Despite the reopening of retail outlets across the country as health restrictions eased, Canadian seasonally-adjusted retail sales declined 0.6% to $55.8 billion in July. The overall decline was driven by drops in sales at food and beverage stores (-3.4%) and building material and garden equipment and supplies dealers (-7.3%). According to Statistics Canada's survey, just 0.5% of retailers were closed at some point in July. Preliminary estimates, based on roughly 50% of respondents reporting so far to the agency, indicate that retail sales rose 2.1% in August. 

In BC, sales declined 1.2% after hitting record levels in the prior two consecutive months. Compared to the same month last year, retail sales were up 9.1% in the province. Only food and beverage store sales and health and personal care sales were not up on a year-over-year basis in July. In the Greater Vancouver region, sales dropped by 2.7% month-over-month, but were up 14.9% year-over-year. 

In July, Canadian e-commerce sales declined sharply from $3.9 billion to $2.9 billion dollars. As a result, e-commerce declined from 6.2% of total retail sales in June to 4.6% in July. This decline occurred as health restrictions eased across the country and Canadians shifted to brick-and-mortar retail. 
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Vancouver, BC – September 14, 2021.  The British Columbia Real Estate Association (BCREA) reports that a total 9,507 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in August 2021, a decrease of 7.1 per cent over August 2020. The average MLS® residential price in BC was $901,712, a 17.2 per cent increase from $769,691 recorded in August 2020. Total sales dollar volume was $8.6 billion, an 8.9 per cent increase from last year.

“Home sales around the province have essentially returned to normal after a record setting spring,” said BCREA Chief Economist Brendon Ogmundson. “However, we continue to see a drought in the total supply of listings as well as downward trend in new listings activity.”

Total active residential listings were down 37.9 per cent year-over-year in August and were 42 per cent below normal levels for the month of August.

Year-to-date, BC residential sales dollar volume was up 102.2 per cent to $82 billion, compared with the same period in 2020. Residential unit sales were up 67.8 per cent to 89,980 units, while the average MLS® residential price was up 20.5 per cent to $911,245.
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Canadian employment grew for the third consecutive month in August, rising by 90,000 to 18.97 million (0.5%, m/m). Most Canadian jurisdictions had fully implemented public health reopening plans by the time Statistics Canada conducted surveys, while tourists from the United States were allowed to enter Canada without quarantining for the first time since the pandemic began. As a result, Statistics Canada is reporting positive employment figures for the month across most indicators. Canadian employment is now -0.8% (-156k) below its February 2020 pre-pandemic level, the highest level since the onset of the pandemic.

In August, Canadian employment growth was driven by gains in the private sector and the services sector, especially in food & accommodation and information, culture and recreation sectors. Gains were broadly distributed across demographic groups. The Canadian unemployment rate declined by 0.4 to 7.1%, the lowest level since the onset of the pandemic. 

In BC, employment grew by 14,400 to 2.67 million (0.5%, m/m), once again hitting the highest level since the pandemic began. For the third consecutive month, British Columbia was the sole province with employment above its pre-pandemic level. The unemployment rate declined by 0.4 in August to 6.2%, the lowest level since the pandemic began. BC has the third lowest unemployment rate in Canada, following Manitoba and Quebec.
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The Bank of Canada maintained its overnight rate at 0.25 per cent this morning, a level it considers its effective lower bound. The Bank reiterated what it calls "extraordinary forward guidance" in committing to leaving the overnight rate at 0.25 per cent until slack in the economy is absorbed and inflation sustainably returns to its 2 per cent target. The  Bank projects that will not occur until the second half of 2022. The Bank is also continuing its quantitative easing (QE) program, purchasing $2 billion of Government of Canada bonds per week. In the statement accompanying the decision, the Bank noted that the the supply-chain disruptions and the pull-back in housing market activity that caused an unexpectedly weak second quarter of GDP growth were likely one-time issues and stronger growth should prevail over the second half of the year.

