Kootenay Connector Real Estate Blog: 2016

Monday, October 24, 2016

Canadian Consumer Price Inflation - October 21, 2016

Canadian inflation remained subdued in September as the Consumer Price Index (CPI), which measures the rate of inflation in Canada, rose just 1.3 per year-over-year. The Bank of Canada's core measure of inflation, which excludes volatile components like food and gasoline, rose 1.8 per cent for a second consecutive month. In BC, provincial consumer price inflation was 1.8 per cent in the 12 months to September.

Decelerating inflation and a slowing economy had the Bank of Canada discussing, but ultimately deciding against, a rate cut earlier this week. However, it is unlikely that the Bank will act to offset mortgage restrictions introduced by the Federal government unless the outlook for growth inflation becomes dramatically weaker.

Bank of Canada Interest Rate Announcement - October 19, 2016

The Bank of Canada announced this morning that it is holding its target for the overnight interest rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that the profile for growth in Canada over the near-term is lower than it previously expected though the Bank is still projecting stronger growth in the second half of 2016. However, the Bank has pushed out its forecast for the economy to return to full capacity to mid-2018 while inflation is projected to return to its 2 per cent target next year.

There is downside risk to the economy given the Federal Government's decision to tighten mortgage credit this month, though it will take some time to see the effects on economic growth. That said, even if growth moderates as a result of the housing policy changes, the Bank of Canada's public support for that policy likely means interest rates would not be lowered in response. With growth recovering from a second quarter contraction and inflation still tame, We therefore expect the Bank to leave rates unchanged for the foreseeable future.

Canadian Manufacturing Sales - October 18, 2016

Canadian manufacturing sales improved once again in August, rising 0.9 per cent on a monthly basis with broad based gains in 15 of 21 manufacturing sub-sectors. Adjusting for inflation, sales were up 1.2 per cent due to lower prices of some goods.

In BC, where the manufacturing sector employs approximately 170,000 people and is a key driver of economic growth, sales were sharply higher for a second consecutive month, rising 2.1 per cent on a monthly basis and 8.1 per cent year-over-year. The gains continue to reflect a strong rebound in the forestry sector, with shipments of wood products rising at a double digit pace year-over-year. Given strong manufacturing sales in August the BC economy remains on track to expand by a Canada leading 3.5 per cent in 2016.

BC Home Sales Reflect Regional Demand Variations

Vancouver, BC – October 14, 2016. The British Columbia Real Estate Association (BCREA) reports that 7,591 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in September, down 11.2 per cent from the same month last year. Total sales dollar volume was $4.45 billion in September, down 14.1 per cent compared to the previous year. The average MLS® residential price in the province was $585,844, a decline of 3.2 per cent compared to the same month last year.

“Housing demand in the province continued to trend lower in September," said Cameron Muir, BCREA Chief Economist. "While Vancouver, Fraser Valley and the North experienced year-over-year declines last month, the rest of the province posted an increase in the number of residential transactions."

“The average residential price in the province continued to reflect a change in the composition and location of homes sold," added Muir. "However, the effect was less pronounced in September than in August, when detached home sales fell to just 28 per cent of total demand in Vancouver."

Year-to-date, BC residential sales dollar volume increased 33.5 per cent to $66 billion, when compared with the same period in 2015. Residential unit sales climbed by 18.5 per cent to 93,797 units, while the average MLS® residential price was up 12.7 per cent to $703,986.

Canadian Housing Starts - October 11, 2016

Canadian housing starts jumped 20 per cent in September to 220,617 total units at a seasonally adjusted annual rate (SAAR). The six-month trend in Canadian housing starts moved moderately higher to just under 200,000 units SAAR, above average annual growth in Canadian households. New home construction will likely slow in coming months as the consequences of government's new mortgage regulations ripple through the housing market.

Housing starts in BC surged 40 per cent higher to 47,560 in September and were 79 per cent higher on a year-over-year basis. Single detached starts rose 27 per cent compared to last September while multiple unit starts nearly doubled. Through the first three quarters of the year, BC housing starts are up 39 per cent compared to 2015.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 110 per cent year-over-year in September, led by triple digit growth in both single and multiple units. In the Victoria CMA, housing starts tripled compared to September 2015 due to strong growth in new multiple unit starts. New home construction in the Kelowna CMA rose 16 per cent on balanced growth between single and multiple unit starts. Housing starts in the Abbotsford-Mission CMA declined 64 per cent compared to last year as multiple unit projects took a breather in September following several strong months of activity.

Canadian Building Permits - October 6, 2016

The total value of Canadian building permits jumped 10.4 per cent from July to August, with gains largely due to higher construction intentions in the residential sectors of Ontario and British Columbia.

After two straight monthly declines, total permit activity in BC was up 15.9 per cent in August, once again surpassing $1 billion in total value. The gains were almost exclusively due to higher construction intentions for multiple family dwellings. Those gains more than offset a 7.7 per cent monthly decline in non-residential permits. On a year-over-year basis, the dollar value of building permits in the province were up 4.5 per cent.

Construction intentions were higher in most of BC's four census metropolitan areas (CMA). Permits in the Abbotsford-Mission CMA surged 249 per cent from July to August but were down 7 per cent year-over-year while the Vancouver CMA saw a 15 per cent increase on a monthly basis but a 12 per cent drop year-over-year. In the Kelowna CMA, permits fell 13 per cent from July but were up 67 per cent year-over-year. In Victoria, construction intentions rose 9.3 per cent on a monthly basis, and were 58.5 per cent higher than in August 2015.

Millennials Bear Brunt of Fed Policy Changes

Many, if not most, first-time buyers will experience a steep decline in housing affordability on October 17. New rules introduced by the Federal Government will cause the sharpest drop in the purchasing power of low equity home buyers in years. At a time when housing affordability is a critical issue, deliberately chopping millennials’ purchasing power by as much as 20 per cent will only exacerbate a well-known problem.

