Kootenay Connector Real Estate Blog: February 2016

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.