but also those from the appraiser and the Realtor – as the property itself must meet certain standards and guidelines.

The pre-approval process should be considered a pre-screening – a first step only.

It does involve review and analysis of the client's current credit report; it should also include a list for the client of all documents that will be required in the event that an offer is written and accepted. Clients should also come away from this initial process with a clear understanding of the maximum mortgage amount they qualify for, along with the various related costs involved in their specific real estate transaction. Equally important: with the completed application your broker is able to lock in rates for up to 120 days.

Why won’t a lender fully review and underwrite a pre-approval?

·         Lenders do not have the staff resources to review ‘maybe’ applications – they have a hard enough time keeping up with ‘live’ transactions.

·         The job you have today may well not be the job you have by the time you write your offer.

·         If more than four weeks pass, all of the documents are out of date – by lender standards – and a fresh batch needs to be ordered and reviewed.

·         The conversion rate of pre-approvals to ‘live transactions’ is less than 10%.

It is this last point that makes it so difficult to get an underwriter to completely review a pre-approval application as a special exception.

The bottom line is that a client's best bet for confidence is the educated and experienced opinion of the front-line individual with whom they are directly speaking - and that's their Mortgage Broker. This individual will not be the same person who underwrites and formally approves the live transaction when the time comes.

This disconnect between intake of application and actual underwriting of a live file makes having a ‘subject to receiving and approving financing’ clause in the purchase sale agreement so very important.

Perhaps the most significant factor in undermining the solidity of a client's preapproval is the relentless pace of change of lending guidelines and policies – changes implemented not only by the Federal Government but also by the lenders themselves. It is very easy to have a pre-approval for a certain mortgage amount rendered meaningless just a few days later through changes to internal underwriting guidelines. Often these changes arrive with no warning and existing pre-approvals are not grandfathered.

It is absolutely worthwhile going through the pre-approval process before writing offers, and in particular before listing your current property for sale or accepting offers. This will give you a good idea of your maximum mortgage amount as well as securing a rate for you. It is a worthwhile endeavour.

Just be aware that aside from the key advantage of catching small issues early and securing rates, a pre-approval is not a 100% guarantee of financing.

But the good thing is, I can help you with this process!

Best Rates from Dominion Lending

This edition of the Weekly Rate Minder has the latest, best rates for Canadian mortgages. At Dominion Lending Centres, we work on your behalf to find the mortgage that suits your needs. Best of all — our service is free.* It's the selected lender that pays us and YOU get the best rate. *(O.A.C., E.&O.E.)

• Our Best National Rates

Rates are subject to change without notice. *OAC E&OE

Prime Rate is 2.85%

Variable rate mortgages from as low as Prime minus 0.65%

 Please note that rates shown above are subject to change without notice. The rates shown are  posted rates and the actual rate you receive may be different, depending upon your personal financial situation.“Some conditions may apply. Rates may vary from Province to Province. Rates subject to change without notice. *O.A.C. E.& O.E.” Check with your Dominion Lending Centres Mortgage Professional for full details and to determine what rate will be available for you.

*O.A.C., E.& O.E.

Canadian and US Employment

Canadian employment surged by 59,000 jobs in May, though the national unemployment was unchanged at 6.8 per cent. Total hours worked, which is strongly correlated with economic growth, increased 1.2 per cent compared to May 2014.  Since the beginning of the year, employment growth has averaged a fairly strong 20,500 jobs per month but with significant month-to-month volatility. 

In BC, employment grew by 30,600 jobs in May, following a similar magnitude of job losses in April.  The majority of the gains came in part-time employment, though full-time work grew by a robust 9,600 jobs. The provincial unemployment was ticked 0.2 points lower to 6.1 per cent. 

In the United States, payrolls expanded by 280,000 jobs in May while the unemployment rate ticked up 0.1 points to 5.5 per cent.  Over the past three months, US job growth has trended at a very healthy 207,000 per month. 

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Canadian Housing Starts

New home construction in Canada jumped 10 per cent in May to 201,705 units at a seasonally adjusted annual rate (SAAR).  The six-month trend in Canadian housing starts of 181,231 units SAAR was up slightly and is in-line with Canadian household growth. 

