Nelson Single Family Home Sales Stats

Source:  KREB Nelson SFH sales statistics 

Commercial Real Estate Gains Momentum in BC

The BCREA Commercial Leading Indicator (CLI) rose 1.4 index points to a new record high of 118.4, surpassing the previous high of 117.1 set in the second quarter of 2014.

"Momentum has been building in sectors most important to commercial real estate,” said BCREA Economist Brendon Ogmundson, “That momentum should translate to a strong year for the commercial market in 2015."

The CLI has now advanced for seven consecutive quarters. That trend signals significant strength in the economic environment underlying the commercial real estate market.

A rising trend in the CLI generally points to growth in investment, leasing and other commercial real estate activity two to four quarters ahead.  Given the current trend, we would expect growth in the commercial real estate market for the remainder of 2014 and the first half of 2015.

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Canadian Housing Starts

New home construction in Canada rose 6.6 per cent in November to 195,620 units at a seasonally adjusted annual rate (SAAR).  The six-month trend in Canadian housing starts of 195,792 units SAAR was relatively unchanged and sits slightly in excess of Canadian household growth. 

Housing starts in BC urban centers increased 26.7 per cent on a monthly basis to 29,565 units SAAR.  On a year-over-year basis, housing starts were 10 per cent higher compared to November 2013. Single-detached starts were up 11 per cent while multiple units were up 10 per cent compared to this time last year. Year-to-date, total BC housing starts are 6 per cent higher than 2013. 

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA bounced back from a large decline in October, rising 10 per cent year-over-year on broad strength in both single detached and multiple starts. Year-to-date, Vancouver housing starts are up 3 per cent. In the Victoria CMA, new home construction fell 15 per cent year-over-year due to weaker starts of both single detached and multiple units. Year-to-date, housing starts in Victoria are down 16 per cent. Total housing starts in the Kelowna CMA were up 45 per cent year-over-year in November due to a large increase in starts of multiple units.  Year-to-date, housing starts in the Kelowna CMA are up 34 per cent . Housing starts in the Abbotsford-Mission CMA posted another steep decline in November, down 44 per cent year-over-year.  Year-to-date, new home construction in the Abbotsford-Mission CMA is down 28 per cent.

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Canadian and US Employment

Employment in Canada declined by 10,700 jobs in November after two months of large gains. The national unemployment rate ticked 0.1 points higher to 6.6 per cent. Total hours worked, which is closely associated with economic growth, rose just 0.1 per cent.

In BC, employment grew by 4,200 jobs in November. Both full-time and part time employment increased , and the provincial unemployment rate fell 0.3 points to 5.8 per cent. Year-to-date, total employment in BC is up just 0.7 per cent but has grown at an average annual rate of 1.6 per cent over the past 3 months.

The US economy added a robust 321,000 jobs in November while estimates of previous months job growth were revised higher by a combined 44,000 jobs. Over the past 3 month, US payroll growth has averaged a very healthy 278,000 jobs.  The US unemployment rate remained at 5.8 per cent.
 

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Mortgage Rate Outlook

LOWER, BUT FOR HOW MUCH LONGER?

• Mortgage rates remain at historic lows

• Canadian economy roars back in second quarter

• Poor job growth keeps Bank of Canada in neutral

 In stark contrast to the consensus of economists’ expectations at the end of last year, bond yields

have spent most of 2014 trending downward. Indeed, perhaps weary of previous false starts, bond markets have even shrugged off recent signs of a strengthening economy, an acceleration of inflation and the unwinding of stimulus from the US Federal Reserve. Lenders have responded in kind, offering homebuyers record low mortgage rates. 

Given well anchored inflation expectations and near consensus that short-term rates will be higher

next year, the continued downtrend in bond yields this year is difficult to explain. One factor could

be that investors are acclimating to the idea that the neutral rate, or the Bank of Canada’s preferred

destination for interest rates once it tightens, is likely much lower than in the past and that realization is being priced into expectations and therefore long-term interest rates.

Additionally, the performance of Canada’s financial and banking system post-financial crisis has won

it a reputation among foreign investors as a safe harbor. Foreign holdings of Canadian government

bonds and treasury bills have jumped from 15 per cent to over a quarter of outstanding debt since the global financial crisis. As uncertainty mounts in other areas of the world due to weak economic growth or unresolved conflicts, assets have crowded into both US and Canadian debt securities, forcing yields lower. Given these factors, rates could remain below historical average levels even as the Bank of Canada begins tightening.

While we do not expect the Bank to act on interest rates until late in 2015, bond yields could rise

modestly before then in anticipation of higher rates, particularly if economic growth is stronger

than expected. If so, we expect to see a slight increase in five-year and one-year fixed mortgage

rates by the end of 2014.

Economic Outlook

As was widely expected, the Canadian economy’s weak start to the year proved to be temporary as

growth roared back in the second quarter. Canadian real GDP expanded 3.1 per cent at an annual rate

last quarter, the highest rate of growth in close to three years. That growth was largely spurred by

exports to a similarly resurgent US economy, which grew at a robust 4.2 per cent annual rate in the

second quarter. If momentum in the US economy can be sustained, the long awaited rotation of

Canadian economic growth towards exports and business investment could be realized. Indeed,

in past business cycles, a recovery in business investment tends to lag behind a recovery in export

growth.

