Canadian Retail Sales

Canadian retail sales rose 0.7 per cent in May with sales higher in 7 of 11 retail sub-sectors.  In inflation-adjusted terms, retail sales rose 0.4 per cent.  Given today's data, second quarter Canadian real GDP growth is tracking at 2.2 per cent on an annualized basis.

Retail sales in BC edged lower by 0.1 per cent following two months of strong growth. However, on a year-over-year basis, retail sales were 6.4 per cent higher than May 2013.  Through the first five months of the year, retail sales in BC are up a robust 5.3 per cent.

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Dominion Best Rate Mortgages

US Housing Starts

US housing starts fell 9.3 per cent in June to a seasonally adjusted annual rate (SAAR) of 893,000, but were up 7.5 per cent over June 2013.  For the first six months of the year, US new home construction has averaged 954,000 units (SAAR), an increase of 5.3 per cent over 2013.

Severe winter weather slowed new home construction to start the year, in turn halting the flow of BC wood products south. As US housing starts recover, we anticipate a further boost in BC's forestry sector which associated gains in employment in household incomes.

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Bank of Canada Interest Rate Announcement

The Bank of Canada announced this morning it was once again holding its target for the overnight rate at 1 per cent.  In the statement accompanying its decision, the Bank highlighted that while total CPI inflation has risen close to its 2 per cent target in recent months, the rise is due to temporary effects of higher energy prices and exchange rate pass-through from a lower loonie.  The Bank also noted that slower than expected global economic growth has trimmed the Bank's Canadian economic outlook for the next two years. This means the Canadian economy will be delayed in reaching full capacity, now expected in 2016 rather than 2015.

In spite of low inflation and disappointing growth, the Bank of Canada remains wary of easing monetary policy further at risk of upending the delicate balance of over-indebted Canadian households.  Interestingly, the Bank explicitly stated that it remains neutral with respect to both the timing and direction of the next change in interest rates, which leaves the door open for a rate cut should incoming data warrant it.  That said, we still expect that the next move for the Bank to be in the direction of higher rates. In particular, recent momentum in consumer prices, if sustained, may push the Bank to act sooner rather than later though very likely not until early to mid-2015.

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Home Sales Surge Higher in June

The British Columbia Real Estate Association (BCREA) reports that a total of 8,989 residential sales were recorded by the Multiple Listing Service® (MLS®) in June, up 24.9 per cent from June 2013. Total sales dollar volume was $5 billion, an increase of 30.5 per cent compared to a year ago. The average MLS® residential price in the province rose to $556,977, up 4.5 per cent from the same month last year.

“Home sales finished the second quarter on an upward trend,” said Cameron Muir, BCREA Chief Economist. “The increase in provincial housing demand was broad-based, with the largest year-over-year increases occurring in the Okanagan, the Kootenays and Chilliwack.”

Home sales climbed 46 per cent in the South Okanagan and nearly 30 per cent in the Okanagan Mainline Real Estate Board area. In addition, home sales rose 36 per cent in the Kootenays and 33 per cent in Chilliwack compared to the same month last year.

“Market conditions also continued to improve, with the Okanagan and the Lower Mainland even flirting with sellers’ market conditions,” added Muir.

During the half of the year, BC’s residential sales dollar volume was up nearly 26.8 per cent to $23.8 billion, compared to the same period last year. Residential unit sales were up 18.5 per cent to 41,883 units, while the average MLS® residential price was up 7 per cent at $568,499.

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Canadian Employment

Canadian employment was little changed in June, declining by 9,400 from May. The national unemployment rate rose 0.1 points to 7.1 per cent.  Of some concern, employment has risen by just 0.4 per cent over the past 12 months, the lowest year-over-year growth since February 2010.

The BC economy broke a string of two consecutive months of job losses, adding 6,700 jobs in June. However, the provincial unemployment rate rose 0.1 points higher to 6.2 per cent as the rise in people looking for work outpaced employment gains. The level of employment in BC is up just 0.4 per cent year-to-date in 2014, though we anticipate a pick-up in job growth in the second half of the year.

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Canadian Housing Starts

Canadian housing starts rose just over half of one per cent in June to 198,185 units at a seasonally adjusted annual rate (SAAR).  The six-month trend in Canadian new home construction sits at 185,000 units SAAR. That level of construction is approximately in-line with Canadian household growth.

New home construction in BC urban centers dipped slightly in June, falling 5 per cent on a monthly basis to 26,675 units SAAR. On a year-over-year basis, housing starts were down 9 per cent compared to June 2013. Single-detached starts were up 17 per cent while multiple units were down 18 per cent. For the first six months of the year, total housing starts in BC were higher by 9 per cent compared to 2013.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were down 19 per cent year-over-year in June. The decline was the result of a 26 per cent year-over-year drop in multiple units while single-detached units rose 16 per cent. Total starts in the Vancouver CMA were up 5 per cent over 2013 in the first half of the year. In the Victoria CMA, total starts increased 68 per cent year-over-year as multiple unit starts more than doubled June 2013 levels. For the first half of 2014, total starts in the Victoria CMA are up 3 per cent. New home construction in the Kelowna CMA continues to show strength, more than doubling year-over-year in June due to strong gains in multiple unit starts. For the first six months of 2014, Kelowna CMA starts are up 64 per cent. Housing starts in the Abbotsford-Mission CMA dropped sharply in June due to relative inactivity in the multiple unit sector. Total starts in the Abbotsford-Mission CMA are down 36 per cent in the first six months of 2014.