Under current rules, insured mortgages with variable rates and fixed terms under five years require home buyers to qualify at the five-year benchmark rate. However, if a borrower opts for a five-year or more fixed term, the borrower can qualify at his or her negotiated, discounted rate instead of the higher benchmark rate. This has long been a fixture of the Canadian mortgage market. As of October 17, 2016, ALL home buyers securing a high-ratio mortgage must qualify at the five-year benchmark rate, even if they have negotiated a lower five-year fixed term rate with their lender.

The low interest rate environment has benefited home buyers and sellers for many years, with all but the least credit-worthy borrowers negotiating a contract rate significantly lower than the benchmark rate. Now, even the most credit conscious households face a dramatic reduction in their purchasing power. For example:

A family with an annual household income of $80,000 and a 5 per cent down payment will see their purchasing power fall from $505,000 to $405,000 (-$100,000). i
An individual with an annual income of $60,000 and a 5 per cent down payment will experience a reduction of purchasing power from $380,000 to $305,000 (-$75,000).
A household earning $120,000 per year and a 10 per cent down payment will see a reduction in purchasing power from $803,000 to $651,000 (-$152,000).

We expect this policy to have the following impacts:

Housing demand will slow as millennials, other first-time and early move-up buyers are squeezed out of the market.
This reduction in demand may cause imbalances and declining prices across some product types in some communities. In addition, new home construction activity will lag along with related employment and economic growth.
Pent-up demand will intensify, contributing to another cycle of rapidly rising prices in the future as financially retrenched millennials buy up an undersupplied housing stock.

Federal Government Changes to Mortgage Insurance Rules - October 3, 2016

The Federal Government announced significant changes to regulations for new-government backed insured mortgages today. Effective October 17, 2016, all insured homebuyers will have to qualify at the posted 5-year qualifying rate. This is a change from previous policy where only variable rate mortgages and mortgages with terms less than 5-years were subject to a higher qualifying rate.

With this move, the Federal Government has chosen to offset a modest risk to the taxpayer by severely eroding affordability for low equity home buyers, particularly first time home buyers. The qualifying rate is updated weekly and available on the Bank of Canada website. It is currently 4.64 per cent, about 200 basis points higher than the best bank offered rates.

To qualify for mortgage insurance, a homebuyer's debt servicing ratio must be no higher than:

Gross Debt Service - 39 per cent of household income, including mortgage payment, taxes and heating costs.

Total Debt Service - 44 per cent of household income, including mortgage payment, taxes, heating costs and all other debt payments

The announced measure will apply to new mortgage insurance applications received on October 17, 2016 or later. This measure will not apply to mortgage loans where:

before October 3, 2016: a mortgage insurance application was received;

the lender made a legally binding commitment to make the loan;

the borrower entered into a legally binding agreement of purchase and sale for the property against which the loan is secured.

Mortgage loans for which mortgage insurance applications are received after October 2, 2016 and before October 17, 2016 are also not affected by the rule change, provided that the mortgage is funded by March 1, 2017. Homeowners with an existing insured mortgage or those renewing existing insured mortgages are not affected by this measure.

The Federal Government is also instituting new eligibility rules for low-ratio (higher than 20% down payment) mortgages backed by government insurance. As of November 30, 2016, to be eligible for government insurance, new mortgages must meet the following requirements:

A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;

A maximum amortization length of 25 years;

A maximum property purchase price below $1,000,000 at the time the loan is approved;

For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the original amortization schedule;

A minimum credit score of 600 at the time the loan is approved;

A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent at the time the loan is approved, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,

A property that will be owner-occupied.

These new criteria, in particular requiring a maximum purchase price below $1 million, will essentially make the majority of single family homes in Metro-Vancouver ineligible for government issued insurance for low-ratio mortgages.

Canadian Monthly GDP (July 2016) - September 30, 2016

The Canadian economy built on momentum from a 0.6 per cent increase in June, expanding a further 0.5 per cent in July. Those increases follow equal size monthly declines in the spring which led to a second quarter contraction of 1.6 per cent, the largest decline since the second quarter of 2009. A recovery of output in the mining and oil and gas extraction sector was the primary driver behind strong growth in July.

While some downside risks remain, particularly due to highly leveraged Canadian households, we expect Canadian economic growth will rebound sharply in the third and fourth quarter as oil production normalizes and the federal government's uptick in expenditures and tax credits impacts the economy. The Canadian economy is forecast to expand more than 3 per cent in the third quarter of this year before leveling off to an average of 2.5 per cent in the second half into 2017.

Canadian Housing Starts - August 9, 2016

Canadian housing starts declined 9 per cent in July to 198,847 total units at a seasonally adjusted annual rate (SAAR) following a jump in construction activity in June. The six-month trend in Canadian housing starts moved slightly higher to just over 201,000 units, slightly above average annual growth in Canadian households.

Housing starts in BC also declined, but were still a very robust 41,050 SAAR. On a year-over-year basis, new home construction was up 14 per cent in July due to a 25 per cent jump in single detached starts and an 11 per cent rise in multiple units. Through the first seven months of the year, BC housing starts are up 37 per cent compared to 2015.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were down 9 per cent year-over-year in July, dragged down by a 14 per cent decline in multiple unit starts. Single-detached starts in the Vancouver CMA were up 15 per cent. In the Victoria CMA, housing starts continue to climb, more than doubling year-over-year on strong growth in new multiple unit starts. New home construction in the Kelowna CMA rose 9 per cent as a result of 13 per cent growth in multiple unit starts. Housing starts in the Abbotsford-Mission CMA were up 25 per cent year-over-year, as a surge in single unit construction outweighed a decline in multiple units.

Thursday, August 25, 2016

Record BC Home Sale Forecast Despite Vancouver Slowdown: BCREA 2016 Third Quarter Housing Forecast Update

The British Columbia Real Estate Association (BCREA) released its 2016 Third Quarter Housing Forecast Update today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to climb 10.4 per cent to a record 113,000 units this year, eclipsing the previous record of 106,310 units in 2005. Housing demand is expected to moderate next year, with home sales declining nearly 8 per cent to 104,400 units. However, housing demand is expected to remain well above the ten-year average of 85,000 unit sales.