While inflation continues to run ahead of the Bank of Canada's 2 per cent target, the driving force behind rising prices is still isolated to a few categories of spending. In particular, the rising price of gasoline and the run-up in Canadian home prices since last year.  Home prices in Canada are beginning to flatten out, which should mean a fading impact on inflation over the next year. Likewise, the impact of gas prices should continue to decline as base-year effects have less influence.  Other issues putting upward pressure on consumer prices are being driven by bottlenecks and supply shortages – which are issues that monetary policy cannot address. Higher interest rates may stifle demand, but they do not fix microchip shortages.

We expect the Bank of Canada will proceed with caution, especially given the fourth wave of COVID. The unexpected contraction of GDP in the second quarter may push the closing of the output gap out by one or two quarters. That likely means a new time-line for the Bank to raise its policy rate with the earliest increase coming in mid-2023.
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As health restrictions eased, Canadian retail sales rose 4.2% m/m to $56.2 billion on a seasonally-adjusted basis in June. Due to declines in April and May, sales remained 3.5% below the March peak. Sales rose in 8 of 11 retail sectors measured by Statistics Canada, with the largest gains occurring in clothing sales (+49.1%), caused by loosening restrictions on non-essential retail. In June, 5.2% of Canadian retailers reported being closed for at least one business day, down from 5.6% in May. Statistics Canada's preliminary retail sales estimate for July, based on just 38% of respondents reporting, is for a 1.7% decline.

In BC, seasonally-adjusted retail sales were largely flat, rising just 0.2% m/m but nonetheless hitting a provincial record for a second consecutive month in June. BC retail sales were up by 12.6% compared to the same month last year. In metro Vancouver, sales were up 1.6% while in the rest of the province sales declined 1%. 

In June, Canadian e-commerce sales declined 10.6% as consumers switched to brick-and-mortar retail. E-commerce accounted for 5.8% of total retail sales in June, down from 7% in May.
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Vancouver, BC – August 17, 2021 The British Columbia Real Estate Association (BCREA) released its 2021 Third Quarter Housing Forecast Update today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to rise 26 per cent to 118,350 units this year, after recording 94,007 sales in 2020. In 2022, MLS®residential sales are forecast to pull back 15 per cent to 100,150 units.  

“The pace of home sales in the province has slowed in recent months but an unprecedented start to the year still has BC on track for a record-breaking year,” said Brendon Ogmundson, BCREA Chief Economist.

With strong demand being supported by low mortgage rates and a rapidly rebounding post-COVID economy, the more significant concern is whether there will be an adequate supply of listings in the market. The supply situation is especially severe in markets outside the Lower Mainland, where new listings activity has been lackluster. As a result, the average price in 2021 is on track to post a second consecutive year of double-digit gains. We are forecasting the provincial average price to rise 16.6 per cent to $911,300 this year, followed by a 2.9 per cent gain next year to $937,300.

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Canadian prices, as measured by the Consumer Price Index (CPI), rose 3.7% on a year-over-year basis in July, hitting the highest rate since prior to the pandemic. Overall, the upward bias of "base-year effects" are no longer substantially influencing the year-over-year CPI changes, although they still have an effect on certain subcomponents such as gasoline. On a seasonally adjusted month-over-month basis, the CPI was up 0.5% in July. The Bank of Canada's preferred measures of core inflation (which use techniques to strip out volatile elements) rose an average of 2.5% year-over-year in July. In BC, consumer prices were up 0.7% month-over-month, and up 3.1% on a year-over-year basis in July. The homeowner replacement cost index, which measures the cost of replacing home structures, rose 13.8% year over year in July, which was the fastest rate since the 1980s. Related costs, such as commissions on the sale of real estate, also rose strongly in July. Prices of passenger vehicles rose 5.5% year-over-year in July due to the continuing challenges related to semiconductor chip supply chains. 

