Weekly Rate Reminder

Canadian Consumer Price Inflation and Retail Sales

Canadian consumer prices rose 1.5 per cent in the twelve months to January, a 0.3 point increase from December and the second consecutive month of accelerating inflation.  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 1.4 per cent in January. Consumer prices in BC were unchanged in January on a year-over-year basis.

Canadian retail sales declined 1.8 per cent in December. The decrease was widespread with 9 of 11 retail subsectors reporting falling sales. In inflation-adjusted terms, retail sales declined 2.2 per cent. Although we expect a dip in December GDP due to severe weather in Eastern Canada, fourth quarter economic growth is still tracking close to 3 per cent. 

Retail sales in BC declined 2.2 per cent from a strong November but were 3.2 per cent higher than December 2012. For all of 2013, BC retail sales were up a paltry 1.8 per cent.

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US Housing Starts

US housing starts in January fell 16 per cent from December to a seasonally adjusted annual rate (SAAR) of 880,000 units, well below expectations of 950,000 units.  However, new home construction in January was impeded by severe winter weather in many parts of the United States and we expect housing starts to climb in the spring and summer months.

The recovery in US homebuilding provided a significant boost to BC's struggling forestry sector in 2013, prompting over 20 per cent growth in shipments of lumber and other wood products. As new home construction down south continues to grow, housing markets in BC’s lumber producing regions should benefit from improved employment and household incomes.

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Dominion Lending Best Rates

Strongest January Residential Sales Since 2010

Muted Impact Expected From Cancelled Investor Immigrant Program

The British Columbia Real Estate Association (BCREA) reports that a total of 4,244 residential sales were recorded by the Multiple Listing Service® (MLS®) in January, up 24.5 per cent from January 2013. Total sales dollar volume was $2.4 billion, an increase of 36.8 per cent compared to a year ago. The average MLS® residential price in the province rose to $565,036, up 9.9 per cent from the same period last year.

"Residential sales activity in the province posted the strongest January since 2010,” said Cameron Muir, BCREA Chief Economist. “Consumer demand has recovered from last year’s lower levels and is now trending at the long-term average.” The ten-year average for January is 4,276 unit sales.

"Stronger economic conditions are expected to underpin a modest uptick in home sales later this year,” added Muir.

The demise of the federal Immigrant Investor Program is expected to have little impact on the Metro Vancouver housing market. “The only impact we foresee is less pressure on the inventory of detached homes in Vancouver’s West Side, Richmond and West Vancouver,” said Muir.

The number of investor immigrant landings peaked at 5,876 in 2008 before declining to just 2,644 in 2012, with a similar number expected for 2013. These numbers include spouses and dependents. The total number of added households is estimated to be between 900 and 1,000 per year since 2011.

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Canadian Manufacturing Sales

Canadian manufacturing sales fell 0.9 per cent in December, the first monthly decline since August 2013. The decline in sales was broad based with 15 of 21 manufacturing sectors reporting a decrease in sales.

In BC, manufacturing sales fell 2.3 per cent from November but were up 4.4 per cent year-over-year. For all of 2013, BC manufacturing sales rose 2.4 per cent over 2012, though a 24 per cent increase in the sales of manufactured wood product masked a fair amount of weakness in other sectors. We anticipate that growth in manufacturing will be more broadly shared in 2014 as the global economy accelerates and demand for BC goods rises.

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Cancellation of the Canadian Investor Immigrant Program

In its recently tabled budget, the Federal Government effectively cancelled a program, the Canadian Immigrant Investor Program (IIP), which afforded wealthy prospective immigrants access to fast-tracked immigration.  The program, which began in 1995, allowed immigrants with $1.6 million or more in assets (the amount was increased from $800,000 in 2010) to make an interest free loan to the Canadian government of $800,000 for a period of 5 years in return for Canadian citizenship. At the end of the five-year term, the principal of the loan was returned. 

The IIP was a popular avenue for those with significant wealth to immigrate to Canada. An average of 7,100 people entered through the program each year from 1995 to 2012. Traditionally British Columbia has been a popular final destination, with an average of 3,300 immigrants locating in BC since the program’s inception. That number peaked from 2008 to 2010 at approximately 5,650 but slowed to just 2,600 in 2012 as new applications were halted while the Federal Government determined the future of the IIP.

