The Canadian economy posted blockbuster monthly growth of 0.6 per cent in January, double the consensus expectations of economists. Growth was lead by higher output in the manufacturing, natural resource extraction, and wholesale trade industries. 

January's outsized GDP number confirms the early tracking data pointing to very strong growth in the first quarter of 2017. The Canadian economy is estimated to have expanded close to 4 per cent in the first quarter of the year.

 

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Canadian inflation, as measured by the Consumer Price Index (CPI),  registered 2 per cent in the 12-months to February following a 2.1 per cent increase in January. Excluding the effect of rising gasoline prices, the CPI rose just 1.3 per cent. The Bank of Canada's new core measure of inflation, called CPI-common which it says better tracks the underlying trend in prices, was up 1.3 per cent, matching the rate of inflation in January.   In BC, provincial consumer price inflation was 2.3 per cent in the 12 months to February.

Inflation in Canada continues to trend near the Bank of Canada's 2 per cent target, though largely due to higher gasoline prices. Trend measures of inflation that exclude often volatile energy prices continue to show muted levels of inflation. However, If the Canadian economy continues to grow at an above trend rate, as it has over the past three quarters, then we could see a pick up in inflation by the end of the year.

 

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Retail sales started the year strong, rising 2.2 per cent on a monthly basis in January.  That strength was broad-based with 10 of 11 retail sub-sectors reporting higher sales with the largest gains coming from motor vehicle and parts dealers.  Although we have limited information for the first quarter, very strong economic data thus far has growth in the Canadian economy tracking at close to 4 per cent to start the year. 

In BC, a robust labour market continues to fuel consumer spending with retail sales rising 2.9 per cent on a monthly basis and 6.6 per cent year-over-year in January.  Retail sales grew 6.5 per cent in 2016, the second consecutive year of 6 per cent or greater growth in retail sales. 

 

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The US Federal Reserve's Open Market Committee (the Fed) raised its target overnight rate to between 0.75 and 1 per cent this morning.  In the statement accompanying the Fed's decision, it was noted that the labour market continues to strengthen and economic activity is expanding at a moderate pace. Moreover, inflation has increased in recent quarters and near-term risks to the economic outlook appear balanced. The committee expects that economic conditions will evolve in a manner that warrants gradual increases in its target rate, but it was also noted that rates will remain below long-run levels for some time.

Today's action on interest rates by the US federal reserve, particularly the signaling of further rate increases to come this year, will put upward pressure on long-term rates in both the US and Canada.  A tightening cycle in the United States may be further compounded by US monetary and fiscal policy acting at cross purposes, with the Fed trying to cool the economy while the Trump administration embarks on deficit widening tax and spending measures. In all, we expect the consequence of these actions will be higher Canadian mortgage rates by the end of the year.   

 

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Vancouver, BC – March 15, 2017. The British Columbia Real Estate Association (BCREA) reports that a total of 6,580 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in February, down 31.7 per cent from the same period last year. Total sales dollar volume was $4.53 billion, down 39.7 per cent from February 2016. The average MLS® residential price in the province was $688,117, an 11.7 per cent decrease from the same period last year.

“Consumer demand has returned to a more typical level over the first two months of the year," said Cameron Muir, BCREA Chief Economist. "While the home sales have declined nearly 32 per cent from the extraordinary performance of a year ago, last month's activity reflected the average for the month February since the year 2000."

“The average MLS® residential price for the province was down nearly 12 per cent from a record $779,419 in February 2016. However, this change is largely the result of a decline in the proportion of provincial sales originating from the Vancouver region. Last month, 37 per cent of BC home sales occurred in the Real Estate Board of Greater Vancouver's area, compared to 44 per cent in February 2016.

Year-to-date, BC residential sales dollar volume was down 38.5 per cent to $7.3 billion, when compared with the same period in 2016. Residential unit sales declined 28.5 per cent to 11,067 units, while the average MLS® residential price was down 14.1 per cent to $660,943.

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Canadian housing starts were essentially flat compared to January, albeit up slightly to 210,207 units at a seasonally adjusted annual rate (SAAR) in February. The six-month trend in Canadian housing starts continues to rise with new home construction on a 204,700 unit pace. 

