Merry Christmas and happy holidays!

Canada GDP, Retail Sales, Employment

Economic output in Canada was slower than expected in October, as real GDP was unchanged after a 0.5% decline in September. Both the Goods and Service sectors recorded zero growth in October, below an expected 0.2% increase overall. It is now unlikely that GDP growth will reach the Bank of Canada's forecast of 1.5% this year. However, Canada's relative weak performance is tied to temporary factors concerning oil and gas extraction and global commodity demand. In related releases, retail sales in Canada rose at an unexciting 1.9% annual pace in October, while the Survey of Employment Payrolls and Hours (SEPH) indicated employment rose a marginal 0.8% annual rate. In contrast to these national figures, retail sales in BC climbed an impressive 6.3% over the past 12 months, while the SEPH recorded employment rising by 2.5% in the province. While the Canadian economy continues to grapple with the fallout from a collapse in oil prices, the BC economy has been largely unscathed and is leading the country in these key indicators.   Copyright BCREA – reprinted with permission

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The Consumer Price Index

The Consumer Price Index (CPI) rose 1.4 per cent in November compared to the same month last year. While the transportation component, which contains gasoline prices, edged lower, prices were up in seven of the eight major index components. The largest increase came from food prices, which rose 3.4 per cent. The Core CPI, which excludes the volatile components like food and gasoline, was right on the Bank of Canada's target of 2 per cent.

Wholesale trade in Canada declined for the fourth consecutive month in October, down by 0.6 per cent. Wholesales sales in BC were down 1.2 per cent in October and it was the second consecutive month of decline in BC. The inventory-to-sales ratio in Canada during October was 1.34 per cent, reaching its highest level since June of 2009.

These tepid indicators suggest the Bank of Canada will continue its sideline stance and will likely not change its trend-setting target overnight interest rate at its next announcement.

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MORTGAGE RATES SET FOR MODEST RISE IN 2016

Mortgage Rate Outlook While the benchmark qualifying rate for Canadian mortgages has not changed in eight months, offered or discounted mortgage rates at banks and other lenders have recently moved higher. The average 5-year rate offered by lenders has increased about 20 basis points in recent weeks to 2.79 per cent and the discount from prime lending rates on variable rate mortgages has narrowed from 60 to 40 basis points. Rather than reflecting changes in underlying economic factors, these increases are largely due to regulatory and other market structure changes that are pushing banks’ cost of capital higher.

While these recent increases are likely one-time adjustments, the forthcoming normalization of US monetary policy will likely be a more persistent factor in determining future mortgage rates. Surveying the economic landscape, the case for the US Federal Reserve (the Fed) to raise rates is mixed at best. While the US unemployment rate is at its lowest level in seven years, the US economy is still, by most measures, far from what economist consider its potential or full-employment level. Economic growth in 2015 has been solid, if not brisk, and measures of inflation show that prices remain muted with inflation trending well below the Fed’s 2 per cent target. 

Despite the mixed evidence for doing so, after seven years of holding its target overnight rate at zero, the Fed is determined to raise its overnight rate at its upcoming meeting in December. Given that markets have already priced in a rate hike, the focus of the Fed’s December meeting has shifted to how much guidance is given regarding how quickly the Fed plans to move after its initial hike. 

We expect the Fed to go very slowly in raising rates, with the overnight federal funds rate being brought to 0.75 per cent by the end of next year. That magnitude of a rate hike has in the past correlated with a modest increase of about 20 basis points in Canadian 5-year bond yields which is then partially passed through to 5-year fixed mortgage rates. Canadian bond-yields have already drifted higher in anticipation of Fed tightening, rising 20 basis points since September. Given stable inflation and moderate economic growth in the Canadian economy, pressure from rising US rates will likely be the main source of upward pressure on mortgage rates over the next year. We are forecasting that 5-year qualifying rate on mortgages will increase to 4.79 per cent in early 2016 before gradually rising to 5.11 by the end of next year. 

Economic Outlook 

The Canadian economy rebounded from a first half slump, growing close to 2.5 per cent in the third quarter. Employment growth has trended at about 12,000 jobs per month in 2015, but with significant volatility and regional disparities while the unemployment rate remains near 7 per cent. Growth for all of 2015 will likely register a paltry 1.2 per cent with stronger second half growth offsetting consecutive negative quarters in the first half of the year. 

The outlook for growth in 2016 remains weighed down by low oil prices and the associated struggles in Canada’s energy producing provinces. Higher oil prices would provide a welcome boost to economic growth, but increasing prices are contingent on more robust global demand which may not materialize. While the IMF is forecasting an uptick in Global GDP growth, key markets like China are expecting slower growth. As a result, both forecasters and futures markets are pointing to oil prices stabilizing moderately higher at close to $50 per barrel in 2016.

In addition, the economy may have to adjust to a slight increase in mortgage rates which could temper the pace of residential construction and home sales. Offsetting these downside risks is the low Canadian dollar, which should provide a boost to the trade and manufacturing sector. Overall, we forecast growth in the Canadian economy will pick-up next year to 2.4 per cent.

