Geoff Cowling

For the second time this month, the Bank of Canada has lowered its overnight policy rate before its regularly scheduled announcement date, taking the overnight rate down a further 50 basis points to 0.25 per cent.  That level is what the Bank considers its effective lower bound, meaning it can not reduce rates further without potentially disrupting key short-term funding markets.

The Bank also announced two new programs to ensure the continued smooth functioning of credit markets and to promote credit availability.  The first, the Commercial Paper Purchase Program, is targeted at alleviating strains in the short-term funding market  and the second entails the Bank purchasing Government of Canada bonds in the secondary market. The latter program is a type of what is generally called "quantitative easing" though the Bank's program is targeted at all maturities, rather than longer term yields as in traditional quantitative easing.

All of these actions represent a serious and significant amount of firepower aimed at keeping the Canadian financial system and credit markets functioning during this extraordinary time.  If successful, we should see currently elevated risk spreads on mortgage products start to decline, reversing recent increases in Canadian mortgage rates.

A weak report to start off 2020. Seasonally-adjusted Canadian retail sales were up by 0.4% in January at $52 billion. The rise in January was driven by auto dealers and gas stations. Minus these two sub-sectors and sales were down 0.3% in the month. Sales were up in 4 of 11 sub-sectors, representing 48% of retail sales. The impact of COVID-19 on the retail sector will become more evident in the months to come. Statistics Canada notes that respondent comments for February shows that business activities have been impacted.

Regionally, 8 of 10 provinces reported monthly increases in January. Notable increases were reported in Quebec (1.7%) and Alberta (1.6%). In contrast, retail sales were down in Ontario (-0.8%).

In BC, seasonally-adjusted retail sales were unchanged at $7.3 billion in January. Looking at the non-seasonally adjusted change shows a different picture. Retail sales in January were down from the previous month in all sub-sectors, except at auto dealers and gas stations. Meanwhile, Vancouver reported a monthly decrease of 1% in retail sales. Compared to the same time last year, BC retail sales were down by 0.4% in January.

Canadian inflation, as measured by the Consumer Price Index (CPI) rose by 2.2 per cent in February year-over-year, down from a 2.4 per cent increase in January. Excluding the impact of gasoline prices, national CPI rose by 2.0 per cent year-over-year, matching last month's increase. Gas prices rose less on a year-over-year basis as a result of lower global demand following the COVID-19 spread, and tensions between oil-producing countries. The Bank of Canada's three measures of trend inflation was unchanged, averaging 2.0 per cent in February. Prices rose in seven of eight major components, led by transportation (4.4%) and shelter (2.3%).

In B.C., CPI grew to 2.4 per cent year-over-year, slightly above last month's increase of 2.3 per cent. Notable increases in prices were for recreation (2.0%) and gas (1.7%), where the increase for gas was largely due to the regional Pacific Northwest market. In contrast, prices for food was the only component to report a price decline (-0.5%).

Given recent events around the spread and containment efforts of COVID-19 (e.g., temporary closure of stores and service providers), continued tensions between oil-producing countries, the lowering of interest rates, and disruptions to global supply chains, we expect significant impact on prices going forward.

Today, in an emergency inter-meeting policy action, the Bank of Canada again lowered its overnight rate by 50 basis points to 0.75 per cent. This follows the previous cut to 1.25 per cent on March 4, 2020. This move is in response to the spread of COVID-19, which according to the Bank is "having serious consequences for Canadian families, and for Canada's economy". In its statement, the Bank noted that lower interest rates will help to support confidence in households by lowering borrowing costs for new purchases and for those renewing their mortgages. Additionally, lower prices for oil will weigh heavily on the economy.

We expect this rate cut to be followed by an additional reduction of the Bank's overnight rate at its April 2020 meeting.

Vancouver, BC – March 12, 2020. The British Columbia Real Estate Association (BCREA) reports that a total of 5,741 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in February 2020, an increase of 26.3 per cent from February 2019. The average MLS® residential price in BC was $758,863, a 12 per cent increase from $677,681 recorded the previous year. Total sales dollar volume in February was $4.4 billion, a 41.4 per cent increase over 2019.

“Housing markets in BC continued to trend near long-term average levels in February,” said BCREA Chief Economist Brendon Ogmundson. “Recent declines in mortgage rates and favourable changes to mortgage qualifying rules may provide a boost to home sales heading into the spring, although there is significant economic uncertainty lingering over the outlook.”

Total MLS® residential active listings fell 8.4 per cent to 28,303 units compared to the same month last year. The ratio of sales to active residential listings increased 20.3 per cent from 14.7 per cent last February.