"The introduction of a 15 per cent tax on foreign national home buyers in Metro Vancouver is expected to accelerate a moderating trend in the market that began earlier in the year," said Cameron Muir, BCREA Chief Economist. "However, other regions of the province are performing above expectations and at the provincial level, largely offsetting Metro Vancouver's deceleration."

The average MLS® residential price in the province is forecast to increase 11 per cent to $706,900 this year and a further 5.2 per cent to $743,700 in 2017.

"While the cyclical nature of housing markets can exact a harsh toll on affordability in the short term, there is some relief for beleaguered home buyers on the horizon, added Muir. Housing starts in the province are expected to reach near record levels this year, and the highest amount since 1993. In Metro Vancouver, a record number of homes are now under construction. "A moderation in housing demand combined with a rising number of both new and resale homes on the market is expected to create more balance and less upward pressure on home prices."

Thursday, August 18, 2016

Housing Market Slows to a Simmer in BC

The British Columbia Real Estate Association (BCREA) reports that 9,900 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in July, down 3.4 per cent from the same month last year. Total sales dollar volume was $6.57 billion in July, up 5.4 per cent compared to the previous year. The average MLS® residential price in the province was up 9.1 per cent year-over-year, to $663,411.

“Housing demand has moderated in many regions of the province, after setting records earlier in the year,” said Cameron Muir, BCREA Chief Economist. “The less frenetic pace of home sales will likely provide a much needed boost to the inventory of homes for sale. The rate of home price appreciation is also expected to slow from the unsustainable level exhibited this spring.“

Year-to-date, BC residential sales dollar volume increased 45.5 per cent to $56.5 billion, when compared with the same period in 2015. Residential unit sales climbed by 25 per cent to 77,261 units, while the average MLS® residential price was up 16.4 per cent to $731,189.

Thursday, July 14, 2016

Tight Market Conditions Prevail Around the Province

The British Columbia Real Estate Association (BCREA) reports that a record 12,906 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in June, up 14.3 per cent from the same month last year. Total sales dollar volume was $8.97 billion in June, up 25.7 per cent compared to the previous year. The average MLS® residential price in the province was up 10 per cent year-over-year, to $694,925.

“Robust housing demand in the Lower Mainland, Vancouver Island and the Okanagan drove sales growth in June,” said Brendon Ogmundson, BCREA Economist. “At the same time, the inventory of homes for sale continues to slide lower, creating very tight market conditions around the province.“

“The supply of resale homes is remarkably low across BC, but particularly so in Victoria and the Fraser Valley,” added Ogmundson. The sales-to-active listings ratio has eclipsed 60 per cent in both Victoria and the Fraser Valley, corresponding to less than two months of supply given current demand.

Year-to-date, BC residential sales dollar volume increased 53.2 per cent to $49.9 billion, when compared with the same period in 2015. Residential unit sales climbed by 30.6 per cent to 67,361 units, while the average MLS® residential price was up 17.3 per cent to $741,150.

Wednesday, June 15, 2016

Record Home Sales Creates Wave of New Home Construction

The British Columbia Real Estate Association (BCREA) reports that a record 13,458 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in May, up 32.3 per cent from the same month last year. Home sales last month exceeded April’s record of 12,969 units. Total sales dollar volume was $9.72 billion in May, up 51.1 per cent compared to the previous year. The average MLS® residential price in the province was up 14.2 per cent year-over-year, to $722,146.

“Record housing demand and dwindling inventories are continuing to push home prices higher in most BC regions,” said Cameron Muir, BCREA Chief Economist. “Total active residential listings across the province are nearly 30 per cent lower than twelve months ago.“

“New home construction activity is at a near record pace in the province,” added Muir. In the Metro Vancouver market, a record number of homes are now under construction. “Once the current crop of homes are ready for occupancy there will likely be more selection for home buyers and less upward pressure on home prices."

Year-to-date, BC residential sales dollar volume increased 62 per cent to $41 billion, when compared with the same period in 2015. Residential unit sales climbed by 35.2 per cent to 54,455 units, while the average MLS® residential price was up 19 per cent to $752,105.

Wednesday, May 25, 2016

Bank of Canada Interest Rate Announcement

The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank cited that inflation and economic growth were evolving roughly in-line with expectations, though household vulnerability to economic shocks has moved higher due to high debt burdens.

The Canadian economy got off to a very strong start and will likely end up recording real GDP growth above 3 per cent for the first quarter of the year. However, much of that growth was front loaded and more recent data has been weaker. Growth is expected to slow sharply in the second quarter as a result of the wildfires in Alberta and their impact on oil production before rebounding in the third quarter and ramping up to end the year. Slower growth through the summer months will keep the Bank on the sidelines though a probable tightening of monetary policy by the US Federal Reserve as early as June may add some upward pressure to Canadian long-term interest rates.

Friday, May 13, 2016

Nelson, BC Single Family Home Sales

According to KREB sales statistics (5/12/2016) over the past 6 months there have been 61 single family homes sales in Nelson. Only 10 of those sold for more than $450,000.

BC Home Sales Continue to Smash Record Book

The British Columbia Real Estate Association (BCREA) reports that a record 12,969 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in April, up 30.3 per cent from the same month last year. Home sales last month beat March’s record of 12,560 units. Total sales dollar volume was $9.64 billion in April, up 52.7 per cent compared to the previous year. The average MLS® residential price in the province was up 17.2 per cent year-over-year, to $743,640.

“Housing demand is exceptionally strong across the southern regions of the province,” said Cameron Muir, BCREA Chief Economist. “Consumers appear to be particularly active in the Vancouver Island, the Fraser Valley and the Thompson/Okanagan regions.“

“Strong employment growth is helping underpin consumer confidence,” added Muir. The BC economy employed more than 78,000 additional workers during the first four months of the year, an increase of 3.5 per cent compared to the same period last year.

The year-to-date, BC residential sales dollar volume increased 64.3 per cent to $31.2 billion, when compared with the same period in 2015. Residential unit sales climbed by 36.2 per cent to 28,028 units, while the average MLS® residential price was up 20.6 per cent to $761,860.