Interest Rate Outlook Canadian and US monetary policy is set to diverge this month as the Fed begins its first tightening cycle in close to a decade while the Bank of Canada is on the sidelines after lowering rates twice in early 2015. In contrast with the US, core inflation in Canada has been at or slightly above the Bank’s 2 per cent target for 15 consecutive months, largely due to a falling Canadian dollar pushing up the price of imported goods.

Absent a substantial recovery in global commodity prices, the Canadian economy will more than likely grow near its long-term trend rate over the next two years. That growth rate will keep inflation relatively anchored at or below its 2 per cent target. A baseline scenario of economic growth above 2 per cent, paired with low inflation and steady job growth should keep the Bank of Canada sidelined over the medium run. However, several quarters of steady growth following the oil price shock of late 2014 may convince policymakers that the economy is no longer in need of monetary stimulus injected into the economy via the two rate cuts in early 2015. If so, the Bank may shift back to a tightening bias with a potential rate increase as early as 2017.

Copyright BCREA - reprinted with permission 

Canadian Housing Starts

Canadian housing starts increased 7.2 per cent in November to 211,916 units at a seasonally adjusted annual rate (SAAR).  The six-month trend in Canadian housing starts of 208,401 units SAAR has risen for several months and is currently above the rate of household formations in Canada, a sign that new home construction could slow next year.

Housing starts in BC fell 24 per cent following a similar size increase the previous month, registering 25,507 units SAAR.  On a year-over-year basis, housing starts were down 10 per cent with both single detached and multiple starts posting declines compared to last year. Year-to-date, total housing starts in BC are up 11 per cent compared to 2014.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were down 9 per cent year-over-year in November following a large increase in new home construction in October.  Single detached units were down 5 per cent while multiple units were off 10 per cent year-over-year.  In the Victoria CMA, new home construction was 55 per cent lower compared to November 2014. Multiple starts accounted for all of the decline while single units starts were 2 per cent higher. Total housing starts in the Kelowna CMA fell 28 per cent year-over-year with both single and multiple unit starts posting weaker November new home construction than in 2014.  Housing starts in the Abbotsford-Mission CMA were the lone CMA to post a gain in November with housing starts more than quadrupling to 111 total units compared to just 25 units in November 2014.

Copyright BCREA – Reprinted with Permission

Canadian Government Change to Minimum Down Payment on Insured Mortgages

Policy Change

The Canadian government announced today that it is increasing the minimum down payment on insured mortgages from 5 per cent to a two tiered system under which the minimum down payment on houses priced above $500,000 will remain at 5 per cent, but there will be an additional 10 per cent required on the portion of the house price above $500,000.

As an example, for a house priced at $700,000, the minimum down payment for mortgage insurance purposes under the status quo would be $35,000. Under the new system, the minimum down payment would be 5 per cent x $500,000 + 10 per cent x ($700,000-$500,000) or $45,000. It is important to note that the homes priced at or above $1 million already require a minimum down payment of 20 per cent.

The changes to minimum down payments will take effect on February 15, 2016 and apply to new mortgage loans where a mortgage insurance application is received on February 15, 2016 or later.

Market Impact

The increase in minimum down payments on homes above $500,000 is designed to target excess risk taking in Canada's most expensive housing markets. Most homes in BC are priced below $500,000 and therefore this change will have limited impact in much of the province. However, 35 per cent of homes sold in Metro-Vancouver are priced between $500,000 and $1 million and so this change could adversely affect or delay demand in those markets, particularly for first-time homebuyers. That said, given the incremental nature of the change, and since minimum down payments are less frequent at higher home prices, we expect the overall impact to be relatively minor.

Copydright BCREA - reprinted with permission

November Home Sales Second Strongest on Record

The British Columbia Real Estate Association (BCREA) reports that a total of 8,032 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in November, up 34.5 per cent from the same month last year. Total sales dollar volume was $5.38 billion, up 56.4 per cent compared to the previous year. The average MLS® residential price in the province rose to $668,317, up 16.3 per cent from November 2014.

“Housing demand last month was the second strongest ever recorded for the month of November,” said Cameron Muir, BCREA Chief Economist. “You’d need to look all the way back to the frenetic market of 1989 to find more homes trading hands in November.“

The largest increase in consumer demand occurred in the Fraser Valley, where home sales climbed over 60 per cent from November 2014. Vancouver and Chilliwack experienced an increase of over 40 per cent, while Kamloops home sales were up 30 per cent.

The year-to-date, BC residential sales dollar volume increased 35.4 per cent to $60.7 billion, when compared with the same period in 2014. Residential unit sales climbed by 21.5 per cent to 95,927 units, while the average MLS® residential price was up 11.4 per cent to $632,209.

Copyright BCREA - reprinted with permission 

CLI Points to Stable Commercial Real Estate Activity Next Year

The BCREA Commercial Leading Indicator (CLI) declined for a second consecutive quarter, falling 0.2 index points in the third quarter to 120.0. The index was still 1.2 per cent higher year-over-year, due to strong momentum from 2014 that carried into the early months of this

Third quarter jitters in financial markets and modest employment losses overwhelmed strong gains in provincial economic activity to pull the CLI lower.

