Canadian Retail Sales and Consumer Price Inflation - June 21, 2013

BCREA ECONOMICS NOW

Canadian Retail Sales and Consumer Price Inflation - June 21, 2013

Canadian retail sales rose 0.1 per cent in April following flat sales in March. In volume terms, sales rose 0.5 per cent due to lower retail prices. Higher sales were reported in 6 of the 11 retail sub-sectors.

Retail sales in BC have fell 0.7 per cent month over month and 0.3 per cent year-over-year. Restrained consumer spending in the province has kept retail sales basically flat over the past 12 months.

Canadian inflation continued to trend lower in May, rising just 0.7 per cent over the past 12 months. Inflation has now fallen below the Bank of Canada's 1 per cent lower bound on its inflation control range for the past two months. The Bank of Canada's core inflation index, which excludes eight of the CPI's most volatile components such as food and energy, rose 1.1 per cent in May, matching the increase in April.

Home Buyers’ Plan

 Home Buyers’ Plan



Qualifying home buyers can withdraw up to $25,000 (couples can withdraw up to $50,000) from their RRSPs for a down payment. Home buyers who have repaid their RRSP may be eligible to use the program a second time.

Canada Revenue Agency

www.cra.gc.ca Enter ‘Home Buyers’ Plan’ in the search box.

778.928.7368

US Federal Reserve Announcement - June 20, 2013

BCREA ECONOMICS NOW

US Federal Reserve Announcement - June 20, 2013

Following the US Federal Reserve Open Market Committee's two day meeting, Fed Chair Ben Bernanke surprised markets by suggesting that bond purchases under the Fed's quantitative easing program could be tapered as early as this fall and perhaps eliminated midway through 2014. The market reaction was immediate and dramatic with equity prices tumbling. More importantly for the housing market, an end to Fed bond purchases means less pressure on long-term bond yields and the implications were swiftly incorporated into the yield curve. Medium and long-term rates, in both the US and Canada, spiked on the news with Government of Canada 5-year yields rising almost 20 basis points to 1.7 per cent over the past 2 days.

While it is possible that markets have overreacted to Chairman Bernanke’s remarks, which were phrased as conditional on the economic outlook, if this increase is sustained or if rates continue to rise, posted rates on fixed-rate mortgages will very likely increase as well.  Our most recent mortgage rate forecast assumed that a steeping of the yield curve would result from an improved economic outlook, which the Fed tapering is a reaction to, and that mortgage rates would gradually increase towards the end of the year.  The recent movements in bond yields could move that forecast up by a one to two quarters. Short-term interest rates have seen far less movement over the past month given expectations for the Bank of Canada to remain sidelined through next year. However, a slight increase in 1-year bonds yields may cause banks to reprice 1-year fixed rate mortgages as well.

Bank of Canada concerned about GTA condo market

Once again, the warning bell has been sounded on Toronto’s condo market – this time by the Bank of Canada
Written by  Donald Horne

“If the upcoming supply of units is not absorbed by demand as they are completed over the next 12 to 30 months, the supply-demand discrepancy would become more apparent, increasing the risk of an abrupt correction in prices and residential construction activity,” states the report.
The warning is contained in the latest review of the country’s financial system by the Bank of Canada, as it singles out the Toronto condo market in particular as carrying a high level of unsold high-rise units in the pre-construction or under construction stages.
The report specifically fears a domino effect throughout the housing market unless the current glut of inventory in GTA condos is absorbed.
“Any correction in condominium prices could spread to other segments of the housing market as buyers and sellers adjust their expectations,” reads the report.
Worse, the Bank fears that such a ripple effect could hit loan portfolios overall.
“These adverse effects would weaken the credit quality of bank’s loan portfolios and could lead to tighter lending conditions for household and businesses,” warns the report. “This chain of events could then feed back to the housing market, causing the drop in house prices to overshoot.”
Despite the dire warnings, the Bank’s semi-annual analysis  -- the first under its new governor -- does state that the risks posed to the financial system have lessened, so long as borrowing costs remain at low levels. It also expects that the current correction in housing will continue to go smoothly, despite the current risks.

Housing Market Update (June 2013)

Real Estate : BC Housing Market Recovering From 2012 Slowdown

Real Estate : BC Housing Market Recovering From 2012 Slowdown: BC Housing Market Recovering From 2012 Slowdown Vancouver, BC – June 14, 2013.  The British Columbia Real Estate Association (BCREA) re...

BC Housing Market Recovering From 2012 Slowdown

BC Housing Market Recovering From 2012 Slowdown

Vancouver, BC – June 14, 2013.  The British Columbia Real Estate Association (BCREA) reports that a total of 7,664 residential sales were recorded by the Multiple Listing Service® (MLS®) in BC during May, down 0.7 per cent from May of 2012. Total sales dollar volume was 2 per cent higher at $4.1 billion. The average MLS® residential price in the province was $534,013, up 2.7 per cent from a year ago.

"BC home sales continued to trend higher in May,” said Cameron Muir, BCREA Chief Economist. “In contrast to slowing demand and moderating prices in 2012, the BC housing market is turning around.” Rising consumer demand combined with inventory levels that remain in check has moved the province’s largest markets into balanced territory. “Home prices have edged higher over the past three months in BC’s large Lower Mainland market,” added Muir. The MLS® Home Price Composite Index for the Lower Mainland was up 0.2 per cent over the past month, and 1.4 per cent over the past three months.

Year-to-date, BC residential sales dollar volume was down 12.2 per cent to $14.9 billion, compared to the same period last year. Residential unit sales were down 10.7 per cent to 28,140 units, while the average MLS® residential price was down 1.7 per cent at $530,936.