Tuesday, May 10, 2016

Contract Changes Benefit Real Estate Consumers

Consumer awareness took a step forward with the announcement of new requirements for real estate contracts.

Following on a promise made by Premier Clark in March, as of May 16, 2016 the government will require contracts prepared by real estate licensees to include clauses stating that the contract cannot be assigned without the written consent of the seller, and that any profit from an assignment goes to the initial seller. Clients can instruct licensees to omit or change the clauses.

"Real estate consumers now have a tool to help them decide whether they want their contracts to be assignable," says BC Real Estate Association (BCREA) President Deanna Horn. "Like many other provisions in the contract, buyers and sellers have the option of keeping the new paragraph, changing it or striking it out completely—but at least the conversation is more likely to happen now."

BCREA supports the new requirements. To help consumers and REALTORS® with the transition, the Association is adding the following paragraph to the residential and commercial Contracts of Purchase and Sale:

The Seller and the Buyer agree that this Contract: (a) must not be assigned without the written consent of the Seller; and (b) the Seller is entitled to any profit resulting from an assignment of the Contract by the Buyer or any subsequent assignee.

"Assignment" is the practice of someone assigning their rights in a contract to someone else before the transaction completes. In simple terms, someone can buy the right to step into the original buyer's shoes to complete the contract. Assigning one's right to a contract is a legitimate practice, allowed by common law and also by section 36 of the Law and Equity Act.

Also today, Minister of Finance Mike de Jong announced that, starting in June 2016, the provincial government will begin collecting citizenship data of real estate owners through the Property Transfer Tax form.

"BCREA is pleased that the government will collect this information, in which there is obviously a lot of public interest," says Association CEO Robert Laing. "Strong policy is based on solid information, and we look forward to learning more about this aspect of the real estate market."

Canadian Housing Starts

Canadian housing starts declined 5 per cent in April following several months of robust construction activity. Total housing starts were 191,512 units at a seasonally adjusted annual rate (SAAR). The six-month trend in Canadian housing starts of 195,064 was down slightly and remains roughly in-line with growth in Canadian households.

Housing starts in BC continued at a torrid pace in April, rising 14 per cent to 45,591 units SAAR. New home construction was driven higher by growth in apartments and other multi-family units, which were up 34 per cent on a year-over-year basis while single-detached starts were 2 per cent higher in April.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 37 per cent year-over-year in April as a result of a 45 per cent increase in multiple unit starts. In the Victoria CMA, housing starts were up 9 per cent year-over-year with strong gains in both single and multiple starts. New home construction in the Kelowna CMA dipped 19 per cent, dragged lower by fewer multiple units starts compared to last April. Housing starts in the Abbotsford-Mission CMA were up 21 per cent in April due to a surge in multiple units starts.

Thursday, April 28, 2016

Current Market Conditions

More listings have sold in the first 3 months of 2016 than during the same period in 2015. Not only that, these homes sold on average 34 days faster this year. Now consider the fact that so far in 2016 there were 16 fewer new listings than during the same 3-month period in 2015.

Here is a look at the numbers..

the sell to list ratio is up from 95.53% to 97.99%,
the average days on market is down from 172 to 138
the total sales is up from $6,824,250 to $8,826,900
and the number of new listings is down from 41 to 25!

Source: KREB Area Detailed Summary March 2016 year over year Nelson Residential Sales Stats

Friday, April 15, 2016

Bank of Canada Cautious About the Outlook

To no one's surprise, the Bank of Canada left its target overnight rate unchanged at 1/2 percent. The Bank, however, reduced its forecast for the global economy and for the U.S. economy as well, suggesting that the outlook for Canadian exports is less favorable than earlier forecast. (Table 1 below shows the Bank's current global forecasts with the January fo recasts in parentheses.)

While oil prices are off their lows and slightly above the level forecast by the Bank in January, the central bank now expects deeper cuts in oil sector business investment. The Bank expects crude oil prices to remain low (Chart 2). The Canadian dollar has increased sharply from its lows earlier this year, "reflecting shifting expectations for monetary policy in Canada and the United States, as well as recent increases in commodity prices." The loonie has surged 15% in less than three months to its strongest level in since mid-2015. This, of course is bad news for exports, and the Bank played down the outlook for Canadian growth in its policy statement and Monetary Policy Report (MPR).

The Bank suggested the surprising strength in the first quarter is in part due to temporary factors and will reverse in the second quarter. Their estimate of output growth in the first quarter is now 2.8%, below consensus private-sector estimates of 3+%, slowing to 1% output growth in the second quarter. The Bank re-emphasized that the structural adjustment to the decline in oil prices is ongoing and will dampen growth over the next three years. This is a more pessimistic, but realistic view than the Bank took a year ago.

The Bank's forecast for growth this year and next is significantly less optimistic than many market watchers expected, especially in light of the recent strengthening in the employment and monthly GDP data. The Bank's Governing Council suggested that had it not been for the recent budget's fiscal stimulus, the growth outlook would have been revised down from the January outlook. Including the effects of the budgetary easing, the Bank now forecasts Canadian growth this year at 1.7%, next year at 2.3% and and 2.0% in 2018. Slower foreign demand growth, the higher Canadian dollar and a downward revision to business investment all have negative impacts on the outlook but are more than offset by the positive effects of the fiscal measures announced in the federal budget in March.

The Bank of Canada also revised down its estimate of potential growth in the economy to roughly 1.5%, mainly reflecting slower growth in trend labour productivity as a result of weaker investment. The new growth profile, combined with the revised estimate for potential, suggests the output gap could close somewhat earlier than the Bank had anticipated in January, likely in the second half of 2017. Inflation is expected to remain at or below the target rate of 2%.

Bottom Line: Caution is the watchword for today's Bank of Canada policy report.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Canadian Manufacturing Sales

After a strong start to the year and three consecutive months of gains, Canadian manufacturing sales decreased 3.3 per cent in February. Sales were dragged lower by declines in 16 of 21 industries with most of the fall in sales due to the motor vehicle parts, petroleum and coal products and aerospace industries.