“The BC economy remains very strong,” said BCREA economist Brendon Ogmundson. “This underlying strength should help to offset some of the temporary financial market, as well as other factors that pulled the CLI lower over the summer.”

A flattening underlying trend in the CLI points to some stability in commercial real estate activity on the horizon, though a very strong economic climate in the province should continue to support modest growth in the commercial market.

Copyright BCREA - Reprinted with Permission 

Will Interest Rates Rise or Will They Fall?

Over the past few weeks interest rates, specifically longer term (5 year term) fixed rates, have risen on average 0.25%. Not a massive leap, and not the beginning of the end of low rates by any stretch.

Understanding the Basics

Fixed interest rates are predicated on the bond market. Where the bond market goes is where longer term (4yr – 10yr term) fixed rates follow.

Over the past few weeks the bond market has seen new life, and thus rates have risen slightly. This is partly due to speculation around the new federal government's expensive commitments to inject many billions of dollars into the economy. These will be good for business, and in turn should further fuel a recovery in the bond market, making investors happier.

For those seeking longer-term fixed-rate mortgages there will be less happiness, although to be fair, for some time yet interest rates are likely to remain quite close to the record lows we have enjoyed. An increase from 2.59% to 2.79% is hardly cause for alarm.

Variable-rate mortgages, and to some extent 1, 2 and 3yr fixed-rate mortgages, are predicated on the Bank of Canada’s Prime rate, which saw two 0.25% cuts earlier this year. It's currently at 2.70% with lenders, who passed only a 0.15% reduction on to the mortgage market.

(Side Note: When the Bank of Canada increases rates by 0.25% again, will lenders increase their Prime by only the 0.15% they cut, or will we get two partial cuts, but the full lump on an increase? Time will tell.)

The Bank of Canada has repeatedly said that what happens in the real estate market is not a significant part of their decision-making process; instead movement in the Prime lending rate is more of a large lever designed to guide the nation's economy as a whole. The manic goings-on in two cities' housing markets (Vancouver and Toronto) do not play a material role and are instead, to some extent, a by-product, not a basis for decisions.

Most notable were recent comments by our new Minister of Finance, Mr. Bill Morneau, in his Fall Fiscal Update which referenced a ‘stalling economy’ and a reduction in expected economic growth from 2% to perhaps 1.2%. These are clear indications that the Bank of Canada is unlikely to increase Prime any time soon.

Consider that the idea of the Liberals' commitment to infrastructure spending is an attempt to step on the gas pedal and power up the economy. Then, equally, consider that a Bank of Canada increase to Prime would be akin to stepping on the brake pedal of the economy. It seems reasonable to expect some degree of volatility in the bond market and thus longer-term fixed rates — and equally reasonable to expect stability when it comes to Prime — and thus stability for variable-rate mortgages and shorter-term fixed-rate offerings.

Low rates are here for some time to come, albeit in a different form than we have grown accustomed to.

Paying your mortgage down faster

The best way to prepare for potentially higher rates is to have a lower mortgage balance come renewal time. If you truly want to take advantage of today’s low rates, there are many ways to pay down your mortgage sooner to save you thousands of dollars in interest payments.

Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 15% or 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money. Few of us have such lump sums, mind you.

A more reasonable and highly effective approach is to increase the frequency of your mortgage payments by opting for accelerated bi-weekly payments. Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off quicker, but are guaranteed to save you a significant amount of money over the term of your mortgage.

Even just adding extra, e.g. $25.00, $50.00 or if you can $100.00, to your mortgage payment each passing year will have a powerful cumulative effect over the term of your mortgage. As always, if you have any questions about refinancing, reducing debt or paying down your mortgage quicker, I’m here to help!

Creating Sustainable Neighbourhoods

A neighbourhood with sustainable features is one that meets your needs while protecting the environment and leaving an affordable legacy. This type of neighbourhood offers homes that are located near shops, schools, recreation, work and other daily destinations. Like a village, these places are a pleasant, convenient and safe walk, cycle or bus ride from home. This helps you reduce driving costs and enjoy the health benefits of walking and cycling. Land and services, like roads, are used efficiently. Old or new, they also feature a choice of homes that you can afford.

Did you know…?

·         The Heart and Stroke Foundation of Canada recommends at least 30 minutes of exercise every day, like walking or biking, to reduce the risk of obesity, heart disease and stroke. Where homes are within walking distance of stores and other services, people are 2.4 times more likely to meet the 30-minute minimum than those in homes that are not within a convenient or pleasant walk to stores/services.

·         The average annual cost to own and operate a car in Canada is $9,000+. If you can eliminate the need for a second car, drive less or avoid having a car at all, that’s money in your pocket.

·         A two-storey detached home loses 20% more heat than a semi-detached one, and 50% more than a middle home in a row of townhouses of the same size with the same heating system, insulation and windows.