While inflation is currently running higher than the Bank of Canada's 2 per cent target, many economists expect this elevated rate of price increases to be transitory as economies emerge from the pandemic and supply chains normalize. Base-year effects from falling prices during the early months of the pandemic had exaggerated year-over-year changes in CPI, but these effects have now largely ended. The rate of inflation as measured by CPI is very important for the Bank of Canada's monetary policy stance over the next year. If higher inflation is not transitory but instead the result of an over-stimulated economy, the central bank could act to raise interest rates sooner than expected. However, if the uptick in inflation fades in the coming months, we expect the Bank will stay its current course.
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Most Canadian provinces substantially lifted public health restrictions in the first half of July. As a result, Statistics Canada is reporting positive employment figures for the month across most indicators. Canadian employment rose by 94,000 in June (0.5%, m/m) to 18.88 million, following growth of 231,000 in June. This growth brings employment to the highest level since the onset of the pandemic. Canadian employment is now -1.3% (-246k) below its February 2020 pre-pandemic level. In July, growth was driven by gains in the private sector, the food & accommodation sector, among youth aged 15-24, and among prime working-age women. Other positive indicators included gains in hours worked (+1.3%) and a decline in the number of people working less than half their usual hours (-10.1%). The unemployment rate also declined by 0.3 to 7.5%. 

In BC, both total employment and the unemployment rate were largely unchanged from June. The province maintains one of the strongest labour markets in the country, with only Quebec reporting a lower unemployment rate for July. For the second consecutive month, BC remains the sole province with employment above its pre-pandemic level.
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The Bank of Canada maintained its overnight rate at 0.25 per cent this morning, a level it considers its effective lower bound. The Bank reiterated what it calls "extraordinary forward guidance" in committing to leaving the overnight rate at 0.25 per cent until slack in the economy is absorbed and inflation sustainably returns to its 2 per cent target. The Bank projects that will not occur until the second half of 2022.  The Bank announced that it is adjusting its quantitative easing (QE) program down to purchasing $2 billion per week Government of Canada bonds per week. In the statement accompanying the decision, the Bank noted that it expects a strong pick-up in economic growth over the second half of the year as vaccinations progress and restrictions are lifted.  The Bank expects growth of close to 6 per cent this year, followed by 4.5 per cent growth in 2022.

As we hopefully approach the end of the COVID-19 pandemic, the issue of inflation has arisen as the most hotly debated topic among economists and analysts.  Specifically, whether current elevated inflation of around 3.5 per cent is a sign of accelerating prices or merely the transitory effect of supply constraints brought on by the pandemic.  The Bank of Canada is firmly on the side of believing higher than normal inflation is a temporary phenomenon. In today's announcement, the Bank noted that base-year effects, meaning we are comparing prices in a recovered economy now to one in which prices were falling amidst a severe recession one year ago, rising gasoline prices and pandemic related bottlenecks in supply chains account for most of the increase in inflation.  The Bank expects inflation to remain above 3 per cent through the remainder of this year before easing back toward its 2 per cent target in 2022.  Given that outlook, and uncertainty surrounding timing of when the economy may be fully back to normal, the Bank seems to be on a path to raising its policy rate between the end of 2022 and early 2023.
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British Columbia Real Estate Association (BCREA) reports that a total of 11,070 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in June 2021, an increase of 34.7 per cent over June 2020. The average MLS® residential price in BC was $910,445, a 22.2 per cent increase from $745,194 recorded in June 2020. Total sales dollar volume was $10.1 billion, a 64.6 per cent increase from last year.

“As expected, housing market activity is calming to start the second half of 2021,” said BCREA Chief Economist Brendon Ogmundson. “That said, while down from record highs earlier this year, home sales across the province remain well above long-run average levels"

Total active residential listings were down 23.4 per cent year-over-year in June and continued to fall on a monthly seasonally adjusted basis.

