In August, although sales and new listings ticked up slightly from July, the COVID-19 Recovery Dashboard indicates that BC housing markets are continuing their trend of calming relative to peaks in March. The seasonally adjusted six-month moving-average for housing starts hit a record level in the province for a third consecutive month, a positive sign amid housing supply shortages. Rents are also beginning to rise sharply in major centers across the province. Although rents were unchanged in Vancouver from July, they remain elevated.

Retail sales declined slightly from June but continue to post strong figures, with July sales 9 per cent above the same month last year. After recovering over the summer, restaurant reservations have declined sharply in Toronto, Montreal, and Vancouver in September as additional health restrictions were implemented. Google’s average measure of movement trends in BC have also softened somewhat since the start of September and remain about 13 per cent below the pre-pandemic baseline.

Seasonally adjusted aggregate employment in BC is close to pre-pandemic levels, although high-wage workers are still doing much better than low-wage workers and sectors like food and accommodation continue to lag. Manufacturing sales in BC were down 8.6 per cent in July on lower sales of wood, primary metal and paper products but were still up 20.4 per cent year over year. Imports and exports also contracted in July after hitting record levels in June for a second consecutive month. Consumer confidence contracted in August but is trending towards pre-pandemic levels, while business confidence is well above pre-pandemic levels.

For a more comprehensive overview of BC's economic recovery, click here. here. 

BCREA's updated COVID-19 Recovery Dashboard is available here. 

For more information, please contact: Gino Pezzani.

Despite the reopening of retail outlets across the country as health restrictions eased, Canadian seasonally-adjusted retail sales declined 0.6% to $55.8 billion in July. The overall decline was driven by drops in sales at food and beverage stores (-3.4%) and building material and garden equipment and supplies dealers (-7.3%). According to Statistics Canada's survey, just 0.5% of retailers were closed at some point in July. Preliminary estimates, based on roughly 50% of respondents reporting so far to the agency, indicate that retail sales rose 2.1% in August. 

In BC, sales declined 1.2% after hitting record levels in the prior two consecutive months. Compared to the same month last year, retail sales were up 9.1% in the province. Only food and beverage store sales and health and personal care sales were not up on a year-over-year basis in July. In the Greater Vancouver region, sales dropped by 2.7% month-over-month, but were up 14.9% year-over-year. 

In July, Canadian e-commerce sales declined sharply from $3.9 billion to $2.9 billion dollars. As a result, e-commerce declined from 6.2% of total retail sales in June to 4.6% in July. This decline occurred as health restrictions eased across the country and Canadians shifted to brick-and-mortar retail. 

Link:  https://mailchi.mp/bcrea/canadian-retail-sales-july-2021

For more information, please contact: Gino Pezzani.

Click here to view the September 2021 Mortgage Rate Forecast. 

It was another quiet quarter in the Canadian mortgage market. Canadian five-year fixed rates moved essentially sideways over the summer as optimism about the end of the pandemic faded under the weight of a fourth wave of cases. Canadian economic growth remains strong, if uneven, and inflation continues to be elevated. However, global financial market attention has entirely shifted from concerns over rising inflation to fears over the impact of the delta variant of COVID-19. Indeed, rising cases across G7 countries has prompted a retracing of bond yields with the Canadian five-year Government of Canada bond falling from about 1 per cent in June to 0.8 per cent in September. That decline in bond yields prompted a modest five basis point cut in mortgage rates by major Canadian lenders.

Given that the direction of interest rates is being determined by epidemiologic factors rather than macroeconomics, it is difficult to forecast with any certainty. It is perhaps more likely in the short-term that five-year fixed rates will decline further, at least until we are past this most recent uptick in COVID-19 cases. Once normal macroeconomic drivers again take precedence in determining mortgage rates, whenever that might be, we expect fixed rates to gradually rise back to pre-pandemic levels while variable rates follow the Bank of Canada’s timetable. That means a fixed five-year rate of 2.1 per cent for the remainder of this year, along with a 1.5 per cent variable rate available through 2022.

For more information, please contact: Gino Pezzani.

Canadian housing starts declined for the third consecutive month in August, but remain elevated by historical standards. Housing starts decreased by 10.5k to 260.2k units (-3.9% m/m) in August at a seasonally-adjusted annual rate (SAAR). Comparing year-over-year, starts were roughly unchanged from August of 2020 (-0.5% y/y). Single-detached housing starts dipped 1% in August to 80.7k, while multi-family and others declined 5% to 159.5k. 

In British Columbia, starts declined for a second consecutive month, dropping 7.5% m/m to 46.9k units SAAR in all areas of the province. Single-detached starts declined 4.4% m/m while multi-family starts declined 10%. Despite this, starts in the province in August remained 7.8% above the levels from August 2020. BC's six-month moving average for starts inched up to a record-high for a third consecutive month.

For more information, please contact: Gino Pezzani.