• Trees shading your house can make it feel cooler in the summer. Healthy trees also increase your property value. They intercept rainwater, improve air quality, and make streets and public spaces more comfortable and attractive.
• Asphalt surfaces, like parking lots, can make urban areas hotter than the surrounding countryside in the summer. With less asphalt surface, neighbourhoods are more attractive and land-efficient. In mixed-use neighbourhoods, fewer parking spots are needed because places with high daytime needs, like offices, are close enough to share parking with places that need more parking at night, like homes and restaurants.
• Cars are a major source of smog in urban areas, so driving less helps everyone’s health, particularly children, the elderly and people at risk for cardio-respiratory problems.
• Half of the greenhouse gases from energy use by individual Canadians come from passenger road transportation, like cars. In the Toronto area, greenhouse gases from weekday passenger travel generated by people living in mixed-use, pedestrian and transit-friendly neighbourhoods near the urban core are about 1/3 of those by people living in dispersed, strictly residential neighbourhoods on the urban fringe.

Canadian and US Employment

Employment in Canada declined by 36,000 jobs in November, largely as the result of losses in part-time work. The national unemployment rate edged 0.1 points higher to 7.1 per cent.  Total hours worked, which is strongly correlated with economic growth, is up 1.1 per cent over the past 12 months while total employment is up 0.7 per cent over that time period.

In BC, employment fell by 1,400 jobs following strong gains in October. The provincial unemployment rate declined 0.1 points to 6.2 per cent . Year-to-date, employment in BC is up 1.2 per cent but has risen at a rate of 2.5 per cent over the past three months.

In the US, payrolls expanded by a robust 211,000 jobs while estimates of job growth in previous months were revised higher by 35,000 jobs. The US unemployment rate was unchanged at 5 per cent.

Copyright BCREA – Reprinted with permission 

Bank of Canada Interest Rate Decision

The Bank of Canada announced this morning that it is maintaining its target for the overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is in line with its outlook with total CPI inflation near the bottom of the Bank's 1 to 3 per cent target range while core inflation remains close to 2 per cent.  On growth, the Bank cited ongoing and complex adjustments in the Canadian economy to low commodity prices, but expects growth to move above potential (usually estimated to be about 2 per cent) in 2016. 

 Absent a substantial recovery in global commodity prices, the Canadian economy will more than likely grow near its long-term trend rate over the next two years. That rate of growth will keep inflation relatively anchored at or below its 2 per cent target.  A baseline scenario of economic growth above 2 per cent, paired with low inflation and steady job growth should keep the Bank of Canada sidelined over the medium run. However, several quarters of steady growth following the oil price shock of late 2014 may convince policymakers that the economy is no longer in need of the monetary stimulus injected into the economy via two rate cuts in early 2015. If so, the Bank may shift back to a tightening bias with a potential rate increase late next year or in early 2017.

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Canadian Economic Growth (Q3'2015)

The Canadian economy rebounded from a first half contraction, growing 2.3 per cent in the third quarter in spite of a slowdown in the month of September. Economic growth was led by a 2.3 per cent gain in exports of goods and services, more than four times the rate of export growth recorded in the second quarter. Household consumption rose 0.8 per cent and residential investment grew 0.6 per cent. Business investment in machinery and non-residential structures continued to feel the effects of low commodity prices, falling 1.1 per cent and 1.7 per cent respectively. Growth for all of 2015 will likely register a paltry 1.2 per cent with stronger second half growth offsetting consecutive negative quarters in the first half of the year.

The outlook for growth in 2016 remains weighed down by low oil prices and the associated struggles in Canada’s energy producing provinces. Higher oil prices would provide a welcome boost to economic growth, but increasing prices are contingent on more robust global demand which may not materialize. In addition, the economy may have to adjust to a slight increase in mortgage rates which could temper the pace of residential construction and home sales. Offsetting these downside risks is that the low Canadian dollar should continue to provide a boost to the trade and manufacturing sector. Overall, we forecast growth in the Canadian economy will pick-up next year to 2.4 per cent.

Copyright BCREA – Reprinted with permission 

Canadian Retail Sales

After rising for four consecutive months, Canadian retail sales fell 0.5 per cent in September. Adjusted for the effects of changing prices, in particular declining gasoline prices, the volume of sales was actually up 0.1 per cent.  In BC, retail sales were up 0.2 per cent on a monthly basis and 6 per cent compared to September 2014. Year-to-date, retail sales in the province are up 7 per cent over last year. 

Given today's data release, Canadian real GDP is currently tracking at about 2.5 per cent in the third quarter, while the BC economy is on pace to grow 2.8 per cent for all of 2015. 

Copyright BCREA - reprinted with permission 

Robust Housing Demand Continues in October

The British Columbia Real Estate Association (BCREA) reports that a total of 8,725 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in October, up 14.1 per cent from the same month last year. Total sales dollar volume was $5.8 billion, up 32.3 per cent compared to the previous year. The average MLS® residential price in the province rose to $667,480, up 16 per cent from October 2014.

“Consumer demand continued at a heightened pace in October,” said Brendon Ogmundson, BCREA Economist. “Market conditions have diverged significantly in the province as very low supply and a near

record pace of home sales in the metro Vancouver area is offsetting resource sector driven weakness in northern markets.“

There was a four month supply of residential inventory province wide in October, with markets in the Lower Mainland and Victoria closer to three months of supply. A balanced market typically exhibits a five to eight month supply of homes for sale.