Year-to-date, BC residential sales dollar volume was up 38.4 per cent to $7.6 billion, compared with the same period in 2019. Residential unit sales increased 24.8 per cent to 10,135 units, while the average MLS® residential price was up 10.9 per cent to $745,501.   

The Bank of Canada lowered its overnight rate by 50 basis points this morning to 1.25 per cent.  This move is part of a coordinated action by global central banks to guard against the negative consequences of the Coronavirus outbreak.  In its statement, the Bank noted that although the Canadian economy is operating near potential and inflation is at its 2 per cent target, the Coronavirus is a material and negative shock to the Canadian and global outlook.

Economic growth in Canada slowed sharply to end 2019 and supply chain disruptions due to both Coronavirus and interrupted rail service are expected to slow growth further in the first quarter of this year.

Canadian bond yields have  declined significantly with 5-year bond yields falling below 1% for the first time since 2017.  Both variable and 5-year fixed qualifying mortgage rates will likely follow bond yields lower,  though elevated risk spreads may delay banks and other lenders in lowering mortgage rates in the immediate term.

The Canadian economy slowed to 0.1% in the fourth quarter of 2019, owing to a decrease in business investment and weak trade. Offsetting these declines were increased household spending. GDP growth ended 2019 with 1.6 per cent, a deceleration from the 2 per cent growth reported in 2018.

We expect growth in the Canadian economy to continue to slow in the first part of 2020, as temporary factors (CN rail strike and COVID-19) and permanent factors (auto plant shutdowns) work their way through the economy. 

Seasonally-adjusted Canadian retail sales rose by 0.9% in November to $51.5 billion, driven by higher sales at motor vehicle and parts dealers, and at food and beverage stores. This marks the strongest monthly increase since March 2019 (1.3%). Higher sales were reported in 6 of 11 sub-sectors, representing 70% of retail sales.

Regionally, 6 of 10 provinces reported increases in November, led by Ontario (1.6%) and Quebec (1.4%). In contrast, retail sales in Alberta continue to trend downward (-0.9%).

In B.C., seasonally-adjusted retail sales rose by 1.1% to $7.2 billion in November, driven by increased sales at electronic, home furnishing and clothing stores. Vancouver also reported a monthly increase of 1.2% in sales. Compared to the same time last year, B.C. retail sales were up by 0.6% in November.

The Bank of Canada held its overnight rate at 1.75 per cent this morning. In the statement accompanying the decision the Bank noted that while economic growth slowed in the fourth quarter, the global economy appears to be stabilizing and export demand and business investment should pick-up over the next year.  In addition, strong population and income growth will provide a boost to consumer spending and the housing market continues to recover.  The Bank projects that inflation will stay around its 2 per cent target over the next two years.

Although the Canadian economy appears to have limped to the finish line in 2019, pressure on the Bank of Canada to lower rates may actually be easing as risks to the Global economy fade. Fear surrounding the outlook for the United States has subsided due to rate-cutting by the US Federal Reserve and guarded optimism around US-China trade relations.  With external risks to the outlook diminished, the Bank will likely remain focused on restraining the growth of household debt. Therefore, it is unlikely the Bank will opt to lower its policy rate this year, absent a significant deterioration in the outlook for Canadian growth and inflation.

Vancouver, BC – January 13, 2020. The British Columbia Real Estate Association (BCREA) reports that a total of 77,331 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in 2019, a decline of 1.5 per cent from the 78,516 units sold in 2018. The annual average MLS® residential price in BC was $700,460, a decline of 1.6 per cent from $711,564 recorded the previous year. Total sales dollar volume was $54.2 billion, a 3 per cent decline from 2018.

“Housing markets across the province staged a strong recovery in the second half of 2019,” said BCREA Chief Economist Brendon Ogmundson. “This sets up 2020 to be a much more typical year than what markets have experienced recently.”

A total of 5,218 MLS® residential unit sales were recorded across the province in December, up 48.9 per cent from December 2018. The average MLS® residential price in BC was $755,165, an increase of 8.7 per cent from December 2018. Total sales dollar volume was $3.9 billion, a 61.8 per cent increase year-over-year.

Total active residential listings were down 10.6 per cent to 24,691 units in December. Total inventory of homes for sale have declined more than 10 per cent on a year-over-year basis for two straight months.

Seasonally-adjusted Canadian retail sales fell by 1.2% in October to $50.9 billion, driven by lower sales at motor vehicle and parts dealers and at building material and garden equipment and supplies dealers. Retail sales were down in 8 of 11 sub-sectors, representing 81% of retail sales. Regionally, 6 of 10 provinces reported declines in October, led by Ontario (-2%), Quebec (-1.7%) and Saskatchewan (-1.7%). In contrast, increases in retail sales were reported in Manitoba (1.1%) and Alberta (0.4%).

