Bank of Canada Interest Rate Announcement

The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that uncertainty in the global outlook, particularly with regard to policies in the United States, is undiminished. The Canadian economy is forecast to grow 2.1 per cent in both 2017 and 2018, implying the Canadian economy will return to full capacity in mid-2018.  On inflation, the Bank noted that it continued to be lower than expected but should return to it 2 per cent target in coming months.

Political uncertainty in the United States will likely govern the direction of both policy rates and long-term bond yields over the next year. The interest rate on 5-year government of Canada bonds has risen to its highest point in a year, which is adding upward pressure to mortgage rates offered by Canadian lenders.  While the Canadian economy is forecast to post steady growth in 2017, overall slack in the Canadian economy remains persistent.  Without a significant uptick in economic growth, inflation will likely continue to trend at or below the Bank's 2 per cent target.  That, along with lingering uncertainty, will keep the Bank sidelined through 2017 with a chance of lowering its target rate should current downside risks to the economy become realized.

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Canadian Manufacturing Sales

Canadian manufacturing sales rose 1.5 per cent in November after posting a moderate decline the previous month.  Sales were higher in 14 of 21 manufacturing sub-sectors. After adjusting for inflation, the total volume of sales was 1.2 per cent higher.

In BC, where the manufacturing sector is a significant employer and a key driver of economic growth, sales were up 2.4 per cent on a monthly basis and 9.2 per cent year-over-year. The manufacturing sector has been on a significant upswing after a slow first half with sales posting nearly 8 per cent growth over the second half of the year. That growth is adding to already strong momentum in other sectors and supporting housing demand across BC communities where manufacturing, particularly of forestry products, is an important driver of local economic activity.

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BC Home Sales Post Record Year

The British Columbia Real Estate Association (BCREA) reports that a record 112,209 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in 2016, an increase of 9.5 per cent from the previous year. Total sales dollar volume was a record $77.6 billion, up 18.8 per cent from 2015. The average MLS® residential price in the province climbed 8.6 per cent to $691,144 on an annual basis in 2016.

“Broad-based consumer demand driven by strong economic conditions, employment growth, consumer confidence, and an expanding population base pushed home sales to record levels in many BC regions last year," said Cameron Muir, BCREA Chief Economist. "However, home sales have fallen back from their lofty peaks early last year." The seasonally adjusted annual rate of sales activity was approximately 92,000 units in December.

A total of 4,721 residential unit sales were recorded by the MLS® in December, down 28.4 per cent from the same month last year. Total sales dollar volume was $3.1 billion last month, a decline of 33.1 per cent compared to the same month the previous year. The average MLS® residential price in the province was $654,699 in December, a 6.6 per cent decline from December 2015.

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Canadian Building Permits

The total value of Canadian building permits decreased 0.1 per cent from October to November, largely as a result of lower permit activity in Alberta. Residential construction intentions were down 1.6 per cent across Canada, while non-residential permits rose 3 per cent.  

In BC, the total value of permits rose close to 15 per cent on a monthly basis and 9.5 per cent year-over-year. Residential permits reached their highest level in close to a year with more than $1 billion in total permit values, an increase of  21 per cent from October and 21 per cent year-over-year. Non-residential permits, however, fell 5 per cent on a monthly basis and 20.6 per cent year-over-year.

Construction intentions were mixed across BC's four census metropolitan areas (CMA). Permits in the Abbotsford-Mission CMA fell by nearly half from October to November and were down 35 per cent year-over-year while the Vancouver CMA saw a 31 per cent increase on a monthly basis and an 11 per cent increase year-over-year. In the Kelowna CMA, permits rose 3 per cent on a monthly basis and 17 per cent year-over-year.  In Victoria, construction intentions dipped 13.4 per cent on a monthly basis, and were about 7 per cent lower than in November 2015.

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Canadian Consumer Price Inflation - October 21, 2016

Canadian inflation remained subdued in September as the Consumer Price Index (CPI), which measures the rate of inflation in Canada, rose just 1.3 per year-over-year.  The Bank of Canada's core measure of inflation, which excludes volatile components like food and gasoline, rose 1.8 per cent for a second consecutive month.   In BC, provincial consumer price inflation was 1.8 per cent in the 12 months to September. 

Decelerating inflation and a slowing economy had the Bank of Canada discussing, but ultimately deciding against, a rate cut earlier this week. However, it is unlikely that the Bank will act to offset mortgage restrictions introduced by the Federal government unless the outlook for growth inflation becomes dramatically weaker. 

