Canadian inflation remained subdued in September as the Consumer Price Index (CPI), which measures the rate of inflation in Canada,  rose just 1.3 per year-over-year.  The Bank of Canada's core measure of inflation, which excludes volatile components like food and gasoline, rose 1.8 per cent for a second consecutive month.   In BC, provincial consumer price inflation was 1.8 per cent in the 12 months to September. 

Decelerating inflation and a slowing economy had the Bank of Canada discussing, but ultimately deciding against, a rate cut earlier this week. However,  it is unlikely that the Bank will act to offset mortgage restrictions introduced by the Federal government unless the outlook for growth inflation becomes dramatically weaker. 

Copyright British Columbia Real Estate Association. Reprinted with permission.

The Bank of Canada announced this morning that it is holding its target for the overnight interest rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that the profile for growth in Canada over the near-term is lower than it previously expected though the Bank is still projecting stronger growth in the second half of 2016. However, the Bank has pushed out its forecast for the economy to return to full capacity to mid-2018 while inflation is projected to return to its 2 per cent target next year. 

There is downside risk to the economy given the Federal Government's decision to tighten mortgage credit this month, though it will take some time to see the effects on economic growth. That said, even if growth moderates as a result of the housing policy changes, the Bank of Canada's public support for that policy likely means interest rates would not be lowered in response. With growth recovering from a second quarter contraction and inflation still tame, We therefore expect the Bank to leave rates unchanged for the foreseeable future.  

Copyright British Columbia Real Estate Association. Reprinted with permission.

Canadian manufacturing sales improved once again in August, rising 0.9 per cent on a monthly basis with broad based gains in 15 of 21 manufacturing sub-sectors. Adjusting for inflation, sales were up 1.2 per cent due to lower prices of some goods. 

In BC, where the manufacturing sector employs approximately 170,000 people and is a key driver of economic growth, sales were sharply higher for a second consecutive month, rising 2.1 per cent on a monthly basis and 8.1 per cent year-over-year. The gains continue to reflect a strong rebound in the forestry sector, with shipments of wood products rising at a double digit pace year-over-year. Given strong manufacturing sales in August the BC economy remains on track to expand by a Canada leading 3.5 per cent in 2016. 

Copyright British Columbia Real Estate Association. Reprinted with permission.

Vancouver, BC – October 14, 2016.

The British Columbia Real Estate Association (BCREA) reports that 7,591 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in September, down 11.2 per cent from the same month last year. Total sales dollar volume was $4.45 billion in September, down 14.1 per cent compared to the previous year. The average MLS® residential price in the province was $585,844, a decline of 3.2 per cent compared to the same month last year.

“Housing demand in the province continued to trend lower in September," said Cameron Muir, BCREA Chief Economist. "While Vancouver, Fraser Valley and the North experienced year-over-year declines last month, the rest of the province posted an increase in the number of residential transactions."

“The average residential price in the province continued to reflect a change in the composition and location of homes sold," added Muir. "However, the effect was less pronounced in September than in August, when detached home sales fell to just 28 per cent of total demand in Vancouver."

Year-to-date, BC residential sales dollar volume increased 33.5 per cent to $66 billion, when compared with the same period in 2015. Residential unit sales climbed by 18.5 per cent to 93,797 units, while the average MLS® residential price was up 12.7 per cent to $703,986.

Copyright British Columbia Real Estate Association. Reprinted with permission.

Canadian employment increased by 67,000 jobs in September, the largest single month gain since 2012. However, 50,000 of those job gains were from those reporting self-employment while public and private sector employment accounted for just 17,000 new jobs.  The national unemployment rate was unchanged at 7 per cent and total hours worked, which is highly correlated with economic growth, edged up 0.2 per cent compared to this time last year. 

In BC, employment was essentially unchanged for a second consecutive month. Although up slightly in September, the provincial unemployment rate remained the lowest in the country at 5.7 per cent and provincial job growth year-to-date is the strongest in the country at 3.2 per cent.

In the US, the last job figures before election day showed an increase of 156,000 jobs while the national unemployment rate rose to 5 per cent. Over the past six months, US job growth rose an average of 192,000 jobs per month. 

Copyright British Columbia Real Estate Association. Reprinted with permission.

The total value of Canadian building permits jumped 10.4 per cent from July to August, with gains largely due to higher construction intentions in the residential sectors of Ontario and British Columbia. 

After two straight monthly declines, total permit activity in BC was up 15.9 per cent in August, once again surpassing $1 billion in total value. The gains were almost exclusively due to higher construction intentions for multiple family dwellings.  Those gains more than offset a 7.7 per cent monthly decline in non-residential permits. On a year-over-year basis, the dollar value of building permits in the province were up 4.5 per cent. 

Construction intentions were higher in most of BC's four census metropolitan areas (CMA). Permits in the Abbotsford-Mission CMA surged 249 per cent from July to August but were down 7 per cent year-over-year while the Vancouver CMA saw a 15 per cent increase on a monthly basis but a 12 per cent drop year-over-year. In the Kelowna CMA, permits fell 13 per cent from July but were up 67 per cent year-over-year.  In Victoria, construction intentions rose 9.3 per cent on a monthly basis, and were 58.5 per cent higher than in August 2015. 

