Canadian real GDP was nearly unchanged for the third consecutive month in October. Manufacturing contracted 0.6 per cent in October, led by declines in durable goods. Construction activity fell by 0.1 per cent, but residential construction continued to grow strongly, rising by 1.2 per cent from the prior month. Offices of real estate agents and brokers fell for the fourth consecutive month, dropping 6.8 per cent as home resales continues to soften amid elevated borrowing costs. Preliminary estimates suggest that output in the Canadian economy rose 0.1 per cent in November.

In October, Canadian inflation-adjusted GDP extended its streak of almost exactly zero growth or contraction in economic activity. Canadian real GDP is little changed from where it was in March, despite a large increase in the national population due to immigration. The economy continues to avoid a technical recession, but with per capita real GDP declining, Canadian GDP growth remains very soft. In addition, labour markets are gradually softening across Canada, and the inflation rate has shown signs of cooling, with 3-month moving averages of core inflation well below 3 per cent. Given this data, markets now broadly anticipate that the Bank of Canada will not raise its benchmark rate further. The question is, instead, how quickly the Bank will cut rates in 2024, with the balance of probabilities on cuts beginning in the spring and accumulating by the summer and towards the end of the year. The next rate announcement is on next Wednesday, January 24th. 

Link: https://mailchi.mp/bcrea/canadian-real-gdp-growth-october-2023

For more information, please contact: Gino Pezzani.

Canadian retail sales increased 0.7 per cent in October to $66.9 billion. Excluding volatile items, sales were up 1.2 per cent month-over-month. In volume terms, retail sales increased 1.4 per cent in October. Retail e-commerce trade rose by 1.8 per cent to $3.9 billion in October, amounting to 5.9 per cent of total retail sales. 

Sales in BC rose 0.5 per cent in October. BC retail sales are up 0.7 per cent from the same time last year. In the CMA of Vancouver, retail sales were up 0.7 per cent from last month and 2.3 per cent from October of 2022.

Link: https://mailchi.mp/bcrea/canadian-retail-sales-october-2023-december-21-2023

For more information, please contact: Gino Pezzani.

Canadian prices, as measured by the Consumer Price Index (CPI), rose 3.1 per cent on a year-over-year basis in November, unchanged from the rate in October. Excluding energy costs, CPI rose 3.8 per cent year-over-year in November. Shelter costs continue to be a major driver of inflation, with mortgage interest costs up 29.8 per cent and rent up 7.4 per cent. Grocery price inflation continued to moderate, but nevertheless increased 4.7 per cent year-over-year last month. Month over month, seasonally adjusted CPI rose 0.25 per cent. In BC, consumer prices rose 3.2 per cent year-over-year. The Bank of Canada's preferred measures of core inflation, which strip out volatile components, remained around 3.5 per cent year-over-year in November. 

After considerable progress in taming inflation, the rate of change in the CPI has stubbornly remained close to the 3-4 per cent range since the late spring. Alongside softening labour markets and weak GDP growth, inflation in this territory has been sufficient to keep the Bank of Canada from raising rates since the summer. Although softer gasoline prices have done some of the work to pull down the inflation rate, large increases in mortgage interest costs, which are a direct consequence of Bank tightening, have pulled inflation upwards. Indeed, inflation excluding mortgage interest costs was unchanged from last month at just 2.2 per cent. Taken together, markets expect that the Bank of Canada is unlikely to raise rates further. Rather, markets expect the Bank to cut rates substantially by the summer of 2024, but this will of course depend on the rate of economic growth and price appreciation in the first half of the year.

Link: https://mailchi.mp/bcrea/canadian-inflation-november-2023-december-19-2023

For more information, please contact: Gino Pezzani.

To view the December 2023 Mortgage Rate Forecast PDF, click here.

Highlights:

1. Benchmark five-year bond yields tumbling, fixed mortgage rates to follow.

2. The Canadian economy slowed sharply in the third quarter.

3.The Bank of Canada is set to cut in 2024, but how much and how fast? 

For more information, please contact: Gino Pezzani.

Canadian housing starts fell sharply by 22 per cent to 212,624 units in November at a seasonally adjusted annual rate (SAAR). Starts were down 19 per cent from the same month last year. Single-detached housing starts fell 6 per cent from last month to 56,268 units, while multi-family and others fell 26 per cent to 156,356 units (SAAR). 