While we expect that economic growth will slow moderately from the robust pace of the second quarter, it will remain relatively strong at 2.3 per cent for 2014 before accelerating next year to 2.7 per cent.

CPI inflation, which has been above the Bank’s 2 per cent target for several months, is showing some signs of softening due to a sharp decline in the price of energy products and other commodities. Core inflation, which the Bank uses as its operational guide for monetary policy, has drifted higher but remains relatively muted. Though some wage inflation has occurred of late, slack in the labour market and continued competitive pressure in retail sectors will likely keep core inflation from breaching the Bank’s 2 per cent target in the short-term.

Interest Rate Outlook

While economic growth exceeded expectations in the second quarter, the economy looks far more

pedestrian if averaged over the entire first half of 2014. Employment growth has been uneven and the

Canadian unemployment rate remains stubbornly high. Given a weak labour market, the Bank of

Canada is unlikely to be moved from its current stance after just one strong quarter of economic

growth. We expect that the Bank will continue to take a cautious approach to monetary policy until

it sees concrete signs that the economy is growing sustainably above trend.

Our modelling exercises show the Canadian output gap closing along the same timeline as expected

by the Bank of Canada, with inflation returning to target in 2016. Therefore, while the Bank left the

door open to lower interest rates given its “neutral” stance, lags in monetary policy suggest a tightening of interest rates in the second half of 2015.

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Bank of Canada Interest Rate Announcement

The Bank of Canada announced this morning that it is holding its target overnight rate at one per cent. This marks the longest period without a change in the Bank’s policy rate since the 1950s. In the statement accompanying its decision, the Bank noted that inflation has been stronger than expected in the past year, though mainly due to temporary factors. The Bank also stated that slack in the Canadian economy appears to be lower than projected in October due to upward revisions to growth as well as a broadening Canadian economic recovery. The Bank cited falling oil prices and household financial imbalances as key risks to its outlook. 

Perhaps the most pressing development for the Canadian economy, and therefore monetary policy, is the recent downturn in oil prices. Untangling the macroeconomic consequences of declining oil prices can be complex for an oil-producing country like Canada. However, the recent decline in oil prices will likely be felt strongest on growth through decreased output in the oil and gas industry and on inflation through lower prices for energy products, particularly gasoline.  This suggests a delay in inflation returning to the Bank's 2 per cent target. We expect the Bank will begin slowly raising its overnight rate, starting late next year with perhaps a 25 basis point increase. That should translate to modestly higher mortgage rates in 2015. 

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Canadian Economic Growth (Q3)

The Canadian economy posted a better than expected 2.8 per cent growth the third quarter of 2014, on the heels of even stronger 3.6 per cent growth in the second quarter. Economic growth was largely driven by residential investment which grew at its fastest pace since early 2012 as well as healthy gains in household consumption and exports.

The Canadian economy is on track to expand 2.4 per cent in 2014, a marked improvement on 2 per cent growth in 2013 and above what the Bank of Canada considers the economy's potential rate of growth (beyond which, inflation may trend upward).  We expect the economy to grow about 2.3 per cent in 2015, which should further reign in slack in the economy. The recent sharp decline in energy prices may trim economic growth, but it will also take the wind out of inflation next year. Overall, improving economic growth and modest inflation pressure is consistent with the Bank of Canada raising its target rate next year. 

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8. Home Buying: Defining The Financial Terms

Canadian Retail Sales

Canadian retail sales rose 0.8 per cent in September, propelled by higher motor vehicle sales. Excluding motor vehicles, retail sales were essentially flat.  Sales were higher in 5 of 11 retail sub-sectors.   In BC, retail sales were up 0.5 per cent on a monthly basis, and were 5.7 per cent higher compared to one year ago. Through the first nine months of the year, retail sales in BC are up a robust 5.7 per cent, which if sustained would mark the fastest rate of sales growth since 2007. 

With the release of September retail sales data we have a fairly complete picture of growth for the third quarter. Our tracking estimate puts Canadian real GDP growth for the third quarter at a healthy 2.2 per cent, though a deceleration from 3.1 per cent in the second quarter. Growth in the BC economy is currently tracking at 2.3 per cent through September.

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Canadian Consumer Price Inflation

Canadian consumer prices rose 2.4 per cent in the 12 months to October, an acceleration of 0.4 points from September. The Bank of Canada's core measure of inflation, which excludes the most volatile prices such as energy and food products, was also higher, rising 0.2 points to  2.3 per cent. Consumer prices in BC rose actually fell on a month-over-month basis, but were up a modest 1.1 per cent year-over-year.

The relatively sharp uptick in both headline CPI and core inflation in October could spark some concern that the Bank of Canada will act sooner than later on interest rates to tame consumer prices. While strong economic growth and a lower dollar are exerting pressure on consumer prices, inflation remains within the Bank's 2 to 3 per cent control range and we therefore expect the Bank to remain on hold until at least mid-2015, 

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