In BC, total housing starts were slowed substantially by snowfall in February which prompted starts to decline 45 per cent year-over-year  Single detached starts were down 24 per cent while multiple unit starts were down 51 per cent year-over-year. We expect that construction will pick up significantly with the onset of spring.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were down 52 per cent year-over-year as unusually snow conditions slowed the pace of homebuilding. In the Victoria CMA, housing starts fell 5 per cent year-over-year, though starts of single detached units actually increased by 20 per cent. New home construction in the Kelowna CMA declined 29 per cent compared to last year due to a drop in multiple unit starts. Housing starts in the Abbotsford-Mission CMA fell 89 per cent as weather conditions halted most new construction.

 

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The Canadian economy expanded at a 2.6 per cent annual rate in the fourth quarter, beating expectations of 2 per cent growth.  Economic growth continues to be led higher by strong household consumption spending, though an uptick in exports was also a significant contributor. Due to a slow start to the year and disruptions caused by the Alberta wildfires,  the Canadian economy grew just 1.4 per cent overall in 2016.
 
There are clear signs of momentum in the Canadian economy, with strong hiring and economic growth over the past six months and we expect the Canadian economy will post significantly stronger growth in 2017 about 2.1 per cent.  That rate of growth should be enough to put the economy on a path toward eliminating excess slack in the economy by mid 2018, pushing inflation back to its 2 per cent target. If so, we expect the Bank of Canada may consider raising its overnight rate early next year while long-term rates and mortgage rates may creep higher in 2017. 

 

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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 growth in the economy is improving and recent higher CPI inflation should be only temporary, reflecting increased energy costs.  The Bank stated that it is remaining attentive to significant uncertainties weighing on its outlook.

While the Canadian economy is showing signs of improving, with strong hiring and faster than expected growth in real GDP, the outlook remains clouded by uncertainty over trade and tax policy in the United States.  If economic growth and inflation evolve as the Bank currently projects,  the Bank would likely be contemplating raising its overnight rate some time in early 2018.  However, given that we have no more clarity now than at the time of the Bank's previous rate decision regarding changes to trade agreements or the stance of US fiscal policy, the Bank will remain sidelined until the path forward becomes more clear.

 

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Vancouver, BC – February 28, 2016. The BCREA Commercial Leading Indicator (CLI) increased for the fourth consecutive quarter, rising 1.5 index points from the third to fourth quarter. The index now sits at 123.9, a 5 per cent increase from a year ago, and about a 1.2 per cent gain on a quarterly basis.

“The CLI was propelled higher by strong fourth quarter growth in the BC economy," says BCREA Economist Brendon Ogmundson. "The strength of the underlying BC economy, particularly relative to the rest of Canada, makes BC a very attractive destination for commercial investment."

Five straight quarters of rising BC manufacturing sales and a second consecutive year of more than 6 per cent growth in retail sales has driven the CLI to new heights this year. The underlying CLI trend, which smooths often noisy economic data, continues to push higher due to several quarters of strong economic statistics. That uptrend signals further growth in investment, leasing and other commercial real estate activity over the next two to four quarters.

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Canadian retail sales fell 0.9 per cent in December, following three consecutive months of solid gains. A decline in new car sales accounted for the majority of the decline at the sub-sector level, though overall holiday sales were weaker on a monthly basis. For all of 2016, Canadian retail sales rose a healthy 3.7 per cent.   Given today's data,  we are currently tracking fourth quarter Canadian real GDP growth at 2 per cent. 

In BC, retail sales were down 0.3 per cent on a monthly basis, but were 7.5 per cent higher year-over-year. A strong provincial economy and the creation of 72,000 jobs over the course of 2016 helped push retail sales 6.5 per cent higher for the year, the second consecutive year of 6 per cent or greater growth in retail sales. 

 

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BCREA 2017 First Quarter Housing Forecast Update


Vancouver, BC – February 17, 2017. The British Columbia Real Estate Association (BCREA) released its 2017 First Quarter Housing Forecast Update today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 14.1 per cent to 96,345 units this year, after reaching a record 112,209 units in 2016. A moderation trend that began early in 2016, combined with tougher federal government mortgage qualification rules and the foreign buyer tax in Vancouver, is expected to limit consumer demand over the next two years. However, housing demand is expected to remain well above the ten-year average of 84,700 unit sales.