Canadian prices, as measured by the Consumer Price Index (CPI), rose 4.1% on a year-over-year basis in August, rising at the fastest rate since 2003. This rise was mostly the result of an accumulation of price increases in 2021, while August itself did not post high price growth. On a seasonally adjusted month-over-month basis, the CPI was up 0.2% in August. The Bank of Canada's preferred measures of core inflation (which use techniques to strip out volatile elements) rose an average of 2.6% year-over-year in August. Major drivers of the price increase included passenger vehicles (+7.2%), furniture (+8.7%) and household appliances (+5.3%) partly on continuing supply-chain difficulties related to semiconductors. The homeowner replacement cost index, which measures the cost of replacing home structures, rose 14.3% year-over-year in August, which was the fastest rate since the 1980s. Related costs, such as commissions on the sale of real estate, also rose strongly in August. In BC, consumer prices were up 0.2% month-over-month, and up 3.5% on a year-over-year basis. 

Inflation continues to run ahead of the Bank of Canada's 2 per cent target. The driving force behind rising prices is still isolated to a few categories of spending. In particular, the rising price of gasoline and the run-up in Canadian home prices since last year. Those categories alone accounted for about half of the observed inflation in August. Home prices in Canada are beginning to flatten out, which should mean a fading impact on inflation over the next year. Likewise, the impact of gas prices should continue to decline as base-year effects have less influence. Other issues putting upward pressure on consumer prices are being driven by bottlenecks and supply shortages – which are issues that monetary policy cannot address.

For more information, please contact: Gino Pezzani.

Link: https://mailchi.mp/bcrea/canadian-inflation-august-2021

Vancouver, BC – September, 2021.  The British Columbia Real Estate Association (BCREA) reports that a total 9,507 residential unit sales were recorded by the Multiple Listing Service^® (MLS^®) in August 2021, a decrease of 7.1 per cent over August 2020. The average MLS^® residential price in BC was $901,712, a 17.2 per cent increase from $769,691 recorded in August 2020. Total sales dollar volume was $8.6 billion, an 8.9 per cent increase from last year.

“Home sales around the province have essentially returned to normal after a record setting spring,” said BCREA Chief Economist Brendon Ogmundson. “However, we continue to see a drought in the total supply of listings as well as downward trend in new listings activity.”

Total active residential listings were down 37.9 per cent year-over-year in August and were 42 per cent below normal levels for the month of August.

Year-to-date, BC residential sales dollar volume was up 102.2 per cent to $82 billion, compared with the same period in 2020. Residential unit sales were up 67.8 per cent to 89,980 units, while the average MLS^® residential price was up 20.5 per cent to $911,245. 

For more information, please contact: Gino Pezzani.

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 the second half of 2022. The Bank is also continuing its quantitative easing (QE) program, purchasing $2 billion of Government of Canada bonds per week. In the statement accompanying the decision, the Bank noted that the the supply-chain disruptions and the pull-back in housing market activity that caused an unexpectedly weak second quarter of GDP growth were likely one-time issues and stronger growth should prevail over the second half of the year.

While inflation continues to run ahead of the Bank of Canada's 2 per cent target, the driving force behind rising prices is still isolated to a few categories of spending. In particular, the rising price of gasoline and the run-up in Canadian home prices since last year.  Home prices in Canada are beginning to flatten out, which should mean a fading impact on inflation over the next year. Likewise, the impact of gas prices should continue to decline as base-year effects have less influence.  Other issues putting upward pressure on consumer prices are being driven by bottlenecks and supply shortages – which are issues that monetary policy cannot address. Higher interest rates may stifle demand, but they do not fix microchip shortages.

We expect the Bank of Canada will proceed with caution, especially given the fourth wave of COVID. The unexpected contraction of GDP in the second quarter may push the closing of the output gap out by one or two quarters. That likely means a new time-line for the Bank to raise its policy rate with the earliest increase coming in mid-2023.

Link: https://mailchi.mp/bcrea/bank-of-canada-interest-rate-announcement-9ashztkk3t

For more information, please contact: Gino Pezzani.

Canadian employment grew for the third consecutive month in August, rising by 90,000 to 18.97 million (0.5%, m/m). Most Canadian jurisdictions had fully implemented public health reopening plans by the time Statistics Canada conducted surveys, while tourists from the United States were allowed to enter Canada without quarantining for the first time since the pandemic began. As a result, Statistics Canada is reporting positive employment figures for the month across most indicators. Canadian employment is now -0.8% (-156k) below its February 2020 pre-pandemic level, the highest level since the onset of the pandemic.

In August, Canadian employment growth was driven by gains in the private sector and the services sector, especially in food & accommodation and information, culture and recreation sectors. Gains were broadly distributed across demographic groups. The Canadian unemployment rate declined by 0.4 to 7.1%, the lowest level since the onset of the pandemic. 

In BC, employment grew by 14,400 to 2.67 million (0.5%, m/m), once again hitting the highest level since the pandemic began. For the third consecutive month, British Columbia was the sole province with employment above its pre-pandemic level. The unemployment rate declined by 0.4 in August to 6.2%, the lowest level since the pandemic began. BC has the third lowest unemployment rate in Canada, following Manitoba and Quebec. 

For more information, please contact: Gino Pezzani.