Geoff Cowling

Growth in the Canadian economy rebounded in the second quarter of 2018, with output expanding 2.9 per cent following just 1.4 per cent growth in the first quarter. Rising exports, an increase in household spending and a renovation spending driven rebound in housing investment were all major contributors to growth in the second quarter.

Very strong economic growth over the past year has pushed the Canadian economy beyond its full-employment level, creating upward pressure on inflation. Consumer prices rose at a 3 per cent rate in July, the first time inflation has reached that level since 2011. Rising inflation and an economy operating beyond its capacity means that he Bank of Canada will continue on its rate tightening path. The next rate hike could come as early as September though more likely in October once current NAFTA negotiations have concluded.

Copyright British Columbia Real Estate Association. Reprinted with permission.

Vancouver, BC – August 30, 2018. The BCREA Commercial Leading Indicator (CLI) recovered in the second quarter following a rare first quarter decline. The index rose 1.9 points to an index level of 135.4. That increase represents a 1.4 per cent rise from the first quarter of 2018. The index is 2.7 per cent higher than this time one year ago.

“The CLI was propelled higher by strong manufacturing sales and employment growth,” says BCREA Deputy Chief Economist Brendon Ogmundson. “This suggests strong performance in the industrial sector through the balance of the year.”

The trend in the CLI has flattened somewhat over the past six months, which signals continued positive, if somewhat slower, growth in commercial real estate activity.

BCREA 2018 Third Quarter Housing Forecast Update

Vancouver, BC – August 20, 2018. The British Columbia Real Estate Association (BCREA) released its 2018 Third Quarter Housing Forecast Update today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 21 per cent to 82,000 units this year, after recording 103,768 residential sales in 2017. MLS® residential sales are forecast to increase 8 per cent to 88,700 units in 2019. The 10-year average for MLS® residential sales in the province is 84,800 units.

“The BC housing market is grappling with a sharp decline in affordability caused by tough B20 stress test rules for conventional mortgages,” said Cameron Muir, BCREA Chief Economist. “While these rules have had a negative effect on housing demand across the country, the impact has been especially severe in BC’s large urban centres because of already strained housing affordability.”

In spite of the policy-driven downturn in housing demand, strong fundamentals continue to underpin the market. Demographics are highly favourable, especially the millennial generation who are now entering their household-forming years. In addition, low unemployment is leading to significant upward pressure on wages and, by extension, household wealth and confidence.

The pullback in BC home sales is helping alleviate a chronic shortage of supply. After trending at decade lows, active listings in the province were up nearly 20 per cent in July. The combination of slower housing demand and an increase in the inventory of homes for sale has trended most markets toward balanced conditions. This means more selection for home buyers, fewer multiple offer situations and less upward pressure on home prices.

Vancouver, BC – August 13, 2018. The British Columbia Real Estate Association (BCREA) reports that a total of 7,055 residential unit sales were recorded by the Multiple Listing Service® (MLS®) across the province in July, a 23.9 per cent decrease from the same month last year. The average MLS® residential price in BC was $695,990, down 0.4 per cent from July 2017. Total sales dollar volume was $4.9 billion, a 24.2 per cent decline from July 2017.

“The BC housing market continues to grapple with the sharp decline in affordability caused by tough new mortgage qualification rules,” said Cameron Muir, BCREA Chief Economist. “However, less frenetic housing demand has created more balanced market conditions in many regions, leading to fewer multiple offers and more choice for consumers.”

Year-to-date, BC residential sales dollar volume was down 18.9 per cent to $37 billion, compared with the same period in 2017. Residential unit sales decreased 20.6 per cent to 50,926 units, while the average MLS® residential price was up 2.1 per cent to $725,639.

Total Canadian employment increased by 54,000 jobs in July, though all of those gains were concentrated in part-time work with full-time employment falling on a monthly basis.  The national unemployment rate declined 0.2 points to 5.8 per cent and total hours worked across the economy rose 1.3 per cent. 
 
In BC, employment rose by 11,000 jobs thanks to a surge in full-time employment. However, July's gains mark only the second month of job growth in the province in 2018. On a year-over-year basis, employment was down 0.2 per cent and the provincial unemployment rate ticked 0.2 points lower to 5 per cent. 

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Canadian housing starts declined 16 per cent on a monthly basis in July to 206,300 units at a seasonally adjusted annual rate (SAAR).  The six-month trend in Canadian housing starts has been on a steady decline in the past few months and is now at  220,000 units SAAR.