Housing starts in BC fell from a blockbuster 37,000 units in April to 25,609 units SAAR in May.  On a year-over-year basis, housing starts were down 11 per cent compared to May 2014. Single-detached starts were 8 per cent higher while multiple unit starts fell 20 per cent compared to this time last year. Year-to-date, housing starts in BC are up 13 per cent. 

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were down 13 per cent year-over-year in May due to a 17 per cent decline in multiple starts. Single-detached starts in Vancouver were 3 per cent higher. In the Victoria CMA, new home construction fell 32 per cent year-over-year due to a 44 per cent drop in multiple unit starts. Total housing starts in the Kelowna CMA were down 36 per cent year-over-year in May with broadly weaker construction activity of both single and multiple units. Housing starts in the Abbotsford-Mission CMA declined by just over half compared to May 2014 .

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BC Housing Demand Forecast to be Strongest Since 2007

BCREA 2015 Second Quarter Housing Forecast

The British Columbia Real Estate Association (BCREA) released its 2015 Second Quarter Housing Forecast today.

“More robust economic growth, strong consumer confidence and rock-bottom mortgage interest rates are expected to push housing demand this year to its highest level since 2007,” said Cameron Muir, BCREA Chief Economist.

Multiple Listing Service® (MLS®) residential sales in British Columbia are forecast to rise 12.1 per cent to 94,300 units this year, before edging back 2.9 per cent to 91,600 units in 2015. The ten-year average is 83,600 unit sales. A record 106,300 MLS® residential sales were recorded in 2005. 

Stronger consumer demand combined with fewer homes available for sale is forecast to push the average MLS® residential sales price in the province up 7.4 per cent to $610,500 this year. Modest upward pressure on mortgage interest and rising new home completions are expected to ease pressure on home prices in 2016. The average MLS® residential sales price is forecast to increase by 1.7 per cent to $621,000 in 2016.

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Canadian Economic Growth (Q1)

Growth in the Canadian economy was modestly worse than expected in the first quarter of 2015 with real GDP contracting at an annualized rate of 0.6 per cent. This was the first negative quarter for the economy since the second quarter of 2011. Household consumption was dragged down by lower incomes in oil-producing provinces and posted the smallest quarterly gain in three years at just 0.1 per cent. An oil-led second consecutive quarterly decline in exports, declining business investment and a fall in government spending were more than enough to offset meager gains in consumption spending to tip economic growth into negative territory.

Most economists, including the Bank of Canada, anticipate that the negative impact of the collapse in oil prices will be largely contained in the first quarter and that growth will recover from the second quarter onward. The Banks choice to hold its overnight rate steady at its meeting earlier this week is a good indication that they do not see a further deterioration in the economy going forward. We expect that economic growth will accelerate from here, likely in a range of 2 to 2.5 per cent at a annualized rate for the remainder of the year.

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Bank of Canada Interest Rate Announcement

The Bank of Canada announced this morning that it is maintaining its target for the overnight rate at 0.75 per cent. In the press release accompanying the decision, the Bank noted that inflation in Canada continues to evolve as forecast with core inflation boosted by a lower dollar while CPI inflation remains near the bottom of the Bank's 1-3 per cent control range due to the transitory effects of lower energy prices. The Bank sees the underlying trend of inflation at 1.6 to 1.8 per cent, which is consistent with persistent slack in the economy. The Bank's outlook for economic growth remains largely unchanged from its previous forecast with expectation of a solid recovery beginning in the second quarter. 

With oil prices stabilizing and core inflation firming around its 2 per cent target, a further loosening of monetary policy is becoming more unlikely. If growth recovers as the Bank forecasts over the next couple of quarters, attention will shift once again to the timing of future rate increases. While we do not expect the Bank to act on interest rates for the remainder of the year, long-term bond yields and therefore mortgage rates are likely to rise from their current lows as growth improves and the US Federal Reserve begins raising its own target rate later this year. 

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Canadian Manufacturing Sales

Canadian manufacturing sales rose 2.9 per cent in March, the second increase in the last six months. Sales were led by an increase in aerospace products and motor vehicles while fabricated metal products declined.  In total, 10 of 21 sub-sectors saw increased sales in March. 