Year-to-date, BC residential sales dollar volume was up 161.6 per cent to $64.7 billion, compared with the same period in 2020. Residential unit sales were up 114.3 per cent to 70,690 units, while the average MLS® residential price was up 22.1 per cent to $915,563.
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Canadian employment grew by 231,000 jobs in June (1.2%, m/m) to 18.79 million, led by a 264,000 rise in the number of part-time jobs (offsetting a small decline in the number of full-time jobs). This growth brings employment back to nearly the levels in March, prior to two consecutive months of decline amid third-wave restrictions. The level of Canadian employment is now -1.8% (-340k) below its February 2020 pre-pandemic level. Ontario and other provinces eased third-wave restrictions in June. As a result, the industries driving growth in June across Canada were in accommodation & food services (+101k) and retail trade (+75k). The unemployment rate declined 0.4% to 7.8%.

In BC, employment rose by 42,000 (+1.6% m/m), following declines in April and May. The unemployment rate fell slightly from 7.0% to 6.6%, driven by growth in part-time work and the food & accommodation sector (+19k). BC is the lone province with employment above its pre-pandemic level. 
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The Canadian economy contracted for the first time in 12 months in April as monthly real GDP fell 0.3 per cent due to restrictions put in place to contain the third wave of COVID-19. The largest declines were felt in high-touch services sector industries like retail trade and food services.  Output of the real estate sector also dipped in April, though coming off a record month of sales in March.

Many sectors are currently dealing with the complexities of recovering from a pandemic that has produced significant shortages of materials and labour. As a result, there is an adjustment process underway, highlighted by rapidly rising costs, as businesses scramble to recover back to pre-pandemic levels of production and service. That process will continue to create some ups and downs as the economy moves into a post-pandemic environment but the overall trend in the economy is overwhelmingly positive. Statistics Canada estimates that strong growth resumed in May and we anticipate the Canadian economy will expand at a 6 per cent rate this year.  The same is true of the BC economy, where we are tracking economic growth for 2021 at 6.2 per cent.
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Canadian retail sales decreased 5.7% m/m to $54.8 billion on a seasonally-adjusted basis in April. This was the largest monthly decline since April of last year. Sales declined in 9 of 11 sub-sectors, with the largest declines in clothing and general merchandise. Excluding the more volatile sectors like motor-vehicles and gasoline sales, retail sales were down 7.6% in April. Drops in sales were driven by third wave restrictions implemented across the country in April. One in twenty Canadian retailers were closed for at least one business day in April due to lockdowns.  

In BC, seasonally-adjusted retail sales declined just 0.2% m/m as COVID-19 cases peaked in the middle of April. Retail sales rose 0.7% m/m in Metro Vancouver. On a non-seasonally adjusted basis, BC retail sales were up by 47% compared to the same time last year.   

In April, Canadian e-commerce sales were up 58.7% year-over-year to $4 billion. E-commerce accounted for 7% of total retail sales, up from 6.6% in March. In April of last year, in the midst of the first wave, e-commerce accounted for 10.2% of retail sales. 
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Canadian inflation, as measured by the Consumer Price Index (CPI), rose to 3.6% year-over-year in May, up from 3.4% in April. This is the highest level since May of 2011. Much of the increase in inflation was the result of base-year effects, as prices remained depressed in May of last year due to pandemic-induced shutdowns. On a seasonally adjusted month-over-month basis, the CPI was up 0.5% in May. The Bank of Canada's preferred measures of core inflation (which strip out volatile elements) rose an average of 0.2% from April, to 2.3% year-over-year. In BC, consumer prices were unchanged month-over-month and down from 3% year-over-year in April to 2.7% year-over-year in May.

