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.
Housing Market Activity Normalizing After a Frenetic Year
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.
“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.
Canadian Employment (June 2021) - July 9, 2021
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Canadian Monthly Economic Growth ( Real GDP April 2021) - June 30, 2021
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Canadian Retail Sales (April 2021) - June 23, 2021
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.
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.
Canadian Inflation (May 2021) - June 17, 2021
| 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. |
Strong Demand, Dwindling Supply for BC Housing Markets
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The British Columbia Real Estate Association (BCREA) reports that a total of 12,638 residential unit sales were recorded by the Multiple Listing Service®Bank of Canada Interest Rate Announcement - June 9, 2021
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.
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.
Canadian Employment (May 2021) - June 4, 2021
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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%. |
Economic Recovery Drives CLI Higher in Q1 2021
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.
Canadian Real GDP Growth (Q1'2021) - June 1, 2021
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Canadian Retail Sales (March 2021) - May 21, 2021
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.
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.
Canadian Inflation (April 2021) - May 19, 2021
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Canadian inflation, as measured by the Consumer Price Index (CPI), rose to a ten-year high of 3.4% year-over-year in April, up from 2.2% in March. Much of the increase in inflation was the result of base-year effects as prices posted a steep decline during April of last year during the first few months of the pandemic-induced shutdown. For example, gasoline prices were 62.5% higher in April 2021 than in April 2020. On a seasonally adjusted month-over-month basis, the CPI was up 0.6% in April. In BC, consumer prices were up 0.2% month-over-month and up 3% compared to April 2020. |
BC Markets Calming but Sales Still on Record Pace
Vancouver, BC – May 12, 2021. The British Columbia Real Estate Association (BCREA) reports that a total of 13,683 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in April 2021, an increase of 312.3 per cent over April 2020 when the onset of the COVID-19 pandemic prompted a lockdown of the provincial economy. The average MLS® residential price in BC was $946,606, a 29.1 per cent increase from $733,330 recorded in April 2020. Total sales dollar volume was $12.9 billion, a 432.2 per cent increase from last year.
“Although provincial home sales were down slightly from an all-time high in March, sales activity was the highest on record for April,” said BCREA Chief Economist Brendon Ogmundson. “Home sales continue on a record pace, though we do see a calming environment compared to the frenzied activity of recent months.”
Total active residential listings were down 14.5 per cent year-over-year in April but did tick higher on a seasonally adjusted basis for the second consecutive month as new listings activity ramped up.
"We are starting to see very strong new listings activity in several markets,” said Ogmundson, “however, it will take quite some time for total listings to return to the level needed to balance out markets and temper growth in home prices.”
Canadian Employment - May 7, 2021
Canadian employment fell by 207,000 jobs in April (-1.1%, m/m), following a 303,000 gain in March. The level of Canadian employment is now 2.7% (-503k) below its February 2020 pre-pandemic level. The decline in April reflects the implementation of public health measures in Ontario, British Columbia and Quebec. The national unemployment rate increased percentage 0.6 points to 8.1%.
In BC, employment fell by 43,100 (-1.6%, m/m) in April following a gain of 35k in January. The provincial unemployment rate rose 0.2 points to 7.1%. The overwhelming majority of those job losses were in part-time work as restaurants closed for in-person dining and other "circuit breaker" restrictions took hold in the province. The decline in April was the first month of job losses since April 2020. Most of the job losses were in Vancouver where employment fell by 26,000 (-1.7%,m/m) in April.
Canadian Monthly Real GDP (February 2021) - April 30, 2021
Canadian real GDP grew by 0.4% in February, following a 0.7% increase in the previous month. This is the 10th consecutive monthly gain since the steepest drops in Canadian history was observed in March and April. This brings GDP 2% below the February pre-pandemic level of output. For estimates of economic growth in BC, follow BCREA's monthly Nowcast of provincial GDP growth here: https://www.bcrea.bc.ca/economics/bcrea-nowcast/
Leading the increase the retail sector which jumped 4.5% after consecutive monthly declines prompted by provincial lockdown measures. Residential construction rose 4.7% while the GDP of offices of real estate agents and brokers was up 2.8%.
Early estimates from Statistics Canada indicate that real GDP grew by 0.9% in March. That puts first quarter Canadian GDP on track to grow about 6.5% on an quarterly annualized basis.
Canadian Retail Sales (February 2021) - April 28, 2021
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Canadian Retail Sales (Jan) - March 19, 2021
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Canadian Inflation (Feb) - March 17, 2021
Canadian inflation, as measured by the Consumer Price Index (CPI) rose by 1.1% in February year-over-year. The increase was again due to higher gasoline prices (5%). Excluding the volatile gasoline component, the CPI rose by 1%, which is down from 1.3% in January. Prices rose in all components of the CPI except for clothing and footwear. Growth in the Bank of Canada's three measures of trend inflation remained unchanged, averaging 1.7%.
Regionally, the CPI was positive in all provinces, led by Quebec (1.6%). In BC, CPI rose by 0.9% in February year-over-year, down from January's 1.1%. Strong price growth continued for health and personal care, shelter, and food. Transportation costs reported the first notable increase since the pandemic started.
Gas prices were again the driving force behind inflation growth in February. It will continue to do so for the foreseeable future, as oil producers tighten supply. Despite this, the Bank of Canada has indicated that it will not raise rates until the economy is back at full employment and inflation is sustained at its 2% target rate.
Regionally, the CPI was positive in all provinces, led by Quebec (1.6%). In BC, CPI rose by 0.9% in February year-over-year, down from January's 1.1%. Strong price growth continued for health and personal care, shelter, and food. Transportation costs reported the first notable increase since the pandemic started.
Gas prices were again the driving force behind inflation growth in February. It will continue to do so for the foreseeable future, as oil producers tighten supply. Despite this, the Bank of Canada has indicated that it will not raise rates until the economy is back at full employment and inflation is sustained at its 2% target rate.
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BC employment figures
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.