In B.C., seasonally-adjusted retail sales fell by 0.9% to $7.1 billion in October, driven by a decline in home furnishing sales and sales in sporting/hobby/books/music. Vancouver also reported a monthly decrease of 1.9% in sales. Compared to the same time last year, B.C. retail sales were down by 0.7% in October.

Vancouver, BC – December 12, 2019. The British Columbia Real Estate Association (BCREA) reports that a total of 6,616 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in November, an increase of 27.5 per cent from the same month last year. The average MLS® residential price in the province was $746,939, an increase of 5.5 per cent from November 2018. Total sales dollar volume was $4.94 billion, a 34.4 per cent increase from the same month last year.

"After several months of strong gains, home sales are now firming around long-run averages," said BCREA Chief Economist Brendon Ogmundson. "We expect 2020 will be a much more typical year for markets compared to the volatility of recent years."

MLS® residential active listings in the province were down 6.6 per cent from November 2018 to 31,310 units, and down for a seventh straight month on a seasonally adjusted basis. Overall market conditions remain balanced with a sales-to-active listings ratio of 21 per cent.

Year-to-date, BC residential sales dollar volume was down 6 per cent to $50.23 billion, compared with the same period in 2018. Residential unit sales were 3.9 per cent lower at 72,106 units, while the average MLS® residential price was down 2.2 per cent year-to date at $696,574.

Canadian employment decreased by 71,000 jobs in November, led by Quebec (-45,000), BC (-18,200) and Alberta (-18,000). This brought the national unemployment rate up from 5.5% in the previous month to 5.9% in November. November's decline was largely driven by private-sector employment, while self-employment and public-sector employment was little changed. Most of the decrease was reported in manufacturing (-28,000), natural resources (-6,500) and in public administration (-25,000). Compared to the same month last year, Canadian employment is up 1.6%.  

Employment in BC fell by 18,200 jobs in November, completely wiping out the previous month's gain. The decline was driven by full-time employment (-20,500), which more than offset gains in part-time employment (2,300). By Industry, employment losses were generally broad-based. In contrast, employment was up in finance/insurance/real estate/leasing. The provincial unemployment rate rose by 0.3 percentage points to 5%. Compared to one year ago, employment in BC is up by 0.7% (18,100) jobs.  

The BCREA Commercial Leading Indicator (CLI) fell slightly to 135.3 in the third quarter of 2019. The index remains unchanged compared to the same time last year.

Provincial economic activity continued to slow in the third quarter of 2019, with declines in retail and manufacturing sales more than offsetting a gain in wholesale trade. This left the economic activity component of the CLI negative for the fifth consecutive quarter. Office employment was up for the fifth consecutive quarter, edging out a decline in manufacturing employment, which resulted in a positive change in the employment component of the CLI. The financial component of the CLI was positive for a third straight quarter. The underlying trend in the CLI has been relatively flat over the past five quarters, suggesting a stable environment for commercial real estate activity in the province.

Following several years of robust growth, the BC economy continues to slow in 2019. Weak manufacturing sales in petroleum and coal, and lower retail sales at gasoline stations and auto dealers, put a drag on economic activity in the third quarter. Wholesale trade sales were positive in the third quarter due to a large expansion in machinery and equipment.

Employment growth in key commercial real estate sectors such as finance, insurance, real estate and leasing continues to be strong, up by 7,600 jobs in the third quarter. This measure of office employment now sits at an all-time high, signalling strong future demand for office space. In contrast, manufacturing employment fell by 4,200 jobs from the previous quarter.

The CLI’s financial component was positive in the third quarter due to an increase in benchmark Canadian REIT prices, which more than offset the expansion of short term credit spreads.

The Bank of Canada held its overnight rate at 1.75 per cent this morning. In the statement accompanying the decision, the Bank noted that there is evidence that the global economy is stabilizing and that US recession concerns are waning, though trade conflicts remain the biggest threat to the Canadian economy.  The Bank expects modest growth in 2020 and for inflation to closely track its 2 per cent target.

With many central banks around the world lowering their policy rates,  why is the Bank of Canada holding firm? Simply, the Bank judges the potential of lower rates igniting a further accumulation of household debt as a greater risk to the Canadian economy than the risk from deteriorating global economic conditions.  Canadian policymakers have committed to bending the curve on the Canadian household debt-to-income ratio, through a combination of higher interest rates and stricter mortgage policy.

 Balanced against the goal of restraining debt, the Bank sees the risk of a further disruption in global trade as manageable.  The outlook for Canadian economic growth is roughly in line with trend growth for the economy and inflation is expected to be well tethered to its 2 per cent target. As long as that outlook holds, we expect that the Bank will remain on the sidelines in 2020.