While inflation is currently running higher than the Bank of Canada's 2 per cent target, much of the increase looks to be temporary and is likely to fade as base-year effects become less significant in coming months. Base-year effects are now beginning to fall out of the inflation statistics, as April was the CPI's nadir last year. How inflation evolves over the next 3 to 6 months will be very important for the stance of monetary policy over the next year. If higher inflation is not just a temporary phenomenon but is being driven by an over-stimulated economy, than we could see the Bank of Canada act on interest rates prior to 2023. However, if the uptick in inflation starts to fade in coming months, we expect the Bank will stay its current course.
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Vancouver, BC – June 14, 2021. The British Columbia Real Estate Association (BCREA) reports that a total of 12,638 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in May 2021, an increase of 178.2 per cent over May 2020 when the onset of the COVID-19 pandemic prompted a lockdown of the provincial economy. The average MLS® residential price in BC was $916,340, a 26.2 per cent increase from $726,335 recorded in May 2020. Total sales dollar volume was $11.6 billion, a 251 per cent increase from last year.

“Provincial housing markets continue to calm after peaking in March,” said BCREA Chief Economist Brendon Ogmundson. “The implementation of a stricter mortgage stress test in June may have a minor impact on home sales but we expect strong market activity over the second half of the year."

Total active residential listings were down 17 per cent year-over-year in May and dipped lower on a seasonally adjusted basis following two prior months of rising active listings.

“On the supply side, markets in the Lower Mainland are seeing a strong supply response, with new listings rising,” said Ogmundson, “however, new listings in markets outside of Metro Vancouver have started to flatten out.”
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The Bank of Canada maintained its overnight rate at 0.25 per cent this morning, a level it considers its effective lower bound. The Bank reiterated what it calls "extraordinary forward guidance" in committing to leaving the overnight rate at 0.25 per cent until slack in the economy is absorbed and inflation sustainably returns to its 2 per cent target. The  Bank projects that will not occur until the second half of 2022. The Bank is also continuing its quantitative easing (QE) program, purchasing at least $3 billion of Government of Canada bonds per week. In the statement accompanying the decision, the Bank expects that growth should pick up considerably after the second quarter in which growth was hampered by renewed lock-down measures.  On inflation, the Bank expects to see headline CPI growing at near 3 per cent for much of the summer, though largely due to "base-year" effects as prices in the recovery are measured against prices, particularly gasoline prices, from last year during the COVID-19 induced recession.  However, the Bank expects inflation will ease later in the year.

The most recent inflation data, as measured by the Consumer Price Index (“CPI”), showed a significant uptick of inflation to its highest level in a decade at 3.4 per cent, though largely due to a jump in energy prices compared to the early months of the pandemic. The question of whether higher than usual inflation is a temporary or more persistent is currently one of the most hotly debated topics in economics. The answer has significant implications for the conduct of monetary policy in Canada and therefore the trajectory of Canadian mortgage rates. The prevailing majority view on inflation seems to be tilted toward recent increases being a temporary phenomenon which should settle over the next year. If so, we should see an orderly unwinding of monetary stimulus with a gradual upward trajectory for mortgage rates beginning next year.
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Canadian employment fell by 68,000 jobs in May (-0.4%, m/m), led by a decline of 54,000 in the number of part-time jobs. This was the second consecutive month of declines amid third-wave restrictions, following a drop of 207,000 jobs in April. The level of Canadian employment is now 3.0% (-571k) below its February 2020 pre-pandemic level. The decline was driven by Nova Scotia and Ontario, which implemented stay-at-home orders last month. The unemployment rate rose 0.1% to 8.2%.

In BC, employment fell by 1,900 (-0.1% m/m), following a decline of 43,100 in April. Despite the slight drop in employment, the unemployment rate also fell slightly from 7.1% to 7.0%, due to a decrease in the labour force participation rate (from 65.1% to 64.9%). Job losses slowed in May due to the reopening of many indoor and outdoor activities on May 25th across the province.  

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The BCREA Commercial Leading Indicator (CLI) rose from 144 to 150 in the first quarter of 2021, representing the third consecutive increase as the economy recovered from the COVID-19-induced recession. Compared to the same time last year, the index was up by 15 per cent.