In BC, where the manufacturing sector employs approximately 170,000 people, sales declined 0.6 per cent on a monthly basis and fell 2.2 per cent year-over-year. Struggling economies in neighboring provinces, a slower than expected first quarter in the United States and the ongoing slowdown in China are all key factors in lower demand for BC manufacturing products. The export and manufacturing sector is the one area of the otherwise strong BC economy that is clearly lagging and that trend is expected to last for much of 2016. However, a pick up in economic growth in the United States following a slow start to the year should boost demand later this year.

BC Home Sales Post All Time Record

The British Columbia Real Estate Association (BCREA) reports that a record 12,560 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in March, up 38 per cent from March of last year. Home sales last month eclipsed the previous record of 11,683 unit sales in May of 2007. Total sales dollar volume was $9.69 billion in March, up 66.9 per cent compared to the previous year. The average MLS® residential price in the province was up 20.2 per cent year-over-year, to $771,620.

“Housing demand has never been stronger in the province,” said Cameron Muir, BCREA Chief Economist. “Most large population centres of the province are now experiencing record levels of housing demand.“

“Strong employment growth, rising wages and a marked increase in net inter-provincial migration is fueling consumer confidence,” added Muir.

Supply imbalances are becoming increasingly common as new residential listings are not keeping pace with consumer demand. As a result, the inventory of homes for sale is at decade-long lows in many regions.

The year-to-date, BC residential sales dollar volume increased 70.1 per cent to $21.59 billion, when compared with the same period in 2015. Residential unit sales climbed by 39.2 per cent to 28,028 units, while the average MLS® residential price was up 22.2 per cent to $770,408.

Bank of Canada Interest Rate Announcement

The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that although first quarter GDP growth appears unexpectedly strong, it believes that strength is temporary and will likely reverse in the second quarter. However, fiscal measures announced in the March federal budget are anticipated to have a notable positive impact on growth. The Bank is now forecasting that the economy will grow 1.7 per cent this year, 2.3 per cent next year and 2 per cent in 2018. That upgrade to growth means the output gap will close sooner than expected, likely in the second half of 2017. That suggests a return to the Bank's 2 per cent target for inflation along the same time-line. Overall, the Bank judges risk in the economy as roughly balanced. Interestingly, the Bank did not highlight the housing sector as a risk despite frenzied activity in both Vancouver and Toronto.

A significantly upgraded economic forecast will very likely close the door on further discussion of an impending rate cut, though downside risks in the global economy remain. Indeed, as the economy accelerates and the output gap closes, we expect the Bank to move to a tightening bias. However, the Bank in unlikely to offset the fiscal stimulus provided by the budget and so an increase in interest rates is still some time away. If economic growth and job creation continue to surprise to the upside, it is possible that the Bank will begin raising rates in late 2017 and we could potentially see a modest rise in mortgage rates toward the end of this year in anticipation of tighter monetary policy.

Friday, April 8, 2016

Canadian Employment

Employment in Canada surged higher in March after three months of flat job growth. Total employment increased by 41,000 jobs and the national unemployment dropped 0.2 points to 7.1 per cent. Total hours worked, which is closely associated with economic growth, increased by 1.2 per cent.

Employment in BC grew by 9,000 jobs in March, including 5,500 full-time jobs. The provincial unemployment rate declined 0.1 points to 6.5 per cent. Over the past 12 months, the BC economy has added 72,000 jobs while growing total employment at a 3.2 per cent rate, the fastest rate of growth among all provinces.

Thursday, April 7, 2016

Canadian Building Permits

The total value of Canadian building permits climbed 15.5 per cent on a monthly basis in February. That increase follows a 9.5 per cent decline in the previous month. Stronger permits were driven by higher construction intentions in the commercial sector in Alberta as well as single-family residential permits in Ontario.

In BC, total permit activity declined in February, dropping 1.2 per cent on a monthly basis but remained above $1 billion for the fourth consecutive month. On a year-over-year basis, the dollar value of building permits in the province was 11.5 per cent higher than February 2015. Non-residential permits were up 17.1 per cent on a monthly basis and close to 54 per cent year-over-year while residential permits were down 8.3 per cent on a monthly basis and were 1.8 per cent lower compared to last year.

Construction intentions were mostly lower in BC's four census metropolitan areas (CMA). Permits in the Abbotsford-Mission CMA were down 43 per cent on a monthly basis and 13.8 per cent lower year-over-year. In the Kelowna CMA, permits fell 63 per cent from January but were 65 per cent lower year-over-year. In the Vancouver CMA, permits fell 5.5 per cent on a monthly basis and were essentially flat year-over-year. In the Victoria CMA, permit activity was up 94 per cent on a monthly basis and more than doubled on a year-over-year basis.

Sunday, April 3, 2016

Canadian Monthly GDP

The Canadian economy got off to a fast start in 2016 as real GDP expanded 0.6 per cent in the month of January, the fourth consecutive monthly increase. Output was led higher by gains in the manufacturing, oil and gas extraction, retail trade and finance industries. Given the strong start to the quarter, economic growth is tracking at a more than 3 per cent rate for the first quarter.

The Canadian economy grew just over 1 per cent for all of 2015 and so the strong start to the year is a welcome turn of events. However, with oil and other commodity prices still low, it is too early to say whether 2016 will see continued strong growth. That said, we do anticipate a stronger economy this year, helped along by a strengthening US economy, a low dollar and fiscal stimulus that should start having an effect during the second half of 2016.

US Employment

US Non-farm payrolls increased for a record 73rd consecutive month in March, rising by 215,000 jobs. The US unemployment rate edged slightly higher to 5 per cent. Over the past three months, the US economy added an average of 209,000 jobs per month.

The US economy is steadily growing and producing jobs at a good but not spectacular pace. Wage growth is low but seems to be increasing and inflation remains muted. All in all, there is still not much of a case of more aggressive tightening by the US Federal Reserve which should help keep Canadian bond yields and therefore mortgage rates low.

