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Canadian inflation, as measured by the Consumer Price Index (CPI), registered just 1.3 per cent in the 12 months to May. That is down from 1.6 per cent in April.   The Bank of Canada's new core measure of inflation, called CPI-common,  was also up 1.3 per cent for the fourth consecutive month.   In BC, provincial consumer price inflation was 1.9 per cent in the 12 months to May.

Given the Bank of Canada's recent hawkish turn on monetary policy, the trend in inflation will be even more important in coming months. So far, there is little in the inflation numbers to justify an interest rate increase, though the very strong economic growth over the past year could put some upward pressure on prices soon.

 

Copyright British Columbia Real Estate Association. Reprinted with permission.

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Canadian manufacturing sales increased 1.1 per cent in April, with the largest contribution coming from higher sales in the petroleum, coal and metals sectors. Overall, sales were higher in 13 of 21 manufacturing sub-sectors, reflecting broad-based strength in the Canadian economy. 
 
In BC,  manufacturing sales increased 1.2 per cent on a monthly basis and were up 8.8 per cent year-over-year.  The manufacturing and export sector continues to be a significant driver of economic growth for the province this year. Through the first five months of the year, we are tracking growth in the BC economy at 3.8 per cent.

 

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The US Federal Reserve's Open Market Committee (the Fed) raised its target overnight rate this morning, the third such increase  in the past six months. This morning's increase brings its the federal funds rate into a range of 1 to 1.25 per cent. The Fed's statement accompanying the decision noted a continuation of a strong US labour market conditions despite a recent slowing of job growth. Household spending has picked up and the Fed expects the economy to expand at a moderate pace. While inflation remains below the Fed's 2 per cent target, it is expected to stabilize at 2 per cent over the medium term.

The Fed once again stated that it expects the US economy to evolve in a way that necessitates further but gradual increases to its overnight rate, which means there will likely be at least one more rate increase this year.  A tightening cycle in the United States, combined with a shift in bias toward tightening at the Bank of Canada could put some upward pressure on Canadian interest rates in coming months, reversing the downtrend observed recently.

 

Copyright British Columbia Real Estate Association. Reprinted with permission.

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Vancouver, BC – June 13, 2017. The British Columbia Real Estate Association (BCREA) reports that a total of 12,402 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in May, down 7.9 per cent from the same period last year. Total sales dollar volume was $9.33 billion, down 4.0 per cent from May 2017. The average MLS® residential price in the province was $752,536, a 4.2 per cent increase from the same period last year.

“Market conditions have tightened considerably this spring as an upturn in consumer demand has not been accompanied by a rise in homes listed for sale," said Cameron Muir, BCREA Chief Economist. "The supply of homes for sale in the province has fallen 50 per cent over the past five years."

"The entire southern portion of the province is experiencing a shortage of housing supply, which makes continuing upward pressure on home prices inevitable, at least in the near term," added Muir. Total active listings in the province were down 11.1 per cent to 28,404 units from May 2016. The ratio of home sales to active listings was well over 20 per cent in nine of the province's 11 real estate boards, and over 50 per cent in Vancouver, the Fraser Valley, Chilliwack and Victoria.

Year-to-date, BC residential sales dollar volume was down 25.2 per cent to $30.6 billion, when compared with the same period in 2016. Residential unit sales declined 20.1 per cent to 43,158 units, while the average MLS® residential price was down 5.7 per cent to $709,541.

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Canada added 54,000 jobs in May following flat employment gains in April.  However,  the national unemployment rate edged up 0.1 points to 6.6 per cent as the number of people joining the workforce in search of a job outpaced hiring. 

The BC economy continues to add jobs at a torrid pace. The province added 12,300 new jobs in May, a more than 4 per cent increase over the past 12 months. The provincial unemployment rate inched up 0.1 points to 5.6 per cent as the strong BC economy draws job searchers into the provincial workforce.

 

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The total value of Canadian building permits declined 0.2 per cent to 7.1billion in April, the third consecutive monthly decline. Lower construction intentions for single-family homes, primarily in the Toronto CMA, was a main contributor to April's decline.

Permit activity bounced back in BC following a large decline in March, led by strong construction intentions for multi-family dwellings.  The total value of permits increased 22.9 per cent on a monthly basis and were essentially flat year-over-year. Residential permits rose 19 per cent on both a monthly basis but were 7.4 per cent lower year-over year while non-residential permits were up 34 per cent on a monthly basis and 24 per cent year-over-year.

Construction intentions were higher in three of BC's four census metropolitan areas (CMA). Permits in the Abbotsford-Mission CMA  more than tripled on a monthly basis while the Victoria CMA saw permit values increase 25 per cent on a monthly basis and 28 per cent year-over-year. In the Kelowna CMA, permits were 8.9 per cent lower on a monthly basis but were 50 per cent higher than permit values in April 2016. In the Vancouver CMA, permit activity bounce back from a decline in April, posting a 25 per cent monthly increase but were 18 per cent lower compared to April 2016.

 

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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.


Copyright British Columbia Real Estate Association. Reprinted with permission.

The trademarks REALTOR®, REALTORS®, and the REALTOR® logo are controlled by The Canadian Real Estate Association (CREA) and identify real estate professionals who are member’s of CREA. The trademarks MLS®, Multiple Listing Service® and the associated logos are owned by CREA and identify the quality of services provided by real estate professionals who are members of CREA. Used under license.