Canadian prices, as measured by the Consumer Price Index (CPI), rose 5.1% on a year-over-year basis in January, up from 4.8% in December. On a month-over-month basis, the CPI rose 0.9% in January (0.6% seasonally adjusted). The Bank of Canada's preferred measures of core inflation (which use techniques to strip out volatile elements) rose an average of 3.2% year-over-year in January. Prices rose year-over-year across all major components of the index, but prices were driven in particular by a 6.2% rise in shelter costs, the highest rate of appreciation since February 1990. Goods (+7.2%) continued to rise at a faster pace than services (+3.4%) in January. In BC, consumer prices rose 4.3% year-over-year in January, driven in part by a 4.2% increase in average rents. 

While inflation may moderate over the second half of this year, especially if gasoline prices come down from record highs and home price growth slows, we expect that inflation will still be trending well above the Bank of Canada's 2 per cent target in 2022. To counteract this inflation, the Bank of Canada will begin raising its overnight rate at its March 2 meeting. We expect the Bank will increase its overnight rate a total of six times over the next year, bringing its key policy rate to 1.75 per cent before pausing to assess the impact of higher interest rates on the economy.

Canadian employment declined by 200,000 (-1.0%) in January following seven consecutive months of gains, according to Statistics Canada. Employment losses in January were driven by stricter public health measures implemented to control Omicron in Ontario, Quebec, and in the Maritimes during the survey reference week of January 9 to 15.

In January, youth, core-aged women, and workers in food and accommodation suffered the largest drops in employment. Part-time workers saw steeper losses (-117,000; -3.3%) relative to full-time workers (-83,000; -0.5%). In January, 10% of workers reported being absent from work due to sickness or injury. The Canadian unemployment rate rose 0.5% to 6.5% in January, while the labour force participation rate declined 0.4% to 65%. 

In BC, the economic story diverged from much of the rest of the country. Employment rose modestly (+4,200; 0.2%), remaining at the highest level since the pandemic began. The unemployment rate continued declining in January, reaching 5.1%. For the first time since the pandemic began, the unemployment rate in BC reached pre-pandemic levels, falling below the level of  February 2020. BC is now tied with Manitoba for the lowest unemployment rate among the provinces.

Vancouver, BC – February 2, 2022. The British Columbia Real Estate Association (BCREA) released its 2022 First Quarter Housing Forecast Update today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 17 per cent from a record high 2021 to 103,250 units this year. In 2023 MLS® residential sales are forecast to fall an additional 12 per cent to 90,200 units.

“We expected home sales in 2022 do moderate from the frenetic pace of 2021,” said BCREA Chief Economist Brendon Ogmundson. “However, sales activity will remain high by historical standards.”

The BC housing market is entering 2022 with the lowest level of active listings on record and significant demand-side momentum. That means strong sales should persist through the first few months of the year and supply will remain severely limited. As a result, continued upward pressure on home prices is expected in all markets.

As a result, home prices are expected to rise by 8.5 per cent in 2022 with much of that gain happening in the first half of the year. With sales activity normalizing in 2023 and inventories rebuilding, market conditions around the province should improve and price growth is anticipated to slow to 2.7 per cent.

The Canadian economy expanded 0.6 per cent in November on a month-over-month basis, propelled by strong growth across essentially all sectors. Canadian real GDP is now 0.2 per cent above its pre-pandemic, February 2020 level. Preliminary estimates suggest that output in the Canadian economy was essentially flat in December.

At its most recent meeting, the Bank of Canada noted that the slack in the Canadian economy has been largely absorbed. Growth in the economy accelerated in the fourth quarter with real GDP growth tracking at 6.4 per cent annualized. Even with an expected Omicron driven slowdown in the first quarter of 2022, the Canadian economy is clearly on a very strong growth path. With inflation elevated and the robust growth, the Bank of Canada will begin raising its overnight rate at its March 2nd meeting, continuing quarterly rate hikes until the overnight policy rate reaches 1.75 per cent. Canadian 5-year fixed rates have already risen substantially, returning to their pre-pandemic level of about 2.9 per cent

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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