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Canadian Building Permits

Canadian building permits posted strong growth in May, rising 13.8 per cent from April.  The increase was the result of higher construction intentions for BC multi-family units as well as commercial buildings in Manitoba and Ontario.

New building permits in BC rebounded from large declines in April, jumping 30.7 per cent month-over-month and 7.7 per cent year-over-year in May. The dollar value of residential permits rose 29.1 per cent on a monthly basis and 2.5 per cent year-over year while non-residential permits were up 34.2 per cent from April and 20.9  per cent year-over-year. 

Building permit activity was mixed in BC's four census metropolitan areas (CMA). Permits in the Abbotsford-Mission CMA fell 47.5 per cent from April and were 47.9 per cent lower compared to May 2013.  Similarly, construction intentions in the Kelowna CMA fell 20.4 per cent from April but were 5.5 per cent higher year-over-year. In the Victoria CMA, permits increased 74.3 per cent on a monthly basis and more than doubled year-over-year. Finally, in the Vancouver CMA, permits  bounced back from declines in April, jumping 59.4 per cent on a monthly basis and were 6.5 per cent higher year-over-year.

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US Employment

The US economy added a robust 288,000 jobs in June,  while employment growth in April and May were revised higher by 29,000 jobs. The US unemployment rate fell 0.2 points to 6.1 per cent. 

In spite of a disastrous first quarter of economic growth, the US economy is clearly improving. Over the past three months, US job growth has averaged 272,000 jobs per month and the unemployment rate has fallen to its lowest level since September of 2008. We expect US economic growth to pick up considerably for the remainder of 2014, which should provide a significant boost to the BC economy and keep consumer demand in BC housing markets healthy.

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Canadian Monthly GDP

The Canadian economy grew 0.1 per cent in April, matching the rate of growth in March. At the industry level, growth was led by higher output in wholesale and retail trade while declines in mining, oil and gas, and construction dragged growth lower.

Given available data, the Canadian economy is on track to grow about 2 per cent in the second quarter. A modest but welcome acceleration from 1.2 per cent in the first quarter.  Faster growth in the United States should help to nudge the Canadian economy into a higher gear in the back half of the year, with GDP ultimately expanding by around 2.5 per cent in 2014. 

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Canadian Retail Sales and CPI Inflation

Canadian retail sales posted strong, broad based growth in April, rising 1.1 per cent with sales higher in 10 of 11 retail sub-sectors.  In inflation-adjusted terms, retail sales rose 0.8 per cent.  Retail sales in BC posted a second consecutive month of strong growth, rising 1.6 per cent in April . On a year-over-year basis, retail sales grew 7.1 per cent, the fastest year-over-year growth since April 2010.  Through the first four months of the year, retail sales in BC are up 5 per cent.

Canadian inflation accelerated again in May as consumer prices rose 2.3 per cent over the previous twelve months. As expected, the increase was largely explained by rising energy prices, including a 6.3 per cent gain in gasoline prices and a 21 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 1.7 per cent in May, a 0.3 point increase from April. If maintained in subsequent months, continued momentum in core prices could shift the Bank of Canada closer to tightening interest rates.

Inflation measured in BC continues to normalize as the elimination of the HST fades from prices. Consumer prices in the provinces rose 1.5 per cent in the 12 months to May. That increase follows several months of inflation reading at close to, or even below, zero.

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Strongest May for Home Sales Since 2007

The British Columbia Real Estate Association (BCREA) reports that a total of 8,729 residential sales were recorded by the Multiple Listing Service® (MLS®) in May, up 13.9 per cent from May 2013. Total sales dollar volume was $4.9 billion, an increase of 20.6 per cent compared to a year ago. The average MLS® residential price in the province rose to $565,233, up 5.8 per cent from the same month last year.

“Consumer demand was noticeably stronger last month, with unit sales posting their highest level for the month of May since 2007,” said Cameron Muir, BCREA Chief Economist. “Rock bottom mortgage rates are inducing many would-be home buyers to enter the market this spring.”

“With most BC markets now in balanced conditions, home prices are up in nine of 11 board areas,” added Muir.

During the first five months of the year, BC residential sales dollar volume was up nearly 26 per cent to $18.8 billion, compared to the same period last year. Residential unit sales were up almost 17 per cent to 32,894 units, while the average MLS® residential price was up 7.7 per cent at $571,648.

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