It is important to note that while the economy is posting a very strong recovery, we are still in an abnormal and uncertain environment for commercial real estate. Normally, the type of growth we see reflected in the CLI would imply an improvement in demand for retail and office space. However, the complexities of the COVID-19 pandemic and related public health restrictions are driving a wedge between what we see in the data and what is being experienced on the ground.

A 12 per cent jump in manufacturing activity, largely due to surging demand and prices for wood products, and a 6 per cent increase in wholesale trade activity were the main contributors from the economic activity component of the CLI.


Employment in key commercial real estate sectors such as finance, insurance, real estate (FIRE) and leasing increased by about 13,000 jobs in the first quarter. While our office employment measure is now at an all-time high, it is unclear what the implications are for office space demand given the uncertainty around the near-term outlook for a return to traditional office environments. Despite very strong sales activity, manufacturing employment fell by about 6,500 jobs. That decline may be a temporary phenomenon owing to the third wave of COVID-19 and its impact on manufacturing work.


The CLI’s financial component was positive in the first quarter of 2021, as REIT prices rose to their highest level since the fourth quarter of 2019 and risk spreads continued to narrow.

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The Canadian economy expanded at a 5.6 per cent annual rate in the first quarter of 2021, including very strong growth in March. However, restrictions due to the third wave of the pandemic point to a minor contraction of output in the month of April before getting back on track for the rest of the year. Growth was led by a 9.4 per cent increase in housing investment, which led the overall recovery, rising 26.5 per cent since the first quarter of last year. Household spending  was up 0.7 per cent in the first quarter or about 2.7 per cent on an annualized basis as household disposable income rose for the first time following two consecutive declines .  Households continue to save at historically high rates during the pandemic. The national household savings rate rose to 13.1 per cent  in the first quarter of 2021, more than double the savings rate this time last year. As vaccinations continue a strong ascent, we expect the Canadian economy to record about 6 per cent growth this year.

The Canadian economy is enjoying strong growth and that growth should continue through most of this year as ramped up vaccinations combine with pent-up demand and unprecedented household savings.  While strong economic growth this year is a near certainty, what is less certain is the impact that growth may have on inflation and therefore the direction of the Bank of Canada. Most view the recent increase in inflation as a temporary phenomenon driven mainly by "base-year" and other transitory effects. While there is some risk that an over-stimulated economy may be more inflationary than currently believed, there remains considerable slack in the Canadian economy and financial markets remain unconvinced that the economy is headed for markedly higher inflation. That has left government bond yields and fixed mortgage rates  low and stable for the past several months.

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Canadian retail sales increased 3.6% m/m on a seasonally-adjusted basis in March. Sales were higher in 10 of 11 sub-sectors, led by higher sales at garden equipment and building stores.  Excluding more volatile sectors like motor-vehicles and gasoline sales , retail sales were up 4.7% in February.  Statistics Canada also released a preliminary estimate for April showing retail sales declined 5.1% as enhanced "circuit-breaker" measures were implemented in many provinces to stem the third wave of COVID-19.

In BC, seasonally-adjusted retail sales were down 1.1% m/m as COVID-19 cases surged through the month of March. Retail sales fell 2% m/m in Metro Vancouver . On a non-seasonally adjusted basis,  BC retail sales were up by 20% compared to the same time last year.   

In March, Canadian e-commerce sales rose 58.5% year-over-year to $3.7 billion, accounting for 6.3% of total retail sales. The share of e-commerce was down 0.7 percentage points  as more brick-and-mortar stores were open to in-person shopping.
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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. 

 

Copyright British Columbia Real Estate Association. Reprinted with permission.



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. 


Copyright British Columbia Real Estate Association. Reprinted with permission.


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. 


Copyright British Columbia Real Estate Association. Reprinted with permission.


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.


Copyright British Columbia Real Estate Association. Reprinted with permission.

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