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Bank of Canada Interest Rate Announcement - October 19, 2016

The Bank of Canada announced this morning that it is holding its target for the overnight interest rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that the profile for growth in Canada over the near-term is lower than it previously expected though the Bank is still projecting stronger growth in the second half of 2016. However, the Bank has pushed out its forecast for the economy to return to full capacity to mid-2018 while inflation is projected to return to its 2 per cent target next year. 

There is downside risk to the economy given the Federal Government's decision to tighten mortgage credit this month, though it will take some time to see the effects on economic growth. That said, even if growth moderates as a result of the housing policy changes, the Bank of Canada's public support for that policy likely means interest rates would not be lowered in response. With growth recovering from a second quarter contraction and inflation still tame, We therefore expect the Bank to leave rates unchanged for the foreseeable future.

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Canadian Manufacturing Sales - October 18, 2016

Canadian manufacturing sales improved once again in August, rising 0.9 per cent on a monthly basis with broad based gains in 15 of 21 manufacturing sub-sectors. Adjusting for inflation, sales were up 1.2 per cent due to lower prices of some goods. 

In BC, where the manufacturing sector employs approximately 170,000 people and is a key driver of economic growth, sales were sharply higher for a second consecutive month, rising 2.1 per cent on a monthly basis and 8.1 per cent year-over-year. The gains continue to reflect a strong rebound in the forestry sector, with shipments of wood products rising at a double digit pace year-over-year. Given strong manufacturing sales in August the BC economy remains on track to expand by a Canada leading 3.5 per cent in 2016. 

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BC Home Sales Reflect Regional Demand Variations

Vancouver, BC – October 14, 2016. The British Columbia Real Estate Association (BCREA) reports that 7,591 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in September, down 11.2 per cent from the same month last year. Total sales dollar volume was $4.45 billion in September, down 14.1 per cent compared to the previous year. The average MLS® residential price in the province was $585,844, a decline of 3.2 per cent compared to the same month last year.

“Housing demand in the province continued to trend lower in September," said Cameron Muir, BCREA Chief Economist. "While Vancouver, Fraser Valley and the North experienced year-over-year declines last month, the rest of the province posted an increase in the number of residential transactions."

“The average residential price in the province continued to reflect a change in the composition and location of homes sold," added Muir. "However, the effect was less pronounced in September than in August, when detached home sales fell to just 28 per cent of total demand in Vancouver."

Year-to-date, BC residential sales dollar volume increased 33.5 per cent to $66 billion, when compared with the same period in 2015. Residential unit sales climbed by 18.5 per cent to 93,797 units, while the average MLS® residential price was up 12.7 per cent to $703,986.

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Canadian Housing Starts - October 11, 2016

Canadian housing starts jumped 20 per cent in September to 220,617 total units at a seasonally adjusted annual rate (SAAR).  The six-month trend in Canadian housing starts moved moderately higher to just under 200,000 units SAAR, above average annual growth in Canadian households. New home construction will likely slow in coming months as the consequences of government's new mortgage regulations ripple through the housing market.

Housing starts in BC surged 40 per cent higher to 47,560 in September and were 79 per cent higher on a year-over-year basis. Single detached starts rose 27 per cent compared to last September while multiple unit starts nearly doubled. Through the first three quarters of the year, BC housing starts are up 39 per cent compared to 2015. 

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 110 per cent year-over-year in September, led by triple digit growth in both single and multiple units. In the Victoria CMA, housing starts tripled compared to September 2015 due to strong growth in new multiple unit starts. New home construction in the Kelowna CMA rose 16 per cent on balanced growth between single and multiple unit starts. Housing starts in the Abbotsford-Mission CMA declined 64 per cent compared to last year as multiple unit projects took a breather in September following several strong months of activity. 

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Canadian Building Permits - October 6, 2016

The total value of Canadian building permits jumped 10.4 per cent from July to August, with gains largely due to higher construction intentions in the residential sectors of Ontario and British Columbia. 

After two straight monthly declines, total permit activity in BC was up 15.9 per cent in August, once again surpassing $1 billion in total value. The gains were almost exclusively due to higher construction intentions for multiple family dwellings.  Those gains more than offset a 7.7 per cent monthly decline in non-residential permits. On a year-over-year basis, the dollar value of building permits in the province were up 4.5 per cent. 

Construction intentions were higher in most of BC's four census metropolitan areas (CMA). Permits in the Abbotsford-Mission CMA surged 249 per cent from July to August but were down 7 per cent year-over-year while the Vancouver CMA saw a 15 per cent increase on a monthly basis but a 12 per cent drop year-over-year. In the Kelowna CMA, permits fell 13 per cent from July but were up 67 per cent year-over-year.  In Victoria, construction intentions rose 9.3 per cent on a monthly basis, and were 58.5 per cent higher than in August 2015.

Copyright BCREA – Reprinted with permission