In BC, total housing starts increased 24 per cent on a monthly basis to 42,500 units SAAR but were down 7 per cent year-over-year. On a monthly basis, starts of multiple units were up 35 per cent to an annual rate of 33,200 units while single detached fell 4 per cent. Compared to July 2017, multiple units starts were down 5 per cent while single detached starts were 11 per cent lower.
 
Looking at census metropolitan areas (CMA) in BC: 

• Total starts in the Vancouver CMA were down 10 per cent year-over-year but jumped 48 per cent on a monthly basis from June due to a surge in multiple unit starts.

• In the Victoria CMA, housing starts fell 18 per cent from June to 4,880 unit SAAR and were down 40 per cent year-over-year. Total housing starts in the Victoria CMA are up 14 per cent in the first seven months of 2018 as builders respond to strong housing demand in the area, particularly in West Shore municipalities like Langford and Colwood.
• In the Kelowna CMA, new home construction increased 23 per cent year-over-year as a result of new multiple unit projects getting underway.  However, on a monthly basis, total starts were down 47 per cent from a very strong June to a rate of just under 2,000 units SAAR.

• Housing starts in the Abbotsford-Mission CMA fell 15 per cent on a year-over-year basis, with the decline entirely due to lower levels of new construction in multiple unit housing. However, starts in July were more than triple those recorded in June, coming it at a rate of 1,750 units SAAR.

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The total value of Canadian building permits declined 2.3 per cent on a monthly basis in June. The decline was the result of lower construction intentions for residential buildings after a strong May.

In BC, the total value of permits fell 1.8 per cent on a monthly basis with non-residential permits posting a 7.8 per cent decline while residential permits were essentially flat. Year-over-year, total permit values were up 6.6 per cent to $1.45 billion as residential permits rose nearly 14 per cent to $1.16 billion.

Construction intentions in June were down in three of BC's four census metropolitan areas (CMA):

• Permits in the Abbotsford-Mission CMA fell 27 per cent on a monthly basis to $31.9 million. Year-over-year, permit values were down 26 per cent.

• In the Victoria CMA, total construction intentions were up 9.2 per cent to $160.4 million, a nearly 30 per cent rise over this time last year.

• In the Kelowna CMA, permits fell 12.3 per cent on a monthly basis, but were up 20.5 per cent year-over-year to $95.5 million.

• The Vancouver CMA recorded permit activity valued at $832.6 million, a 2.6 per cent decline from May and roughly flat year-over-year.

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Canadian real GDP rose 0.5 per cent in May, an acceleration from just 0.1 per cent growth in the month of April. Growth was distributed across a breadth of sectors, with 19 of 20 industrial sectors reporting increased output. The mining and oil and gas sector led the way, posting 0.6 per cent monthly growth in May. Office of real estate agents and brokers fell for the fourth time in five months, in part due to declining home sales in BC resulting from the ongoing impact of the mortgage stress test.  With today's release, we are tracking second quarter real GDP growth in Canada at close to 3 per cent.

Very strong second quarter economic growth and a firming of inflation near its 2 per cent target continues to signal higher interest rates on the horizon. We expect the Bank of Canada will raise its overnight rate at least one more time this year with mortgage rates rising in tandem.

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US real GDP growth registered 4.1 per cent in the second quarter of 2018, boosted by 4 per cent growth in consumer spending  and over 7 per cent growth in non-residential business investment. However, strong growth is not expected to last beyond 2018.  Net exports were driven temporarily higher by a surge in soybean shipments ahead of expected retaliatory tariffs while consumption and investment were jolted higher by tax cuts. Meanwhile, government spending added significantly to overall growth due to massive new funding under the 2018 Bipartisan Budget Act.  Once those temporary measures fade, growth will decelerate.

Under normal circumstances, strong economic growth in the United States is good news for the BC economy, which ship half of its goods exports to the US. However, under the current administration, the benefits are lessened by tariffs and the continued threat of further anti-free trade actions.

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Canadian manufacturing sales increased 1.4 per cent on a monthly basis in May, pushed higher by gains in the chemical, machinery and wood product industries.  Sales were higher in 14 of 21 manufacturing sub-sectors, representing almost two-thirds of manufacturing sales.  On a year-over-year basis, Canadian manufacturing sales were up 3.7 per cent over May 2017.

In BC,  manufacturing sales were up 3.2 per cent in May on a monthly basis and were 9.7 per cent higher year-over-year.  The province's forestry sector led the way as sales of manufactured wood products rose 9.2 per cent from April. The BC manufacturing sector continues to be a bright spot in the economy, with sales up 8.5 per cent year-to-date.
  