“Solid fundamentals continue to underpin housing demand in the province," said Cameron Muir, BCREA Chief Economist. "International trade, population growth and consumer confidence will be key economic drivers this year." Of note, net migration to the province exceeded 50,000 individuals during the first three quarters of 2016, the highest level since 2008 and a 50 per cent increase from the previous year.

The average MLS® residential price in the province is forecast to decline nearly 5 per cent to $657,000 this year, largely the result of increased consumer demand for multi-family homes and a higher proportion of transactions occurring outside the Metro Vancouver market. While a significant number of new homes are under construction in the province, market conditions will continue to be tilted in favour of home sellers in many regions, while home builders scramble to complete existing projects.

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 Vancouver, BC – February 15, 2017. The British Columbia Real Estate Association (BCREA) reports that a total of 4,487 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in January, down 23 per cent from the same period last year. Total sales dollar volume was $2.79 billion, down 36.5 per cent from January 2016. The average MLS® residential price in the province was $621,093, a 17.5 per cent decrease from the same period last year.

"Housing demand across the province returned to long-term average levels last month," said Cameron Muir, BCREA Chief Economist. "However, regional variations persist, with Victoria posting above average performance and Vancouver falling below the average."

''A marked decrease in the average MLS® residential price is largely the result of relatively more home sales occurring outside of the Lower Mainland," added Muir.

Home sales from Vancouver fell from 43 per cent of provincial transactions in January 2016 to 35 per cent last month. In addition, fewer detached home sales in Vancouver relative to multi-family units has skewed the average price statistic down in the province's largest urban area. In contrast, the MLS® Residential Benchmark Price in the Real Estate Board of Greater Vancouver area has declined 3.7 per cent over the past six months, but is up 15.6 per cent from January 2016.

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Canadian manufacturing sales finished the year on a high note, rising 2.3 per cent in December and matching the strong sales growth in November. However, strength in shipments was not broad based with sales higher in only 8 of 21 manufacturing sub-sectors.

In BC, where the manufacturing sector is a significant employer and a key driver of economic growth, sales decreased 1.5 per cent on a monthly basis but were 7.6 per cent higher year-over-year. While sales dipped slightly from a very strong November, the manufacturing sector remained a bright spot for the province in the second half of the year, posting nearly 8 per cent growth since the summer. That upswing has been a particularly important driver of growth and housing demand in BC's manufacturing regions.

 

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Canadian manufacturing sales finished the year on a high note, rising 2.3 per cent in December and matching the strong sales growth in November. However, strength in shipments was not broad based with sales higher in only 8 of 21 manufacturing sub-sectors.

In BC, where the manufacturing sector is a significant employer and a key driver of economic growth, sales decreased 1.5 per cent on a monthly basis but were 7.6 per cent higher year-over-year. While sales dipped slightly from a very strong November, the manufacturing sector remained a bright spot for the province in the second half of the year, posting nearly 8 per cent growth since the summer. That upswing has been a particularly important driver of growth and housing demand in BC's manufacturing regions.

 

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Vancouver, BC – February 15, 2017. The British Columbia Real Estate Association (BCREA) reports that a total of 4,487 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in January, down 23 per cent from the same period last year. Total sales dollar volume was $2.79 billion, down 36.5 per cent from January 2016. The average MLS® residential price in the province was $621,093, a 17.5 per cent decrease from the same period last year.

“Housing demand across the province returned to long-term average levels last month," said Cameron Muir, BCREA Chief Economist. "However, regional variations persist, with Victoria posting above average performance and Vancouver falling below the average."

“A marked decrease in the average MLS® residential price is largely the result of relatively more home sales occurring outside of the Lower Mainland," added Muir.

Home sales from Vancouver fell from 43 per cent of provincial transactions in January 2016 to 35 per cent last month. In addition, fewer detached home sales in Vancouver relative to multi-family units has skewed the average price statistic down in the province's largest urban area. In contrast, the MLS® Residential Benchmark Price in the Real Estate Board of Greater Vancouver area has declined 3.7 per cent over the past six months, but is up 15.6 per cent from January 2016.

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Canadian housing starts began the year on a high note, edging up from a strong December to 207,400 total units at a seasonally adjusted annual rate (SAAR) in January. The six-month trend in Canadian housing starts was also higher at 199,900 units, which is slightly above average annual growth in Canadian households. 

