BCREA 2021 First Quarter Housing Forecast Update


Vancouver, BC – January 25, 2021. The British Columbia Real Estate Association (BCREA) released its 2021 First Quarter Housing Forecast Update today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to rise 15.6 per cent to 108,680 units this year, after recording 94,021 sales in 2020. In 2022, MLS® residential sales are forecast to pull back 9 per cent to 98,850 units.  

“After an unprecedented and often surprising performance in 2020, the provincial housing market is set up for a very strong year in 2021,” said Brendon Ogmundson, BCREA Chief Economist. “A strong economic recovery and record-low mortgage rates will continue to drive strong demand this year.” 

On the supply side, new listings activity recovered through the second half of 2020, but not nearly enough to see any accumulation in overall inventory. As a result, market conditions will start 2021 very tight, with the potential for strong price increases through the spring and summer until new supply comes online. We are forecasting a 7.7 per cent rise in the MLS® average price this year, followed by a further 3 per cent in 2022.

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Canadian retail sales rose for the seventh consecutive month in November by 1.3% on a seasonally-adjusted basis, defying Statistic Canada's preliminary estimate of no change. Sales were up in 7 of 11 subsectors, representing 53% of retail sales. The increase was led by higher sales at food and beverage stores. Compared to the same time last year, retail sales were up by 7.5%.    

Sales were up in all provinces except for Manitoba. In BC, seasonally-adjusted retail sales were up by 0.8% ($8.0 billion) and by 1.4% ($3.7 billion) in Vancouver. Contributing the most to the increase were sales at electronic and appliance stores, while sales were down at auto dealers and gas stations. Compared to the same time last year, BC retail sales were up by 11.1%.   

In November, Canadian e-commerce sales totaled $4.3 billion, accounting for 7.4% of total retails sales, which is up from 5.4% in the previous month. Meanwhile, e-commerce sales were up by 76% from a year ago. This excludes Canadians purchasing from foreign e-commerce retailers.  
    
November was a pleasant surprise in retail sales, as consumers likely pulled forward their purchases in anticipation of the holiday rush, as well as promotional events such as Black Friday. Early estimates from Statistics Canada are showing a December decline, as COVID-19 cases increase and multiple provinces implement stricter lockdown measures. Growth in retail sales is expected to slow until the vaccine becomes more widely available.
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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 2023. The Bank is also continuing its quantitative easing (QE) program, purchasing at least $4 billion of Government of Canada bonds per week. In the statement accompanying the decision, the Bank noted that the economic recovery has been interrupted by the second wave of COVID-19, but the arrival of effective vaccines has boosted the medium-term outlook for economic growth.  The Bank expects the Canadian economy will grow 4 per cent in 2021 and 5 per cent in 2022.

The restrictions in place to mitigate the impact of the second wave of COVID-19 mean that the economy is likely going to get off to a slow start in 2021.  However, as vaccinations accelerate in coming months, the Canadian economic recovery will gain steam in the second half of 2021. Depending on the strength of the recovery, we may see the Bank taper its purchases of government bonds in 2022, which could put moderate upward pressure on 5-year fixed mortgage rates. However, that still means the current extremely low interest rate environment will be around for quite some time.
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Canadian employment lost 63k jobs in December (-0.3%, m/m), representing the first decline since April 2020. This comes on the heels of many provinces reinstating public health measures that closed recreational facilities and in-person dining services. The decline was led by part-time employment, specifically among youth aged 15 to 24 and those 55 and above. Employment declined in all provinces except for BC. The national unemployment rate ticked up by 0.1 percentage points to 8.6%, which is still a fall from the record high of 13.7% in May 2020. Compared to the same month last year, Canadian employment was down by 3.0% (-572k).

In BC, employment grew by 3.8k (0.2%, m/m) in December, following a gain of 24k in the previous month. The province continues to be at 99% of its pre-COVID February employment level. The unemployment rate ticked up by 0.1 percentage points to 7.2%, the first increase since the record high of 13.4% in May 2020. Meanwhile, in Vancouver, employment decreased by 1.1k (-0.1%, m/m). Compared to one year ago, employment in BC was down by 1.4% (-37K) jobs.

Despite rising cases of COVID-19 across the country, employment in BC bucked the trend and grew in December. Industries that saw the largest increases were construction and manufacturing, while like the rest of the country, employment fell in accommodation and food services. On the whole, we can expect national employment growth to come to a standstill as caseloads and hospitalizations increase, leaving many provinces to extend restrictions and partial lockdowns. 

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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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