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Vancouver, BC – July 13, 2018. The British Columbia Real Estate Association (BCREA) reports that a total of 7,884 residential unit sales were recorded by the Multiple Listing Service® (MLS®) across the province in June, a 32.5 per cent decrease from the same month last year. The average MLS® residential price in BC was $716,326, down 1.3 per cent from June 2017. Total sales dollar volume was $5.6 billion, a 33 per cent decline from June 2017.

“The impact of the B20 stress test is still being felt across the province,” said Brendon Ogmundson, BCREA Deputy Chief Economist. “Lower demand as the result of higher mortgage rates and stringent mortgage qualification rules are bringing most markets around the province back into balanced conditions.”

Although the supply of active listings in the province is on the rise, inventory remains low by historical standards and markets like Vancouver Island and the Okanagan remain undersupplied.

Year-to-date, BC residential sales dollar volume was down 18 per cent to $32 billion, compared with the same period in 2017. Residential unit sales decreased 20 per cent to 43,863 units, while the average MLS® residential price was up 2.4 per cent to $730,492.

The Bank of Canada opted to raise its target for the overnight rate 25 basis points to 1.5 per cent this morning. In the statement accompanying the decision, the Bank cited that the economy is operating close to capacity and as a result inflation is expected to edge higher over their two year forecast horizon. The Bank noted that incoming data suggests housing markets are starting to stabilize after the implementation of the B20 stress test.
   
With inflation rising to the Bank's two per cent target and the Canadian economy operating at or near capacity, the Bank of Canada is unlikely to be finished tightening. At its current level, the overnight rate is about 150 basis points below the 3 per cent rate the Bank would ultimately prefer it to be. However, the Bank may take a brief pause to assess the impact of its past tightening as well as the ongoing effects of the B20 stress test on housing markets. It may also be dissuaded from further tightening should there be a further escalation in trade tariffs from the United States. Overall, we expect at least one more round of rate increases from the Bank of Canada in 2018.

Copyright British Columbia Real Estate Association. Reprinted with permission.

Canadian housing starts rose 28 per cent on a monthly basis in June to 248,000 units at a seasonally adjusted annual rate (SAAR).  The six-month trend in Canadian housing starts was steady at about 222,000 units SAAR.

In BC, total housing starts declined 16 per cent on a monthly basis to 34,300 units SAAR and were down 10 per cent year-over-year. On a monthly basis, starts of multiple units were down 21 per cent to an annual rate of 24,563 units. Multiple unit and single detached starts were both down10 per cent compared to June of last year.
 
Looking at census metropolitan areas (CMA) in BC: 

• Total starts in the Vancouver CMA were down 28 per cent year-over-year due to a 34 per cent decline in multiple unit starts and were down 36 per cent from May 2018. In the first six months of the year, housing starts in the Vancouver CMA were essentially flat compared to the first six months of 2017.

• In the Victoria CMA, housing starts nearly doubled year-over-year and were up 85 per cent on a monthly basis to a seasonally adjusted annual rate of nearly 6,000 units. New home construction is up 45 per cent year-over-year in the first six months of the year. Much of that new construction is the result of a doubling of rental starts compared to last year.
• In the Kelowna CMA, new home construction increased 43 per cent year-over-year as a result of continued growth in multiple unit starts. However, on a monthly basis, total starts were down 6 per cent from May to a rate of 3,590 units SAAR.

• Housing starts in the Abbotsford-Mission CMA  fell 5 per cent from May to 515 units SAAR due to a dip in multiple unit starts. Year-over-year, total housing starts fell 82 per cent as only 47 total units including only 16 multiple units were started in June.

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After two months of relatively little change, Canadian employment increased by 32,000 jobs in June and was up 1.2 per cent year-over-year. However, due to an increase in the number of people actively looking for work, the national unemployment rate rose 0.2 points to 6 per cent.

In BC, employment fell by 8,000 jobs as over 10,000 part-time positions were lost and only 2,100 full-time jobs were gained. On a year-over-year basis, employment was down 0.8 per cent.  The provincial unemployment rate moved 0.4 points higher in June to 5.2 per cent.

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Canadian real GDP rose 0.1 per cent in April with 12 of 20 industrial sectors posting growth in output. The manufacturing sector was a main contributor to overall growth in real GDP, expanding its output by 0.8 per cent in April while offices of real estate agents and broker was up 0.3 per cent, the industry's first positive growth in 2018.  With today's release, we are tracking second quarter real GDP growth in Canada at about 2 per cent.

Given solid economic growth and inflation firming around the Bank of Canada's 2 per cent target, the likelihood of a July rate increase from the Bank of Canada is fairly high. However, the threat of a damaging trade war will loom large over the Bank's ultimate decision.