Copyright British Columbia Real Estate Association. Reprinted with permission.

Metro Vancouver* home sales dipped below the 10-year monthly sales average last month. This is the first time this has occurred in the region since May 2014.

Metro Vancouver home sales totalled 2,253 in September 2016, a decrease of 32.6 per cent from the 3,345 sales recorded in September 2015 and a decrease of 9.5 per cent compared to August 2016 when 2,489 homes sold. Last month’s sales were 9.6 per cent below the 10-year sales average for the month. “Supply and demand conditions differ today depending on property type,” Dan Morrison, REBGV president said. “We’re seeing more demand for condominiums and townhomes today than in the detached home market.”

New listings for detached, attached and apartment properties in Metro Vancouver totalled 4,799 in September 2016. This represents a decrease of one per cent compared to the 4,846 units listed in September 2015 and an 11.8 per cent increase compared to August 2016 when 4,293 properties were listed. 

The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 9,354, a 13.4 per cent decline compared to September 2015 (10,805) and a 10 per cent increase compared to August 2016 (8,506). The sales-to-active listings ratio for September 2016 is 24.1 per cent. This is the lowest this ratio has been since February 2015. Generally, analysts say that downward pressure on home prices occurs when the ratio dips below the 12 per cent mark, while home prices often experience upward pressure when it reaches the 20 to 22 per cent range in a particular community for a sustained period.

“Changing market conditions are easing upward pressure on home prices in our region,” Morrison said. “There’s uncertainty in the market at the moment and home buyers and sellers are having difficulty establishing price as a result. To help you understand the factors affecting prices, it’s important to talk with a REALTOR®.”

The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $931,900. This represents a 28.9 per cent increase compared to September 2015 and a 0.1 per cent decline compared to August 2016.

Sales of detached properties in September 2016 reached 666, a decrease of 47.6 per cent from the 1,272 detached sales recorded in September 2015. The benchmark price for detached properties is $1,579,400. This represents a 33.7 per cent increase compared to September 2015 and a 0.1 per cent increase compared to August 2016.

Sales of apartment properties reached 1,218 in September 2016, a decrease of 20.3 per cent compared to the 1,529 sales in September 2015.The benchmark price of an apartment property is $511,800. This represents a 23.5 per cent increase compared to September 2015 and a 0.5 per cent decline compared to August 2016.

Attached property sales in September 2016 totalled 369, a decrease of 32.2 per cent compared to the 544 sales in September 2015. The benchmark price of an attached unit is $677,000. This represents a 29.1 per cent increase compared to September 2015 and a 0.1 per cent decline compared to August 2016.

* Areas covered by Real Estate Board of Greater Vancouver include: Whistler, Sunshine Coast, Squamish, West Vancouver, North Vancouver, Vancouver, Burnaby, New Westminster, Richmond, Port Moody, Port Coquitlam, Coquitlam, Pitt Meadows, Maple Ridge, and South Delta.

The Federal Government announced significant changes to regulations for new-government backed insured mortgages today. Effective October 17, 2016, all insured homebuyers will have to qualify at the posted 5-year qualifying rate.  This is a change from previous policy where only variable rate mortgages and mortgages with terms less than 5-years were subject to a higher qualifying rate.
 
With this move, the Federal Government has chosen to offset a modest risk to the taxpayer by severely eroding affordability for low equity home buyers, particularly first time home buyers. The qualifying rate is updated weekly and available on the Bank of Canada website. It is currently 4.64 per cent, about 200 basis points higher than the best bank offered rates.
 
To qualify for mortgage insurance, a homebuyer's debt servicing ratio must be no higher than:

• Gross Debt Service - 39 per cent of household income, including mortgage payment, taxes and heating costs.
• Total Debt Service - 44 per cent of household income, including mortgage payment, taxes, heating costs and all other debt payments

The announced measure will apply to new mortgage insurance applications received on October 17, 2016 or later. This measure will not apply to mortgage loans where:

• before October 3, 2016: a mortgage insurance application was received;
• the lender made a legally binding commitment to make the loan;
• the borrower entered into a legally binding agreement of purchase and sale for the property against which the loan is secured.

Mortgage loans for which mortgage insurance applications are received after October 2, 2016 and before October 17, 2016 are also not affected by the rule change, provided that the mortgage is funded by March 1, 2017. Homeowners with an existing insured mortgage or those renewing existing insured mortgages are not affected by this measure.
       
The Federal Government is also instituting new eligibility rules for low-ratio (higher than 20% down payment) mortgages backed by government insurance. As of November 30, 2016,  to be eligible for government insurance, new mortgages must meet the following requirements:

1. A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
2. A maximum amortization length of 25 years;
3. A maximum property purchase price below $1,000,000 at the time the loan is approved;
4. For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the original amortization schedule;
5. A minimum credit score of 600 at the time the loan is approved;
6. A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent at the time the loan is approved, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
7. A property that will be owner-occupied.

These new criteria, in particular requiring a maximum purchase price below $1 million, will essentially make the majority of single family homes in Metro-Vancouver ineligible for government issued insurance for low-ratio mortgages. 

Copyright British Columbia Real Estate Association. Reprinted with permission.