Housing starts in BC slowed to begin the year from a torrid pace is 2016. Starts were down 33 per cent on a monthly basis and 13 per cent year-over-year,  though unseasonably high snowfall in December and January likely played a role in limiting construction activity. Single detached starts were down 36 per cent while multiple unit starts were down 5 per cent year-over-year. 

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were down 24 per cent year-over-year in January, with a sharp decline in single detached starts compared to last year. In the Victoria CMA, housing starts were up 28 per cent year-over-year due to strong growth in new multiple unit starts. New home construction in the Kelowna CMA fell 6 per cent compared to last year as fewer multiple unit projects got underway. Housing starts in the Abbotsford-Mission CMA were 87 per cent higher compared to January 2016 as several multiple unit projects broke ground, leading to a doubling of multiple unit starts compared to last year. 

 

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http://www.theprovince.com/news/local+news/zamboni+pulled+over+trying+clear+snow+island/12862048/story.html

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The total value of Canadian building permits decreased 6.6 per cent from November to December, the result of declining permit activity across all commercial and residential sectors.

In BC,  permit values slowed substantially, perhaps suggesting a slowdown in construction intentions in the coming year. The total value of permits fell 23.5 per cent on a monthly basis and 26.5 per cent year-over-year. Residential permits were down close to 27 per cent on both a monthly and annual basis while non-residential permits were down 8 per cent on a monthly basis and 27 per cent year-over-year.

Construction intentions were mixed across BC's four census metropolitan areas (CMA). Permits in the Abbotsford-Mission CMA increased 133 per cent from October to November but were down 67 per cent year-over-year while the Vancouver CMA posted the largest monthly decline in permits in the country, down 35 per cent on a monthly and annual basis. The Victoria CMA saw permit values increase 22 per cent on a monthly basis and a 25 per cent decline year-over-year. In the Kelowna CMA, permits rose 2 per cent on a monthly basis and 121 per cent year-over-year. 

 

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Check this out, the Okanagan at #6:

http://www.cnn.com/2017/02/06/foodanddrink/undiscovered-wine-regions/index.html

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US Non-farm payroll employment registered an increase of 227,000 jobs for the month of January while the national unemployment rate edged up slightly to 4.8 per cent. Over the past three months, US job growth has averaged a solid 185,000 jobs per month. 

Today's strong employment report suggests some underlying momentum in the economy and very little slack in the overall labour market. The US Federal Reserve opted to leave rates unchanged earlier this week, but is still on track to raise rates more than once this year.  Expectation of further Fed tightening will put upward pressure on long-term interest rates in the US and Canada, which will likely contribute to higher Canadian mortgage rates in 2017.

 

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US Real GDP Growth (Q4'2016) - January 27, 2017


US real GDP growth registered a weaker than expected 1.9 per cent growth the final quarter of 2016, and 1.6 per cent growth for the year as a whole.  Growth was pulled lower by a widening US trade deficit, while consumer demand and business investment were robust. Most economists expect US economic growth to accelerate to about 2.2 per cent in 2017.

The pace of economic growth in the United States could be a key determinant in the BC housing market this year. While faster US growth is generally positive for the BC economy, a stronger pace of growth along with a possibly significant shift in the fiscal outlook due to the large tax cuts and ramped-up spending plans of the Trump administration, is already translating to rising long-term interest rates as markets anticipate higher inflation and consequent monetary tightening by the US Federal Reserve. In turn, that uptrend in rates is putting pressure on Canadian mortgage rates, with many lenders increasing their best offered rates. 

 

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Canadian Retail Sales - January 20, 2017


Canadian retail sales inched 0.2 per cent higher in November.  Sales were higher in just 5 of 11 sub-sectors, with motor vehicle and parts dealers and building materials supplies leading the way.  E-commerce sales accounted for 3 per cent of total retail sales, the highest proportion to date in 2016.  Given today's data,  we are currently tracking fourth quarter Canadian real GDP growth at 1.5 per cent. 

In BC, retail sales were down 0.7 per cent on a monthly basis, but were 5.5 per cent higher year-over-year.  Year-to-date, retail sales in the province are up 6.5 per cent. 


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Canadian Manufacturing Sales - January 19, 2017


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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Bank of Canada Interest Rate Announcement - January 18, 2017


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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