Thursday, March 24, 2016

Canadian Retail Sales

Canadian retail sales bounced back from a disappointing December, rising 2.1 per cent in January. Sales growth was broad-based with 7 of 11 subsectors reporting higher sales. Given strong economic data to start 2016, first quarter real GDP growth in Canada is tracking at about 1.9 per cent, a significant improvement from just 0.8 per cent growth in the fourth quarter of 2015.

In BC, retail sales grew 2.8 per cent on a monthly basis and were up a blistering 9 per cent compared to January 2015. The BC economy is off to a very strong start in 2016, with growth in the early months tracking at more than 3 per cent on an annualized basis.

Canadian Manufacturing Sales

A very solid start to the year for the Canadian manufacturing sector as sales rose 2.3 per cent to $53.1 billion, the highest level on record. Sales were led higher by gains in the motor vehicle, food and motor vehicle parts sectors, which accounted for 85 per cent of growth in January. In inflation adjusted terms, sales in January were at their highest level since July 2008, finally surpassing levels last seen before the 2008/09 recession.

In BC, where the manufacturing sector employs approximately 170,000 people, sales rose 0.7 per cent on a monthly basis and just 0.8 per cent year-over-year. The current slowdown in China is clearly having an impact on BC's trade and manufacturing sector, though stronger growth in the US and a low dollar should provide a boost to growth in coming months.

BC Home Sales Sizzle at Record Pace

The British Columbia Real Estate Association (BCREA) reports that a total of 9,637 residential unit sales were recorded by the Multiple Listing Service® (MLS®) last month, up 44.7 per cent from February of last year. This smashed the previous record of 8,157 unit sales for the month of February recorded in 1992. Total sales dollar volume was $7.51 billion in February, up 76.4 per cent compared to the previous year. The average MLS® residential price in the province was up 21.9 per cent year-over-year, to $779,419.

“Housing demand is now at a break-neck pace,” said Cameron Muir, BCREA Chief Economist. “Home sales last month were not only a record for the month of February, but on a seasonally adjusted basis, demand has never been stronger in the province.”

“Downward pressure on active listings has created significant upward pressure on home prices in some regions, particularly in Vancouver and the Fraser Valley,” added Muir. “While home builders have responded with a record pace of housing starts for BC last month, the supply isn’t expected alleviate the imbalance in these markets in the near term."

The year-to-date, BC residential sales dollar volume increased 73.6 per cent to $11.9 billion, when compared with the same period in 2015. Residential unit sales climbed by 40.1 per cent to 15,468 units, while the average MLS® residential price was up 23.9 per cent to $769,424.

Canadian Employment

Employment in Canada was unchanged in February as gains in part-time work offset a decline in full-time jobs. The national unemployment rate rose 0.1 points to 7.3 per cent, the highest rate of unemployment in three years.

BC was the only province that saw job growth in February. Employment was up by 14,000 jobs and was 3 per cent higher than one year ago, the highest rate of job growth in Canada. The provincial unemployment rate remained unchanged at 6.6 per cent as in-migration from other provinces continues to add to the pool of individuals actively looking for work.

Canadian Housing Starts

Canadian housing starts jumped close to 30 per cent in February following a dip in activity to start the year. Total housing starts were 212,594 units at a seasonally adjusted annual rate (SAAR). The six-month trend in Canadian housing starts of 198,880 was up slightly.

Housing starts in BC were the highest on record in February, reaching an astounding 50,780 units SAAR. The record-setting pace of new home construction was the result of record setting pace of starts of apartments and other multi-family units, which were up 183 per cent on a year-over-year basis.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 199 per cent year-over-year in February due to a record setting month for multiple unit starts. In the Victoria CMA, housing starts were up 46 per cent year-over-year with strong gains in both single and multiple starts. Home construction in the Kelowna CMA also posted strong gains as starts of multiple units hit an 8 year high and total starts increased 253 per cent year-over-year. Housing starts in the Abbotsford-Mission CMA were up 49 per cent in February on broad strength in both single and multiple units starts.

Canadian Economic Growth

The Canadian economy slowed substantially in the fourth quarter as growth was pulled down by renewed pressure on energy prices. Canadian real GDP, that is economic output adjusted for inflation, was just 0.8 per cent higher in the fourth quarter following a 2.4 per cent expansion in the third quarter. Economic growth was led by a 1 per cent increase in household consumption, a 1.5 per cent increase in government expenditures and nearly 2 per cent growth in residential construction. The lower Canadian dollar also helped improve Canada's trade balance, as imports declined close to 9 per cent. Real GDP growth for all of 2015 registered just 1.2 per cent.

The Canadian economy was sluggish throughout 2015 and the outlook for growth in 2016 looks to be fairly similar. Absent a major turnaround in oil prices, the national economy will continue to be dragged down by slow growth or even recessions in energy producing provinces. We expect that economic growth in 2016 will be about 1 per cent before picking up in 2017. Slow growth likely means tempered inflation and little ability for households to support higher interest rates. Therefore, we expect the Bank of Canada to remain on the sidelines throughout the year, placing the emphasis on fiscal policy to boost growth.

Friday, February 26, 2016

CLI Signals Steady Economic Climate for Commercial Real Estate

The BCREA Commercial Leading Indicator (CLI) broke a string of two consecutive declines, eking out a 0.1 point increase to an index value of 120.0 in the fourth quarter of 2015. On a year-over-year basis, the CLI was 0.4 per cent higher than in 2014.

“Uncertainty in the global economy roiled financial and commodity markets in the second quarter,” said BCREA Economist Brendon Ogmundson. “However, BC’s nation leading economic growth should help to sustain commercial real estate activity through the end of the year.”

“Financial market jitters offset solid gains from a strong BC economy,” said BCREA economist Brendon Ogmundson. “We expect that the economic environment will remain supportive of steady growth in the commercial real estate market.”

The CLI was virtually flat to end the year, which in combination with a falling index through the spring and summer has produced a flattening of trend underlying the index. That trend suggests that growth in commercial real estate activity will neither accelerate nor decelerate over the next two to four quarters.