The year-to-date, BC residential sales dollar volume increased 33.6 per cent to $55.3 billion, when compared with the same period in 2014. Residential unit sales climbed by 20.4 per cent to 87,895 units, while the average MLS® residential price was up 11 per cent to $628,909.

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Canadian Manufacturing Sales

Canadian manufacturing sales declined 1.5 per cent in September, the second consecutive monthly decline.  Lower sales were the result of ongoing weakness in the energy sector as well as falling demand in the motor-vehicle industry.  Overall, sales were lower in 13 of 21 Canadian manufacturing sub-sectors, representing about 80% of Canadian manufacturing output.

In BC, where the manufacturing sector employs roughly 170,000 people, sales rose 0.2 per cent on a monthly basis but were down 0.6 per cent compared to September 2014.  BC manufacturing sales are being led by growth in shipments of wood products to the United States as well as strong demand for BC made machinery and equipment. Those sectors are helping to offset current weakness in commodity prices to produce growth of 3 per cent in manufacturing sales year-to-date. 

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Housing Demand to Ease but Remain Elevated in 2016

BCREA 2015 Fourth Quarter Housing Forecast

Vancouver, BC – November 10, 2015. The British Columbia Real Estate Association (BCREA) released its 2015 Fourth Quarter Housing Forecast Update today.

Multiple Listing Service® (MLS®) residential sales in the province are projected to surpass 100,000 units this year. This level of home sales will be the third strongest on record and mark the first year since 2007 that BC home sales exceed the ten year average.

After climbing 15 per cent in 2014 and nearly 20 per cent this year, BC MLS® residential sales are forecast to decline 7 per cent to 93,700 units in 2016. “Less latent pent-up demand and gradual upward momentum of mortgage interest rates is expected to ease housing demand next year,” said Cameron Muir, BCREA Chief Economist.

“The inventory of homes for sale is now at its lowest level in nearly eight years,” added Muir. “Sellers’ market conditions are prevailing in many communities and causing home prices to be pushed higher.” The average MLS® residential price in the province is projected to increase 10.2 per cent to $626,000 this year and forecast to slow to a 2.2 per cent increase at $639,700.

Total housing starts in the province are projected to reach over 30,000 units this year, the highest level of production since 2008. Capacity constraints and an edging back of consumer demand is largely behind a forecast decline of BC housing starts, albeit just to 28,800 units in 2016.

Copyright BCREA – reprinted with permission 

Best Rate Mortgages

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 • Explore Mortgage Scenarios with Helpful Calculators on http://www.derekdiener.com

Terms Bank Rates Our Rates 6 Month 3.14% 3.10% 1 YEAR 2.89% 2.29% 2 YEARS 2.84% 2.19% 3 YEARS 3.39% 2.34% 4 YEARS 3.89% 2.49% 5 YEARS 4.64% 2.59% 7 YEARS 5.30% 3.39% 10 YEARS 6.10% 3.84% Rates are subject to change without notice. *OAC E&OE

Prime Rate is 2.70%  Variable rate mortgages from as low as Prime minus 0.55%  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 Housing Starts

Canadian housing starts moderated from a very strong September, falling close to 15 per cent to a still robust 198,065 units at a seasonally adjusted annual rate (SAAR) in October.  The six-month trend in Canadian housing starts of 206,089 units SAAR continues to rise and is currently above the rate of household formations in Canada, a sign that new home construction could slow next year. 

Housing starts in BC were up 21 per cent from September, rising to 33,737 units SAAR.  On a year-over-year basis, housing starts were up 48 per cent with single detached starts falling 2 per cent year-over year while multiple unit starts jumped 83 per cent compared to October 2014. Year-to-date, total housing starts in BC are up 13 per cent compared to 2014. 

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 70 per cent year-over-year in October as a result of a sharp rise in the construction of multiple units, which more than doubled compared to October 2014.  In the Victoria CMA, the rate of new home construction was also more than double the rate of last October with both single and multiple starts posting strong growth. Total housing starts in the Kelowna CMA were up 30 per cent year-over-year on broad strength in both single and multiple unit starts.  Housing starts in the Abbotsford-Mission CMA were up close to 90 per cent compared to this time last year largely on strong growth in single unit starts. 

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US Economic Growth (Q3'2015)

US real GDP grew at a 1.5 per cent annual rate in the third quarter, well below most economists expectations. Growth was pulled lower by exports while private domestic demand, which includes personal consumption and business investment, rose at a relatively robust 3.2 per cent . Importantly, this is a preliminary release for US real GDP and will be revised in subsequent months. Second quarter GDP was revised from an initial 2.5 per cent up to 3.9 per cent. 

Today's disappointing economic growth numbers should temper expectations for a December rate hike by the US Federal Reserve. If the Fed does indeed decide to tighten monetary policy at its final meeting in 2015, it is increasingly unlikely that that decision will be supported by trends in growth and inflation, but rather by a long-held desire to move rates off of the zero lower bound.

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US Federal Reserve Interest Rate Decision

The US Federal Reserve ("the Fed") opted to leave its key interest rate unchanged at its current level of between zero and 0.25 per cent. In its accompanying statement, the Fed cited that inflation continues to run below the Fed's long-run objective of 2 per cent and US economy activity was expanding at a moderate pace, hampered by a high dollar and attendant softness in exports. The Fed anticipates that it will only be appropriate to raise its target rate once the labor market shows further improvement and it can be reasonably confident that inflation will move back to its 2 per cent target over the medium term.

