The Canadian economy rose 0.7 per cent in March, up for the second consecutive month following a 0.9 per cent increase in February. Goods-producing sectors rose 0.9 per cent while services-producing industries were up 0.6 per cent. Canadian real GDP is roughly 1.8 per cent above its pre-pandemic, February 2020 level. Preliminary estimates suggest that output in the Canadian economy grew 0.2 per cent in April.

Growth in the first quarter of 2022 clocked-in at a solid 3.1 per cent at an annualized rate from last quarter. With Omicron lockdowns constraining activity in certain sectors during the start of 2022, performance was mixed across the economy. Construction expanded 3.3 per cent on the continuing residential building boom while manufacturing grew 1.9 per cent due to semiconductor shortages ameliorating. By contrast, Omicron restrictions caused declines in accommodation and food services (-1.2 per cent) and arts, entertainment and recreation (-0.8 per cent). 

Growth in the first quarter, though strong, is showing some signs of slowing. That slowdown will likely continue as the Bank of Canada continues its tightening cycle, particularly in interest rate sensitive sectors like housing. The Bank is expected to raise its overnight rate again by 0.5 per cent at tomorrow's meeting to 1.5 per cent. The expectation is that the bank will continue quarterly rate hikes until the overnight policy rate reaches 2 to 3 per cent, roughly in line with the estimate of the neutral rate of interest. 

Link:  https://mailchi.mp/bcrea/canadian-economic-growth-real-gdp-q12022

For more information, please contact: Gino Pezzani.

To view the BCREA Housing Forecast PDF, click here.

For immediate release

BCREA 2022 Second Quarter Housing Forecast

Vancouver, BC – May, 2022. The British Columbia Real Estate Association (BCREA) released its 2022 Second Quarter Housing Forecast today. 

Multiple Listing Service^® (MLS^®) residential sales in the province are forecast to decline 22 per cent from a record high 2021 to 97,240 units this year. In 2023, MLS^® residential sales are forecast to fall an additional 12.4 per cent to 85,150 units.   

“After a strong first quarter, BC markets are now adjusting to a much different interest rate environment,” said BCREA Chief Economist Brendon Ogmundson. “With mortgage rates surpassing 4 per cent for the first time in over a decade, the housing market over the next two years may have very little resemblance to the housing market of the past year.” 

On the supply side, we have begun to see active listings move off of record lows and re-sale inventories trend back toward balance. However, because inventories reached such low levels over the past year, the journey back to balance may take up to a year or more in some areas. As markets adjust to the new interest rate landscape, we anticipate that prices may be somewhat volatile but will ultimately flatten out through 2023.

For the complete news release, including detailed statistics, click here.

For more information, please contact: Gino Pezzani.

As expected, the Bank of Canada raised its overnight policy rate by 0.5 points to 1.5 per cent. In the statement accompanying the decision, the Bank noted that inflation will likely move higher in the near term before beginning to ease later this year. That inflation is occurring against the backdrop of strong Canadian economic activity, widespread labour shortages and strengthening wage growth. While housing activity is moderating, consumer spending is robust and the Bank judges the Canadian economy is clearly operating in excess demand. As a result, the Bank judges that rates will still need to rise further to achieve its 2 per cent inflation target.

The overnight rate is now within 25 basis points of its pre-pandemic level and markets continue to anticipate another 100 basis points of tightening on the horizon. Those future rate increases have largely already been priced into the average 5-year fixed mortgage rate, which has reached 4.29 per cent, its highest level since 2010.  The ultimate destination for the overnight rate will depend on the trajectory of inflation over the next few months. While some see signs of inflation peaking, significant upward pressure on consumer prices remains from rising commodity prices and shortages. As a result, we expect mortgage rates may continue to rise this year, with a possibility of testing the 5 per cent level if inflation remains elevated. 

Link: https://mailchi.mp/bcrea/boc

For more information, please contact: Gino Pezzani.