In BC, where manufacturing employs close to 170,000 people, manufacturing sales fell 2.2 cent on a monthly basis in March, but were 8.1 per cent higher year-over-year. Through the first quarter of 2015, BC manufacturing sales are up 7.6 per cent which has helped push economic growth in the province higher. Growth in the BC economy is currently tracking at 2.5 per cent through the first three months of the year, but as growth in the US and other parts of Canada picks-up in the second half, we expect manufacturing and trade to lead a further acceleration of growth in the province. 

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Hottest April for Home Sales in a Decade

 The British Columbia Real Estate Association (BCREA) reports that a total of 9,952 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in May, up 28.7 per cent from the same month last year. Total sales dollar volume was $6.3 billion, a 45.5 per cent increase in comparison to the previous year. The average MLS® residential price in the province rose to $634,744, a 13 per cent increase since last May.

“Last month was the strongest April for home sales in a decade,” said Cameron Muir, BCREA Chief Economist. “The elevated level of buying activity this spring is now expected to push 2015 home sales to their highest level since 2007.”

“Consumers are taking full advantage of rock bottom interest rates and are demonstrating significant confidence in the housing market,” added Muir. “However, dwindling inventories combined with competition for detached homes in the province`s large urban markets is pushing home prices higher.”

During the first four months of 2015, BC residential 

sales dollar volume rose 37.1 per cent to $19 billion, when compared with the same period in 2014. Residential unit sales increased by 24.5 per cent to 30,091 units, while the average MLS® residential price rose 10.1 per cent to $631,860.

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Canadian and US Employment

Canadian employment declined by 20,000 jobs in April while the national unemployment rate remained at 6.8 per cent. Total hours worked, which is strongly correlated with economic growth, increased 0.9 per cent compared to April 2014.   At the provincial level, employment fell in BC, Ontario and Nova Scotia and rose in Alberta and Newfoundland. 

In BC, employment declined by a dramatic 28,700 jobs in April with full-time employment suffering a loss of 17,500 while part-time employment was down 11,300. The provincial unemployment rate rose 0.5 points to 6.3 per cent. April's job losses were the worst on record dating back to 1976 and topping the previous record of 23,700 jobs lost in June 2001. Given that other measures of provincial employment and consumer demand remain quite strong, we would view this report as an anomaly that will likely correct in coming months.

Employment in the US recovered from weak job creation in March, rising by 223,000 in April while the unemployment rate declined to 5.4 per cent. The average monthly rate of job growth in the US over the past three months stands at a healthy 191,000. 

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Canadian Building Permits

The total value of Canadian building permits rose close to 12 per cent on a monthly basis in March, led by higher construction intentions in the non-residential sector in BC and Alberta as well as higher permits for multi-family dwellings in BC and Ontario. 

The value of building permits issued in BC rose for a second consecutive month, climbing 52.6 per cent on a monthly basis and 63.5 per cent year-over-year. Non-residential permits in BC more than doubled on a monthly basis in March due in large part to a surge of commercial permits in the Vancouver CMA. The value of permits in the residential sector increased 28.7 per cent in March on a monthly basis and were 68.5 per cent higher year-over-year.  Residential permits were led by an 11 year high in permits for multi-family units.

Construction intentions were up in all four of BC's census metropolitan areas (CMA). Permits in the Abbotsford-Mission CMA increased 52.1 per cent on a monthly basis but were 12.4 per cent lower year-over-year. In the Kelowna CMA, permits jumped 153 per cent from February and were 84.2 per cent higher year-over-year. In the Victoria CMA, permit activity was up 31.8 per cent on a monthly basis but was 4 per cent lower year-over-year. In the Vancouver CMA, permits increased for a second month in a row, rising 59.5 cent on a monthly basis and 97.2 per cent year-over-year

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Canadian Monthly GDP

Canadian real GDP was unchanged in February, following a modest contraction in January. Continued weakness in the oil and gas sector was offset by a rebound in retail trade.

While the Canadian economy has clearly decelerated in recent months, February's GDP numbers were actually better than most expected. Given all available data for the first quarter, the Canadian economy is tracking close to zero per cent growth in real GDP.  If the Bank of Canada is correct that most of the impact of lower oil prices will occur in the first quarter of 2015, we should see a gradual rebound in growth soon. If so, that likely puts any further loosening of monetary policy on hold.

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