Most economists agreed that the Fed was unlikely to raise rates at the October meeting, preferring to wait until December before initiating a lift-off from the zero rate policy that has prevailed since 2008. A global economic slowdown since the summer has provided a significant amount of cover for the Fed to put off raising rates until it can better grasp the impact of slower global growth and a high US dollar on the US economy. The Fed also wants to be "reasonably confident" that its preferred measure of inflation, which is currently tracking at just 1.4 per cent, will  reach 2 per cent over the medium-term, usually defined as about 2 years.  Our modeling suggests a somewhat low-probability that inflation will reach 2 per cent before the end of 2016.  If that holds, and the Fed puts off tightening longer than currently expected, key bond yields in both the US and Canada should remain low, meaning low mortgage rates will continue throughout next year. 

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Canadian Retail Sales

Canadian retail sales rose for a fourth consecutive month, increasing 0.5 per cent in August. On a year-over-year basis, sales were up 2.8 per cent. However, sales were higher in only 4 of 11 retail sub-sectors with strong sales of motor vehicles continuing to account for a large share of gains.  Stripping out sales of motor vehicles, retail sales were essentially flat.  In BC, retail sales were up 1.4 per cent on a monthly basis and 7 per cent compared to August 2014. Year-to-date, retail sales in the province are up 7.2 per cent over last year.

Given today's data release, Canadian real GDP is currently tracking at between 2.5 and 3 per cent in the third quarter, a significant bounce-back following two quarters of modest decline in the economy.

Copyright BCREA – reprinted with permission 

Bank of Canada Interest Rate Decision

The Bank of Canada announced this morning that it is maintaining its target for the overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is evolving in line with the Bank's outlook, though total inflation remains near the bottom of the Bank's 1 to 3 per cent target range.  Removing the impact of low oil prices and other temporary factors, the Bank judges that the underlying trend in inflation is currently 1.5 to 1.7 per cent.  The negative impact of low commodity prices is still being felt in the Canadian economy, prompting the Bank to trim its growth projection for 2015 to just 1 per cent, as well as revising down its forecast for real GDP growth in 2016 and 2017 to 2 per cent and 2.5 per cent respectively. 

Growth in the Canadian economy appears to be firming in the second half of the year. Third quarter real GDP growth is currently tracking at 2.5 per cent on an annual basis and core inflation continues to hover near the Bank's target of 2 per cent. Moreover, the outlook for growth next year may be somewhat brighter than the Bank currently forecasts given the spending intentions of the new Canadian government.  If so, some of the burden on monetary policy will be lifted, making further rate cuts less likely. We expect that the Bank will remain on hold through the rest of 2015 and much of 2016, with a chance of tighter monetary policy toward the end of next year. 

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Best Rates Dominion Lending

Strong Housing Demand Pulls Inventory to an Eight Year Low

The British Columbia Real Estate Association (BCREA) reports that a total of 8,553 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in September, up 12 per cent from the same month last year. Total sales dollar volume was $5.2 billion, up 18 per cent compared to the previous year. The average MLS® residential price in the province rose to $605,258, up 5.3 per cent from September 2014.

“Strong consumer demand has pulled down the inventory of homes for sale to its lowest level in eight years,” said Cameron Muir, BCREA Chief Economist. “Market conditions are favouring home sellers in some board areas, while contributing to relative balance between buyers and sellers in others.”

There was a five month supply of residential inventory province wide in September. A balanced market typically exhibits a 5-8 month supply of homes for sale.

The year-to-date, BC residential sales dollar volume increased 33.8 per cent to $49.5 billion, when compared with the same period in 2014. Residential unit sales climbed by 21.1 per cent to 79,170 units, while the average MLS® residential price was up 10.4 per cent to $624,659.

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Canadian Manufacturing Sales

Canadian manufacturing sales declined 0.2 per cent in August following three consecutive monthly increases. The decline was largely the result of falling sales in the energy sector, though motor vehicle and aerospace manufacturers also saw a dip in shipments. Overall, sales were lower in 8 of 21 Canadian manufacturing sub-sectors, representing about half of manufacturing sales.

In BC, where the manufacturing sector employs roughly 170,000 people, sales rose 0.1 per cent on a monthly basis and were up 2.9 per cent year-over-year.  A lower exposure to the energy sector has allowed BC manufacturers and exporters to continue to grow their sales this year, which has helped to contribute to the province leading the country in economic growth. We are currently tracking growth in the BC economy at approximately 2.7 per cent, compared with just 1.1 per cent for all of Canada.

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Canadian Employment

Canadian employment increased rose by 12,000 jobs in September, matching the rate of job creation in August. The national unemployment rate ticked higher by 0.1 points to 7.1 per cent as more people actively searched for work. Part-time employment accounted for all of September's gains while full-time work declined.  In spite of the decline in full-time employment, total hours worked, which is strongly correlated with economic growth, increased by a relatively strong 1.1 per cent compared to September 2014. 