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Tuesday, February 23, 2016

Canadian Retail Sales and Consumer Price Inflation

Following a 1.7 per cent increase in November, Canadian retail sales disappointed in December, falling 2.2 per cent. Weakness in sales was widespread with 10 of 11 retail sub-sectors recording a decline in sales. Given disappointing consumer spending in the final month of 2015, we estimate that growth the Canadian economy was approximately zero in the fourth quarter. In BC, retail sales fell 1.9 cent on a monthly basis but were up 7.1 per cent compared to December 2014. For all of 2015, retail sales in the province rose 6.9 per cent.

The Consumer Price Index (CPI), which measures the rate of inflation in Canada, rose 2 per cent in the 12 months to January, up 0.4 points from the previous month. Gasoline prices rose on a year-over-year basis for the first time since October 2014 while food prices climbed 4 per cent. The Bank of Canada's core measure of inflation, which excludes volatile components like food and gasoline increased 0.1 point to 2 per cent, right on the Bank's target for inflation. In BC, provincial consumer price inflation was 2.3 percent in the 12-months to January.

Tuesday, February 16, 2016

Canadian Manufacturing Sales

Some good news for the Canadian economy this morning as Statistics Canada reported manufacturing sales increased 1.2 per cent in December, the second consecutive monthly advance. Sales were led higher by gains in the motor vehicle, wood product and chemical product industries. However, for all of 2015, manufacturing sales were down 1.5 per cent, posting the first annual decline since 2009, as a result of falling manufacturing output in the energy sector.

In BC, where the manufacturing sector employs approximately 170,000 people, sales rose 0.7 per cent on a monthly basis but were down 3.2 per cent compared to December 2014. For all of 2015, BC manufacturing sales rose 1.7 per cent.

Homes Sales Off to a Strong Start in 2016

The British Columbia Real Estate Association (BCREA) reports that a total of 5,831 residential unit sales were recorded by the Multiple Listing Service® (MLS®) last month, up 33.2 per cent from January of last year. Total sales dollar volume was $4.39 billion in January, up 69.1 per cent compared to the previous year.

The average MLS® residential price in the province was up 26.9 per cent year-over-year, to $752,906.

“The BC housing market continues to build on momentum from a very strong 2015,” said Brendon Ogmundson, BCREA Economist. “Heightened demand is being met with the lowest level of supply in a decade, resulting in increased pressure on prices in much of the province.”

The housing market has seen a blistering start to 2016, with housing demand supported by low mortgage rates and rising employment and wage growth in the province. However, MLS® residential sales are forecast to edge lower this year. Total MLS® sales last year were the third highest on record at 102,517. A record 106,310 residential unit sales were recorded in 2005, while the only other year eclipsing 2016 were 2007 when 102,805 unit sales were recorded.

Canadian and US Employment

Employment in Canada was essentially unchanged in January with the total number of employed Canadians dipping by 5,700 people. The national unemployment rate edged slightly higher from 7.1 to 7.2 per cent while the total number of hours worked, which is closely correlated with GDP growth, was up 1.2 per cent over the past 12 months.

In BC, employment grew by a modest 1,200 job to break a string of two consecutive months of monthly job losses. Full-time employment was up an impressive 10,700 jobs while part-time work declined by 9,500. The provincial unemployment rate fell 0.1 points to 6.6 per cent.

In the US, payrolls growth in January came in below expectations, rising by 151,000 jobs, well below the nearly 300,000 jobs per month pace of the past three months. The US unemployment rate edged down 0.1 points to 4.9 per cent. Homes Sales Off to a Strong Start in 2016

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Tuesday, February 2, 2016

Canadian and US Economic Growth

Economic output in Canada rose 0.3 per cent in November after two consecutive months of falling or flat growth. The increase in economic activity was led by gains in retail and wholesale trade as well as oil and gas extraction and manufacturing. Given November's GDP data, Canadian economic growth is tracking at close to zero for the fourth quarter.

US real GDP also experienced a significant slowdown in the fourth quarter, registering just 0.7 per cent at an annual rate. Growth was pulled lower by tempered household spending and a decline in business investment . For all of 2015, the US economy expanded 2.4 per cent, matching the rate of growth in 2014.

Strong Housing Demand Forecast Through 2017

BCREA 2016 First Quarter Housing Forecast Update

The British Columbia Real Estate Association (BCREA) released 2016 First Quarter Housing Forecast Update.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to edge back 6.2 per cent to 96,100 units this year, after reaching 102,517 units in 2015. Strong consumer demand is expected to push MLS® residential sales up by 2 per cent to 98,000 units in 2017.

Housing demand in the province is being supported by a relatively robust economy, leading to strong employment growth and rising wages. In addition, net interprovincial migration is on an upswing as many Albertans look to BC for job opportunities. BC home sales are forecast to remain well above the ten-year average of 83,200 units over the next two years.

“The inventory of homes for sale is now at its lowest level in almost a decade,” said Cameron Muir, BCREA Chief Economist. “Fewer homes for sale and strong consumer demand are expected to push home prices higher in most BC regions this year and in 2017.” The average MLS® residential price in the province is projected to increase 6.4 per cent to $677,200 this year and a further 4.1 per cent to $705,300 in 2017.

New home construction activity is expected to remain at elevated levels corresponding to strong consumer demand and relatively thin inventories, particularly on the South Coast. Total housing starts in the province are forecast to remain close to an annual pace of 30,000 units through 2017, which will be the strongest two year performance since the 2007-2008 period.

US Federal Reserve Interest Rate Announcement

On the heels of the first rate increase in 8 years, the US Federal Reserve's Open Market Committee (the Fed) opted to leave its target overnight rate unchanged at a range of 0.25 to 0.50 per cent. In the statement accompanying the Fed's decision, it was noted that with gradual adjustments to the stance of monetary policy, economic activity will continue to expand at a moderate pace and labour market indicators will continue to strengthen. The Fed expects that inflation will remain low in the near term, but slowly rise to 2 per cent over the medium term as the impact of low energy prices fades.