Canadian Manufacturing Sales - June 14, 2013

BCREA ECONOMICS NOW

Canadian Manufacturing Sales - June 14, 2013

Canadian manufacturing sales tumbled 2.4 per cent in April, the fourth decline in the past five months. Sales fell in over half of manufacturing subsectors, with declines driven by falling output in the petroleum, coal and chemical industries for the second consecutive month.

In BC, manufacturing sales dipped 0.5 per cent on a monthly basis but were 3.6 per cent higher than April 2012. BC wood product manufacturing continued its remarkable rebound in April, rising 8.4 per cent on a monthly basis and 59 per cent year-over-year. Year-to-date, wood product sales are up 42 per cent. The recovery in the wood products sector should provide a substantial boost to employment and income growth in regions of the province with significant forestry operations.

INTEREST RATES JUMP, MORTGAGE RATES TO FOLLOW?

INTEREST RATES JUMP, MORTGAGE RATES TO FOLLOW?

Historically low funding costs for Canadian banks translated to deep discounting of mortgage rates for homebuyers with most lenders offering five-year fixed

mortgages equal to the prime rate of just 3 per cent. In fact, and in spite of attempts by some policymakers at discouraging lower rates, some lenders continue to advertise fixed-rate mortgages at well below prime.

However, depending on the sustainability of the recent rise in interest rates, those discounts may become scarce. It is difficult to cite a definite cause for the recent rise in interest rates, and much of the rise in Canadian interest

rates may have more to do with what is going on in the United States than in the domestic economy.

Mortgage Rate Forecast
	2013				2014
Term	Q1	Q2F	Q3F	Q4F	Q1F	Q2F	Q3F	Q4F
1 Year	3.00	3.00	3.00	3.00	3.00	3.00	3.10	3.15
2 Year	5.22	5.14	5.24	5.34	5.34	5.44	5.56	5.56

Generally, rising medium and long-term interest rates result from one of three scenarios. Markets may be concerned about government debt burdens and therefore demand higher interest rates. In addition, comments by

central bankers may drive the market to perceive a more hawkish stance for monetary policy, which would push long rates higher. Finally, markets may be pricing in a more positive global economic outlook and therefore

a return to a more normal shaped yield curve. Each of these scenarios implies a mix of different behaviors in asset markets as shown in the table below.

Interest Rate Typology

Scenario	Interest Rates	Stock Prices	Currency
Debt Concerns	UP	DOWN	DOWN
Hawkish Central Bank	UP	DOWN	UP
Stronger Recovery	UP	UP	UP

HIGHLIGHTS

•          Long-term interest rates spike from historic lows

•          Canadian economy off to a better than expected start

•          Bank of Canada – New boss, same policy

Canadian Housing Starts - June 10, 2013

BCREA ECONOMICS NOW

Canadian Housing Starts - June 10, 2013

Canadian housing starts jumped 13 per cent to just over 200,000 new units at a seasonally adjusted annual rate (SAAR) in May.  That leaves the trend in Canadian new home construction relatively unchanged at 183,000 units over the past six months.  On a year-over-year basis, housing starts were down 9 per cent.

New home construction in BC urban centres fell 7 per cent month-over-month in May to a seasonally adjusted annual rate of 21,300 units. On a year-over-year basis, total starts were 17 per cent lower than May 2012. Single-detached starts were 5 per cent lower over last year, while multiples declined 22 per cent.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA declined 26 per cent compared to last year with multiple starts falling 35 per cent while single-detached starts were up 13 per cent.  New home construction in the Abbotsford CMA was more than twice the level of May 2012 due to increased activity in multiple starts.  Housing starts in the Victoria CMA were down 20 per cent compared with May 2012 and starts in the Kelowna CMA were 30 per cent lower year-over-year.

Canadian and US Employment - June 7, 2013

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Canadian and US Employment - June 7, 2013

Canadian job growth made up for a lackluster March and April, adding an outstanding95,000 jobs in May, the second largest monthly gain on record. The surge in employment pushed the Canadian unemployment rate 0.1 points lower to 7.1 per cent.  While May's job number was certainly remarkable, employment numbers have been volatile of late and so for direction on the economy its best to look at average job growth over the past six months. That measure shows an economy creating a healthy 15,000 to 20,000 jobs per month.

The BC labour market was shut out of the May job bonanza, staying essentially flat as a gain in part-time employment offset a loss of nearly 16,000 full-time jobs. The provincial unemployment rate rose 0.4 points to 6.8 per cent and the level of employment stand at 0.2 per cent lower than in May 2012.

In the US, employment growth outperformed expectations with payrolls expanding by 175,000 jobs in May while the US unemployment rate ticked 0.1 points higher to 7.6 per cent.

Canadian Building Permits - June 4, 2013

BCREA ECONOMICS NOW

Canadian Building Permits - June 4, 2013

Canadian building permits rose 10.5 per cent in April to $7 billion, the fourth consecutive monthly advance. The increase was a result of higher construction intentions for multi-family dwellings in Ontario, BC and Quebec.

Following a modest rise in March, BC building permits posted the largest increase among Canadian provinces in April.  Total building permits rose 40.4 per cent on a monthly basis to $978.3 billion, including a 45.5 per cent increase in residential permits and a 28.6 per cent increase in non-residential permits.

BC's four major census metropolitan areas (CMA) all posted substantial increases in April. Permits rose 63 per cent in the Kelowna CMA from March, and were 78 per cent higher year-over-year. In the Abbotsford-Mission CMA, permits more than doubled on a monthly and year-over-year basis. In the Vancouver CMA, permits increased 51 per cent on a monthly basis and were 14 per cent higher year-over-year. Finally, in the Victoria CMA, permits rose 74 per cent compared to March and were 79 per cent higher than April 2012.

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