In BC, a strong economy has lead to an increased rate of job creation. The province added 12,400 new jobs in September, including 10,600 full-time positions.  The provincial unemployment rate rose 0.3 points to 6.3 per cent as BC's economic performance has attracted new entrants to the labour force from both inside and outside of the province. Year-to-date, employment in BC is up just 0.8 per cent but has risen at a rate of 1.7  per cent over the past three months.

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Canadian Housing Starts

New home construction in Canada registered a robust 230,701 units at a seasonally adjusted annual rate (SAAR) in September, an 8 per cent increase over August.  The six-month trend in Canadian housing starts of 202,500 units SAAR continues to rise and is currently above the rate of household formations in Canada, a sign that new home construction could slow next year.

Housing starts in BC were up 7 per cent from August, rising to 27,331  units SAAR.  On a year-over-year basis, housing starts were down 2 per cent with single detached starts falling 5 per cent year-over year while multiple unit starts were flat compared to this time last year. Year-to-date, total housing starts in BC are up 10 per cent compared to 2014.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were down 7 per cent year-over-year in August as a result of slowing construction of multiple units, which fell 10 per cent year-over-year.  In the Victoria CMA, the rate of new home construction fell 54 per cent compared to September 2014 due to relative inactivity in multiple unit starts. Total housing starts in the Kelowna CMA were down 3 cent year-over-year as a dip in single detached starts dragged total starts lower.  Housing starts in the Abbotsford-Mission CMA more than tripled compared to this time last year as new multi-unit projects broke ground.

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Dominion Lending Best Rate Mortgages

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 • Explore Mortgage Scenarios with Helpful Calculators on http://www.derekdiener.com

Terms Bank Rates Our Rates 6 Month 3.14% 3.10% 1 YEAR 2.89% 2.29% 2 YEARS 2.84% 2.09% 3 YEARS 3.39% 2.25% 4 YEARS 3.89% 2.49% 5 YEARS 4.64% 2.59% 7 YEARS 5.30% 3.39% 10 YEARS 6.10% 3.84% Rates are subject to change without notice. *OAC E&OE

Prime Rate is 2.70% Variable rate mortgages from as low as Prime minus 0.60%

Canadian Retail Sales

In a further sign that the Canadian economy is recovering, Canadian retail sales rose 0.5 per cent in July, the third consecutive monthly increase. On a year-over-year basis, sales were up 1.8 per cent. Retail sales were higher in 6 of 11 retail sub-sectors with sales of motor vehicles and clothing leading the way.  In BC, retail sales dipped 0.4 per cent on a monthly basis but were up 5.7 per cent compared to July 2014. 

Consumer spending continues to be the main driver of economic growth in Canada, though weakness in the loonie is helping export growth. Canadian real GDP is currently tracking at between 2 and 2.5 per cent in the third quarter which would mean an end to the "technical" recession experienced over the first half of the year. 

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Canadian Monthly GDP

The Canadian economy grew faster than expected in July with output expanding by 0.3 per cent on a monthly basis. Growth in real GDP, as measured at the industry level, was led by gains in the mining, oil and gas sectors as well as rising output in the manufacturing and finance and insurance sectors. 

Solid economic growth in July comes on the heels of very strong growth in June and generally encouraging economic data since the beginning of summer. July's GDP data also signals a high likelihood that third quarter economic growth will not just be positive, therefore breaking a string of two straight down quarters, but will register a fairly robust 2.5 per cent. 

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Canadian Consumer Price Inflation

The Consumer Price Index (CPI) rose 1.3 per cent in the 12-months to August, matching the increase from July. Inflation continues to be pinned down by lower energy prices with gasoline prices falling 12.6 per cent year-over-year. Inflation measured by the Bank of Canada's core CPI index, which excludes fuel, food and other volatile components, registered 2.1 per cent. This is the 13th consecutive month that core inflation has been above the Bank's 2 per cent inflation target. Inflation in BC was up 1.2 per cent in the 12-months to August and is tracking at just 0.8 per cent for all of 2015. 

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US Federal Reserve Interest Rate Decision

The US Federal Reserve ("the Fed") opted to leave its key interest rate unchanged at its current level of between zero and 0.25 per cent. In its accompanying statement, the Fed cited slowing global economic growth and continued low inflation as key factors in its decision. The Fed further noted that it will be appropriate to raise its target rate once it sees further improvement in the labour market and once it is convinced that inflation is on track to reach its 2 per cent objective over the medium term.

Focus will now shift to the Fed's remaining 2015 meetings in October and December. Whether the Fed chooses to act on rates this year or next, historically the correlation between Canadian and US long-term interest rates is very strong, even at times such as now when the two countries’ normally in sync monetary policy is heading in different directions. Therefore, as the Fed eventually moves to increase its target rate, there will likely be some upward pressure on 5-year interest rates in Canada. When paired with a recovering Canadian economy, this will likely translate to higher fixed mortgage rates by the middle of next year. 