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Canadian retail sales declined for the first time in three months, falling 1.2 per cent in April on a monthly basis. On year-over-year basis, retail sales in April were up just 1.6 per cent over last year.  Sales were down in 8 of 11 sub-sectors representing 65 per cent of total retail trade with the biggest declines coming in the motor vehicle and parts sector.  Conversely, in BC, retail sales were up 1.1 per cent on a monthly basis and 5.9 per cent year-over-year.

Canadian inflation, as measured by the Consumer Price Index (CPI), held steady at 2.2 per cent in May. Likewise,  the Bank of Canada's three measures of trend inflation were all essentially unchanged at 1.9 per cent.   In BC, provincial consumer price inflation was 2.7 per cent in the 12 months to May, the same rate of increase as in April. 

While we still expected at 25 basis point increase in the Bank's policy rate at its July meeting, today's poor retail sales figures and non-accelerating inflation, along with yet another Trump trade tantrum, may prompt some caution at the Bank of Canada.

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Canadian manufacturing sales fell 1.3 per cent on a monthly basis in April, dragged lower by a third straight month of declining sales of petroleum and coal products and a drop in transportation equipment shipments.  Sales were down in 10 of 21 manufacturing sub-sectors, representing about half of total manufacturing sales.  On a year-over-year basis, Canadian manufacturing sales were up 3.6 per cent over April 2017.

In BC,  manufacturing sales were down 0.1 per cent on a monthly basis but were up 7.6 per cent year-over-year. A strong forestry sector, particularly paper manufacturing, continues to be a significant driver of BC's manufacturing sales. That strength helped offset some weakness in sectors like machinery and equipment manufacturing and coal products.

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Vancouver, BC – June 15, 2018. The British Columbia Real Estate Association (BCREA) reports that a total of 8,837 residential unit sales were recorded by the Multiple Listing Service® (MLS®) across the province in May, a 28.7 per cent decrease from the same month last year. The average MLS® residential price in BC was $739,783, down 1.7 per cent from May 2017. Total sales dollar volume was $6.54 billion, a 30 per cent decline from May 2017.

“BC home sales continued to slow in May because of more stringent qualifications for conventional borrowers,” said Cameron Muir, BCREA Chief Economist. “The changes in mortgage policy are taking their toll on housing demand, not only in British Columbia, but across the country by reducing household purchasing power and housing affordability.”

While the decline in consumer demand has lifted the inventory of homes for sale, total active residential listings in the province are still relatively low by historical comparison.

Year-to-date, BC residential sales dollar volume was down 13.8 per cent to $26.4 billion, compared with the same period in 2017. Residential unit sales decreased 16.6 per cent to 35,976 units, while the average MLS® residential price was up 3.4 per cent to $733,616.

Canadian employment declined by 7,500 jobs on a monthly basis in May, but was up 1.3 per cent compared to 1 year ago. The national unemployment rate remained unchanged for a second consecutive month at 5.8 per cent while total hours worked across the economy grew by 2 per cent.

In BC, employment fell by 12,000 jobs. For the first time since May 2015, employment in BC has recorded virtually zero growth on a year-over-year basis. Despite the loss of jobs, the provincial unemployment rate moved 0.2 points lower in May to 4.8 per cent due to a decline in the overall number of people actively searching for work.

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The total value of Canadian building permits declined 4.6 per cent on a monthly basis in April, with all classes of permits declining with the exception of commercial buildings. Year-over-year, the value of permits was up 6.5 per cent. 

The largest declines in permitting activity were posted in BC, which saw the total value of permits fall 22.6 per cent in April after posting a record high in March.  Year-over-year, total permits values were down only 1.9 per cent at $1.24 billion. Non-residential permits were down 31.8 per cent on a monthly basis  and were 28 per cent lower year-over-year. Residential permits fell 19.6 per cent on a monthly basis but were 10.1 per cent higher year-over-year.

Construction intentions in April were down in three of BC's four census metropolitan areas (CMA):

• Permits in the Abbotsford-Mission CMA fell 26.7 per cent on a monthly basis to $23.8 million. Year-over-year, permit values were down more than half.

• In the Victoria CMA, total construction intentions increased 16.4 per cent to $109.1 million , a 5.6  per cent rise over this time lats year.

• In the Kelowna CMA, permits tumbled 30.6 per cent monthly basis, and were down 37.7 per cent year-over-year to $60 million.

• The Vancouver CMA recorded permit activity valued at $755.9 million, falling 27.3 per cent from the over $1 billion in total permits registered in March. Year-over-year, permits were up 11.9 per cent.

Copyright British Columbia Real Estate Association. Reprinted with permission.