In British Columbia, starts dropped 35 per cent from last month to 39,051 units SAAR in all areas of the province. In areas in the province with 10,000 or more residents, single-detached starts fell 7 per cent to 5,181 units while multi-family starts dived by 40 per cent to 31,288 units. Starts in the province were 19 per cent below the levels from November 2022. Starts fell from last month by 13.6k units in Vancouver, 3.2k in Victoria, and 4.4k in Kelowna while rising by 2.1k in Abbotsford. The 6-month moving average trend in BC fell by 0.6 per cent to 50,543 SAAR. 

Link: https://mailchi.mp/bcrea/canadian-housing-starts-november-2023

For more information, please contact: Gino Pezzani.

With one month left in 2023, a steady increase in housing inventory is offering home buyers across Metro Vancouver among the largest selection to choose from since 2021.

Learn more at www.rebgv.org

For more information, please contact: Gino Pezzani.

Vancouver, BC –  December, 2023. The British Columbia Real Estate Association (BCREA) reports that a total of 4,630 residential unit sales were recorded in Multiple Listing Service^® (MLS^®) systems in November 2023, an increase of 2.2 per cent from November 2022. The average MLS^® residential price in BC was $964,246 up 6.6 per cent compared to November 2022. The total sales dollar volume was $4.5 billion, representing an 8.9 per cent increase from last year. 

“Despite high mortgage rates and generally weak sales, home prices across the province have been remarkably resilient in 2023,” said BCREA Chief Economist Brendon Ogmundson. “Low inventory has meant that prices hold firm even at the much-reduced levels of sales activity experienced this year.”

On a seasonally adjusted basis, active listings in the province have increased for the sixth consecutive month and are now back to their highest level since August 2020.

Year-to-date BC residential sales dollar volume was down 12.4 per cent to $67.5 billion, compared with the same period in 2022. Residential unit sales were down 9.8 per cent to 69,551 units, while the average MLS^® residential price was down 2.9 per cent to $971,069. 

For more information, please contact: Gino Pezzani.

To view the full Commercial Leading Indicator PDF, click here.   

The BCREA Commercial Leading Indicator (CLI) fell 0.6 points to 145.5 in the third quarter of 2023, while the six-month moving average fell to 146.3 points. Compared to the same quarter in 2022, the index was down by 3.2 per cent. 

The CLI rose in the employment category while declining in the economic and financial categories. A 5 per cent increase in office employment (finance, insurance, and real estate) more than counteracted a 2 per cent drop in manufacturing employment, causing a net increase in the index’s employment component from the second quarter. Meanwhile, modest declines in inflation-adjusted retail sales, wholesale trade, and manufacturing sales combined to pull the economic component into negative territory. Finally, rising spreads between corporate and government borrowing costs indicated growing borrowing costs for developers and pulled the financial component downwards. At the same time, a drop in average prices of Real Estate Investment Trusts further dragged the financial component into negative territory. 

For more information, please contact: Gino Pezzani.

As expected, the Bank of Canada held its overnight rate at 5 per cent this morning. In the statement accompanying the decision, the Bank noted that economic growth stalled through the middle quarters of 2023 and that slowdown in growth is expected to extend into the fourth quarter. As a result, inflationary pressure is easing, though the Bank stated that it is still concerned about risks to the outlook for inflation and wants to see a sustained easing of core inflation in future months.

Given the evidence of a slowing economy and some long-awaited downward momentum in core inflation, it appears likely that the Bank of Canada’s rate-tightening cycle is at an end.  If so, the conversation around Bank of Canada meetings in 2024 will shift toward when the Bank might lower rates and how fast. Given that the Bank’s estimate for its neutral rate is between 2 and 3 per cent, we can expect between 200 and 300 basis points of rate cuts once it is clear that inflation is returning to its 2 per cent target. After hitting a 15-year high this fall, Canadian bond yields have been tumbling to finish the year as financial markets process meaningful progress on reducing inflation and the projected end of central bank rate hikes. The five-year Government of Canada bond yield has trended near 3.5 per cent over the last week and if that trend sustains, we will see a meaningful decline in fixed mortgage rates to start 2024. Our forecast is for the average 5-year fixed mortgage rate to fall to about 5 per cent by the end of 2024, while variable rates will begin falling as the Bank of Canada lowers its overnight rate starting in the first or second quarter of next year. 

Link: https://mailchi.mp/bcrea/bank-of-canada-interest-rate-announcement-rz6duwc27m

For more information, please contact: Gino Pezzani.