It is important to note that these numbers include all members of the household, and so to get a more accurate estimate of the number of new household formations, it is common to divide the total number by the average immigrant household size.   Therefore, we estimate that an average of 1,200 households per year located in BC through the IIP from 1995 to 2012, with that number climbing to 2,100 during the peak years of 2008 to 2010 and falling off to 1,430 in 2011 and just 979 in 2012. Data available for 2013 indicates a similar number of immigrants through the IIP as in 2012.

The impact of the IIP on the economy and the housing market of British Columbia as a whole is relatively insignificant.  At its peak, immigration through the IIP represented only 13 per cent of total immigration to BC, and most years it has been less than 10 per cent. That said, the impact of 1,200 to 2,100 new millionaire households settling each year in select Vancouver neighborhoods has likely been a factor in rising single-family home prices in those areas, though far from the most important factor.  If there is any impact from the Government’s decision, we anticipate it will be contained to the very high-end of the real estate market. Notably, we have not observed an uptick in inventories in those areas most impacted by the IIP, even as immigration through the program has dropped by half.

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CMHC Housing Market Outlook

Single-detached home starts are forecast to increase to 9,100 units in 2014 and 9,400 units in 2015. Based on historical data, single-detached homes tend to be the preferred housing type in most areas of the province. As the economy gains traction and growth in employment and incomes increases, expect a slight shift to single-detached home starts.

Multiple housing starts are projected to total 18,700 units in 2014 and 18,400 units in 2015, compared

to 18,532 units in 2013. Starts of apartments, condominiums, townhomes and semi-detached homes are forecast to remain relatively unchanged, as the combination of current multiple housing under construction, the existing inventory of newly completed and unabsorbed units, and a well-supplied resale market are expected to satisfy some of the demand for denser housing types.

Existing home sales, as measured by MLS® transactions, are projected to remain below levels recorded in the pre-2009 period despite an upward trajectory.  Expect 76,000 resales in 2014 and 77,300 resales in 2015,compared to 72,936 resales in 2013.

The MLS® average price is forecast at $542,500 in 2014 and $547,100 in 2015. The upward trend in the MLS® average price in 2013 is expected to lead to increased new listings in 2014. With the increased supply of existing homes for sale providing more choice to homebuyers the MLS® average price is forecast to grow at a pace slower than the general rate of inflation.

CMHC 

CMHC Economic Outlook

The British Columbia economy is forecast to grow at a slightly faster pace in 2014 and 2015, compared to 2013. With a projected improvement in labour markets and ongoing population growth, consumer demand for goods and services, including housing, is expected to contribute to economic growth. Real gross domestic product is forecast to increase 2.3 per cent in 2014 and 2.8 per cent in 2015, compared to an estimated 1.7 per cent in 2013.

Growth in employment and incomes is expected to generate demand for housing during the forecast horizon. Employment is expected to grow 1.5 per cent in 2014 and 2.4 per cent in 2015, following a slight contraction in 2013. Despite no employment growth in 2013, a rising share of full-time employment boosted growth in the average weekly wage rate above the national average. This rising trend is forecast to continue.

The unemployment rate is forecast to move up to 6.7 per cent in 2014, from 6.6 per cent in 2013 despite

the projected pick up in employment growth next year. The higher unemployment rate is a result of an

expected turnaround in interprovincial migration and people returning to the labour market. In 2015, higher employment growth will result in a lower unemployment rate of 6.4 per cent.

Population growth is forecast to average about one per cent per year3. Net international migration, which added more than 41,000 people to the province in 2013, is expected to stabilize during the next two years at a level similar to 2013. This is expected to contribute to house price growth and lower rental vacancy rates.

CMHC 

Canadian and US Employment

The Canadian economy began 2014 strong, adding 29,000 jobs in January. The Canadian unemployment rate fell 0.2 points to 7 per cent.

Good news in BC as well, employment grew by 7,100 jobs including a gain of 9,100 full-time positions, the highest growth in over six-months, while part-time work fell by 2,000.  The provincial unemployment rate fell 0.2 points to 6.4 per cent.

In the United States, payrolls expanded by a somewhat disappointing 113,000 jobs, missing the consensus forecast of 175,000. Despite the modest uptick in employment, the US unemployment rate fell to 6.6 per cent.

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