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Dominion Lending Best Rates

Canadian Manufacturing Sales

Canadian manufacturing rose for the third time in as many months, increasing 1.7 per cent on a monthly basis in July. Sales were led by higher shipments of motor vehicle parts, which accounted for close to two-thirds of the gain. Overall, sales were higher in 12 of 21 Canadian manufacturing sub-sectors. In BC, where the manufacturing sector employs roughly 170,000 people, sales rose 0.5 per cent on a monthly basis and were up 2 per cent year-over-year.

   

Solid manufacturing data in July is strong evidence that the Canadian economy is recovering from the shock of low oil prices, particularly in sectors helped by the weaker Canadian dollar. We expect that the recovery will continue into the third and fourth quarter with the Canadian economy eking out modest growth of about 1.1 per cent this year. Meanwhile, the BC economy continues to set the pace for Canada and remains on track to post the highest economic growth of any province in 2015.

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MORTGAGE RATES LOW AND STEADY

Mortgage Rate Outlook

The current spread between fixed five-year mortgage rates and five-year government bond yields remains well above historical norms. Normally, this is suggestive of a coming decline in fixed rates. However, elevated risk in global financial markets and a tightening of credit among Canadian lenders reported in the most recent Bank of Canada Senior Loan Officer Survey has translated to fixed rates remaining steady in spite of falling bond yields.

Perhaps more importantly, US bond yields have risen in recent months as the US economy accelerates and the US Federal Reserve prepares to raise its target overnight for the first time since the 2008 financial crisis. Canadian yields have so far diverged from those in the US, but historically the correlation between the two is very strong, even when the two countries’ normally in sync monetary policy is heading in different directions.

Therefore, whether the Fed opts to raise interest rates this year or next, it will have a meaningful impact on bond yields in Canada. In conjunction with what should be a recovering Canadian economy, we expect there to be some upward pressure on fixed mortgage rates by the middle of next year with five-year rates rising to just over 5 per cent.

Economic Outlook

The Canadian economy contracted in the second quarter of 2015, declining 0.5 per cent on an annualized basis following a 0.8 per cent contraction in the first quarter. A second consecutive quarterly decline fits what some call the technical or statutory definition of a recession.

While some may quibble over whether the economy was in recession, technical or otherwise, economic growth was undeniably weak for the first five months of the year. However, the downturn was quite modest compared to the severe recessions of the early 1990s or the 2008 financial crisis.

Moreover, it appears from available third quarter data that the economy is already rebounding and should post fairly robust growth for the remainder of the year. We expect that the Canadian economy will eke out growth of 1.1 per cent this year and 2.4 per cent growth next year.

Interest Rate Outlook

The Bank of Canada once again finds itself in a delicate balancing act between supporting those regions of Canada adversely impacted by low oil prices while not tipping the balance of risk in the economy toward overly indebted Canadian households. Further complicating matters are the realities of conducting monetary policy so close to the so called “zero lower bound”. While in theory, the lower bound for interest rates is zero; in practice, transaction costs associated with short-term money markets make 25 basis points as low as the Bank can go while preserving a functioning market. With its target overnight rate at just 0.5 per cent, the Bank is risking returning to its effective lower bound of 25 basis points for the second time in six years. As monetary policy approaches that lower bound, it tends to get more and more ineffective, particularly when the usual channels for monetary policy to work, such as housing and consumer debt, are already somewhat clogged by high Canadian debt levels. If traditional monetary policy were exhausted, the Bank would have to resort to less conventional policies, including forward guidance or quantitative easing, to achieve its inflation targeting mandate.

In the absence of a crisis inducing economic or financial shock, the Bank would likely prefer not to test the lower bound on interest rates and may even begin to tighten rates by the end of next year if the economy resumes a healthy and sustainable rate of growth.

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Vigorous Housing Demand Unabated in August

The British Columbia Real Estate Association (BCREA) reports that a total of 8,811 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in August, up 20 per cent from the same month last year. Total sales dollar volume was $5.5 billion, a 32.8 per cent increase in comparison to the previous year. The average MLS® residential price in the province rose to $619,881, up 10.6 per cent from August 2014.

“Housing demand continued at an elevated level in August,” said Cameron Muir, BCREA Chief Economist. “More homes were sold in BC during the first eight months of the year than in the entire 12 months of 2012.” A total of 67,637 residential transactions were recording in 2012, compared to 70,617 year-to-date in August.

“Many BC regions are now exhibiting sellers’ market conditions, with home prices rising well above the overall consumer price index,” added Muir. Eight of the 11 BC real estate boards recorded a higher average home price than a year ago.

The year-to-date, BC residential sales dollar volume increased 35.9 per cent to $44.3 billion, when compared with the same period in 2014. Residential unit sales climbed by 22.4 per cent to 70,617 units, while the average MLS® residential price was up 11.1 per cent to $627,008.

Copyright BCREA - reprinted with permission 

Best Rate Mortgage Rates - Dominion Lending

Terms Bank Rates Our Rates 6 Month 3.14% 3.10% 1 YEAR 2.89% 2.29% 2 YEARS 2.84% 2.19% 3 YEARS 3.39% 2.25% 4 YEARS 3.89% 2.49% 5 YEARS 4.64% 2.54% 7 YEARS 5.30% 3.39% 10 YEARS 6.10% 3.84% Rates are subject to change without notice. *OAC E&OE

Prime Rate is 2.70%  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.