Geoff Cowling

US real GDP growth registered 2.3 per cent in the first quarter of 2018, the slowest pace in a year due to a pullback in spending by households that saw consumer spending post its lowest growth in five years.  On the positive side, business investment was solid and exports rose nearly 5 per cent. However, US imports of goods and services from other countries grew only 2.6 per cent.

While steady growth in the United States is generally good news for the BC economy, slow growth in US imports and the ad-hoc approach to trade policy under the current administration still present a significant risk for BC's important export sector.

Copyright British Columbia Real Estate Association. Reprinted with permission.

Canadian retail sales increased 0.4 per cent on monthly in basis in February and were 3.5 per cent higher year-over-year.  Sales were higher in only 4 of 11 sub-sectors representing less than half of total retail trade.  With today's data, and all other data available thus far for the first quarter, we are tracking Canadian economic growth at about 1.6 per cent for the first quarter of 2018.  In BC, retail sales were up 0.4 per cent on a monthly basis and 5.9 per cent year-over-year. Retail sales in the province continue to moderate back to historical trend after growing close to 10 per cent in 2017.

Canadian inflation, as measured by the Consumer Price Index (CPI), increased again in March as prices rose 2.3 per cent year-over-year, up from 2.2 per cent in February. The Bank of Canada's three measures of trend inflation were relatively unchanged at around 2 per cent.   In BC, provincial consumer price inflation was 2.6 per cent in the 12 months to March.  Rising inflation and an economy operating at capacity signals further Bank of Canada tightening, potentially as soon as the next interest rate decision on May 30.

Copyright British Columbia Real Estate Association. Reprinted with permission.

The Bank of Canada decided to leave the target for the overnight policy rate unchanged at 1.25 per cent this morning. In the statement accompanying the decision, the Bank noted that inflation is forecast to be slightly higher in 2018 than originally expected but will return to the Bank's 2 per cent target once the impact of higher gas prices and minimum wage increases dissipate.  While the mortgage stress test has been a contributor to weaker growth in the first quarter of 2018, the Bank expects the economy to be operating at above potential over the next three years, growing at an average rate of about 2 per cent.

Although the Bank held steady today, with inflation rising to the Bank's two per cent target and many Canadian firms operating at or near capacity, interest rates are very likely headed higher this year.  Headwinds from the trade sector have moderated, energy prices are higher and growth for the first quarter appears to be firming after a slow start. Given those trends, the Bank is likely to adjust its policy rate higher in coming months. That will translate to higher mortgage rates which, combined with the erosion of purchasing power from the mortgage stress test, will temper housing demand in 2018.

Copyright British Columbia Real Estate Association. Reprinted with permission.

“More burdensome mortgage qualifications are having the predictable effect of swiftly curbing housing demand,” said Cameron Muir, BCREA Chief Economist. “You simply cannot pull as much as 20 per cent of the purchasing power away from conventional mortgage borrowers and not create a downturn in consumer demand.”

Despite the decline in consumer demand, the supply of homes for sale remains low in most BC regions. Total active listings on the market are essentially unchanged from March 2017, and are at or near a 12-year low across the province. As a result, home prices are expected to continue an upward trajectory.

Year-to-date, BC residential sales dollar volume was down 1.7 per cent to $13.9 billion, compared with the same period in 2017. Residential unit sales decreased 9.4 per cent to 18,927 units, while the average MLS® residential price was up 8.5 per cent to $732,243.

Canadian employment grew by 32,000 jobs in March, driven by mostly full-time gains while the national unemployment rate remained unchanged at 5.8 per cent. Over the past 12-months, employment in Canada is up by close to 300,000 jobs while total hours worked is up 2.2 per cent.  For the first quarter, however, employment is down 40,000 jobs due large job losses to start the year.

In BC, employment fell by 3,900 jobs as a surge in full-time employment (up almost 24,000 jobs) was offset by falling part-time employment. Overall, the level of employment in BC has been trending sideways for several months and was up just 1.3 per cent year-over-year in March. The provincial unemployment rate was unchanged at 4.7 per cent.

Copyright British Columbia Real Estate Association. Reprinted with permission.