While early speculation was that the Fed would raise rates at least four times this year, a slowdown in the economy to end 2015 along with still tame inflation and volatility in financial markets will likely put monetary policymakers on a much more cautious footing. We expect that the Fed will raise rates a maximum of one more time in 2016 which should translate to very little upward pressure on Canadian bond yields and mortgage rates.

Canadian Retail Sales and Inflation

After recording flat sales in October, Canadian retail sales rose 1.7 per cent in November. All retail sub-sectors showed rising sales, with the notable exception of gasoline stations where falling prices prompted the nominal value of sales to decline. In BC, retail sales were up 1.8 per cent on a monthly basis and 5.4 per cent compared to November 2014. Year-to-date, retail sales in the province are up 6.8 per cent over last year.

The Consumer Price Index (CPI), which measures the rate of inflation in Canada, rose 1.6 per cent in the 12 months to December, up 0.2 points from the previous month. After 13 straight declines, the transportation component of the index, which contains gasoline prices, increased in December. Food prices were also higher, rising 4.1 per cent largely due to impact of the lower exchange rate. The Bank of Canada's core measure of inflation, which excludes volatile components like food and gasoline dipped slightly to 1.9 per cent from 2 per cent in November. In BC, the provincial CPI was 1.9 per cent higher in the 12-months to December.

Bank of Canada Interest Rate Announcement

The Bank of Canada announced that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is evolving as expected with total CPI continuing to test the bottom of the Bank's 1-3 per cent target range due to low energy prices. However, the Bank expects that inflation will rise over the next year, reaching its 2 per cent target by mid-2017. On the economy, the Bank sees economic growth firming after a slowdown in the fourth quarter of last year. The Bank projects that the Canadian economy will grow a modest 1.5 per cent this year before strengthening to 2.5 per cent in 2017.

In not moving on interest rates this morning, the Bank is recognizing that there is little that monetary policy can do to offset a significant supply-side shock such as the dramatic decline in oil prices. Indeed, given Canada's floating exchange rate, the loonie has already adjusted to help partially absorb the negative impact of falling commodity prices on exports. Keeping in mind that the Canadian economy is still projected to grow at a rate very close to its somewhat diminished potential for 2016 and that inflation will be spurred by a dramatically lower Canadian dollar, we anticipate that the Bank will reassess the need for monetary stimulus once the worst of the oil-shock had passed. That means, barring a significant deterioration in the economy, the Bank will more than likely remain sidelined for 2016.

December Smashes Home Sales Record and 2015 Enters Record Book

The British Columbia Real Estate Association (BCREA) reports that a record number of home sales were recorded in the province for the month of December. A total of 6,590 residential unit sales were recorded by the Multiple Listing Service® (MLS®) last month, up 29.8 per cent from the same month the previous year. Total sales dollar volume hit a record $4.62 billion for the month of December, up 55.4 per cent compared to the previous year.

The average MLS® residential price in the province climbed above the $700,000 threshold for the first time in BC last month, rising 19.7 from December 2014 to $700,943.

“The 2015 housing market finished in dramatic fashion, with record demand for month of December,” said Cameron Muir, BCREA Chief Economist. “BC home sales breached the 100,000 unit threshold in 2015, and it was only the third time on record that this high watermark was achieved.”

The combination of record home average home prices and near record annual unit sales prices propelled the dollar volume of MLS® residential to a record $65.3 billion in 2015, up nearly 37 per cent from the previous year. The average annual residential price reached a record $636,627 last year, up 12 per cent from 2014. A total of 102,517 residential unit sales were recorded, an increase of 22 per cent compared to 2014. A record 106,310 residential unit sales were recorded in 2005, while the only other year eclipsing 2015 were 2007 when 102,805 unit sales were recorded.

Canadian Housing Starts

Canadian housing starts closed the year down close to 20 per cent, falling from 212,028 units at a seasonally adjusted annual rate (SAAR) in November to 172,965 units SAAR in December. The six-month trend in Canadian housing starts of 203,500 units SAAR was also down. For the year 2015, total Canadian housing starts were up 6 per cent over 2014. Large declines in oil-producing provinces such as Alberta, Saskatchewan and Newfoundland were largely offset by strong new home construction in BC and Ontario.

Housing starts in BC rebounded in December, rising 26 per cent to 33,346 units SAAR. On a year-over-year basis, housing starts were up 15 per cent, led by a 22 per cent increase in multiple unit starts which offset a 3 per cent decline in single detached starts. For the year 2015, total housing starts in BC increased 12 per cent compared to 2014.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 20 per cent year-over-year in December due to a 27 per cent jump in multiple starts. For all of 2015, Vancouver CMA new home construction rose 9 per cent, finishing the year at 20,863 total starts. In the Victoria CMA, housing starts more than doubled compared to December 2014, with strong gains in both single and multiple starts. For all of 2015, Victoria CMA starts increased 53 per cent to 2,008 total starts. Home construction in the Kelowna CMA closed the year down, falling 44 per cent year-over-year. For all of 2015, total housing starts dipped slightly, falling 2 per cent to 1,280 total starts. Housing starts in the Abbotsford-Mission CMA were up 21 per cent to finish the year and were 62 per cent higher for all of 2015 at 806 total starts.

Canadian and US Employment

Employment in Canada increased by 23,000 jobs in December, a 0.9 per cent increase over December 2014. The national unemployment rate was unchanged at 7.1 per cent. For all of 2015, employment posted average growth of just under 1 per cent or about 13,000 jobs per month.

In BC, employment fell for a second consecutive month, dropping by 7,900 jobs in December. Those job losses, combined with an increase in job searchers migrating from other provinces helped to push the unemployment rate 0.5 points higher to 6.7 per cent. For the year 2015, employment in BC increased 1.3 per cent but grew at a 2 per cent rate over the second half of the year.

In the US, payrolls jumped by 292,000 jobs and revisions to past months estimates added a further 50,000 to payrolls. The US unemployment rate was unchanged at 5 per cent. Over the past three months, the US economy is averaging a robust rate of new job creation at close to 300,000 jobs per month.