The Canadian economy grew by 0.1% in September, following the same growth in the previous month. Services reported growth of 0.2%, slightly outpacing growth in goods (+0.1%). There were gains in 13 of 20 industries, with increases in wholesale trade and construction offset in part by lower activity in rail transportation. Activity at offices of real estate agents and brokers increased 1.2% in September, rising for the seventh consecutive month, primarily due to higher housing resale activity in Vancouver and Fraser Valley.

Rounding out the third quarter, Canada's economy grew by 1.3%, led by strong business investment (+2.6%) and household spending (+0.4%), while exports were down by 0.4% and imports were unchanged. Of note was growth in housing investment (+3.2%), which recorded the fastest pace since the first quarter of 2012. The increase was driven by both new home construction (mostly detached homes in Ontario) and higher ownership transfer costs from resales activity in B.C. and Ontario.

We expect growth in the Canadian economy will moderate to around 1.5 per cent in the second half of 2019 after posting strong second quarter growth and will post trend growth of about 1.8 per cent in 2020. Significant downside risks remain due to elevated trade tensions and their consequent impact on exports and business investment.

BCREA 2019 Fourth Quarter Housing Forecast

Vancouver, BC – November 6, 2019. The British Columbia Real Estate Association (BCREA) released its 2019 Fourth Quarter Housing Forecast today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 1.8 per cent to about 77,100 units this year, after recording 78,505 residential sales in 2018. MLS® residential sales are forecast to increase 10.9 per cent to 85,500 units in 2020, just below the 10-year average for MLS® residential sales of 85,800 units.

“After a slow start to 2019, MLS® home sales in BC have embarked on a sustained upward trend since the spring,” said Brendon Ogmundson, BCREA Chief Economist. “The dampening effects of federal mortgage rules mean that rather than a return to the heights of recent years, home sales are simply returning to trend after sustaining a significant shock.” 

As demand normalizes, the accumulation of resale inventory has reversed course in many markets around BC. We anticipate that this trend will continue in 2020, with sales and listings finding balance. For most markets, this will mean price growth that is in-line with inflation, though for some supply-constrained areas we are forecasting strong price growth. We anticipate that the MLS® average price will decline 2 per cent in 2019 before rising modestly by 3.6 per cent to $723,000 in 2020.

The Canadian economy grew by 0.1% in August, following no growth in July. The goods producing industries reported growth of 0.2% after two months of declines, led by a rebound in manufacturing primarily due to increased sales. A decline of 0.1% was reported in the services producing industries, largely due to decreases in wholesale trade and utilities. Activity at offices of real estate agents and brokers increased 1.8% in August, as housing re-sale activity was up in the majority of Canadian urban markets.

We expect growth in the Canadian economy will moderate to around 1.5 per cent in the second half of 2019 after posting strong second quarter growth and will post trend growth of about 1.8 per cent in 2020. Significant downside risks remain due to elevated trade tensions and their consequent impact on exports and business investment.

The Bank of Canada held its overnight rate at 1.75 per cent this morning. In the statement accompanying the decision, the Bank noted that ongoing trade conflicts have weakened the global economic outlook, which is expected to drag Canadian economic growth below its potential in the second half of this year. The bank is further projecting that growth will register under 2 per cent over the next two years. Inflation is expected to trend at the Bank's target of 2 per cent.

With the expectation that the US Federal Reserve will be lowering its own policy rate later today, the third rate cut this year, there may be extra pressure for the Bank to begin loosening monetary policy at its next meeting.  As reflected by the Bank's statement, while current trade conflicts will test the resilience of the Canadian economy, the Bank does not as yet foresee the need for lower interest rates. However, the Bank stands ready to act if the impact of trade conflicts spreads beyond trade and investment and begin to slow consumer spending or housing activity. Thus far, the Bank appears to judge those risks as contained, which likely mean no change in interest rates this year.

Canadian retail sales decreased by 0.1% in August to $51.5 billion, driven largely by lower sales at food and beverage stores and at gasoline stations. Retail sales were down in 6 of 11 sub-sectors, representing 51% of sales. Regionally, 4 of 10 provinces reported a decrease in August with notable declines reported in Ontario (-0.8%) and Manitoba (-1.6%).

In B.C., retail sales rose by 0.8% to $7.2 billion in August, ending four consecutive months of declines. Vancouver also reported a monthly increase of 1.7% in sales. Provincial sales were up in 7 of 11 sub-sectors, largely driven by sales at food and beverage stores and to a lesser extent, in furniture and home furnishings. On a year-over-year basis, B.C. retail sales were down by 0.4% in August.