Growth in the Canadian economy was disappointing in the first quarter of 2018, growing at just 1.3 per cent. That was well below the 2 per cent consensus forecast of economists. Slow growth was the result of a moderation in household spending, which grew at its slowest rate since 2015,  and a decline in residential investment. On the positive side, business investment was strong with purchases of machinery and equipment up 4.2 per cent and investment in commercial and other non-residential structures up 1.5 per cent.

Although economic growth slowed in the first quarter, the Canadian economy is still operating at or above capacity. We expect the Canadian economy to grow at a 2 to 2.5 per cent annual rate in 2018, which is above its estimated long-run trend rate of 1.7 per cent.  As a consequence, inflationary pressure are building and interest rates are very likely headed higher as early as the Bank' of Canada's July meeting. 

Copyright British Columbia Real Estate Association. Reprinted with permission.

The Bank of Canada decided to leave the target for the overnight policy rate unchanged at 1.25 per cent this morning. In the statement accompanying the decision, the Bank noted that inflation has been close to its two per cent target and will likely be higher in the near term than was previously forecast due to higher gasoline prices. Economic growth in the first quarter was stronger than expected due to rising exports and business investment, which helped to offset a B20 induced softening in housing activity.  Overall, the Bank's view is that higher interest rates will be warranted to keep inflation near its target.
   
Although the Bank held steady today, with inflation rising to the Bank's two per cent target and the Canadian economy operating at or near capacity, interest rates are very likely headed higher,  perhaps at the Bank's next meeting in July.  That will translate to higher mortgage rates which, combined with the erosion of purchasing power from the mortgage stress test, will continue to temper housing demand in 2018.

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Canadian retail sales increased 0.6 per cent on a monthly basis in March and were 4.1 per cent higher year-over-year.  Sales were higher in 6 of 11 sub-sectors representing 53 per cent of total retail trade.  With today's data, and all other data available thus far for the first quarter, we are tracking Canadian economic growth at about 2.1 per cent for the first quarter of 2018.  In BC, retail sales were up 0.6 per cent on a monthly basis and 5.1 per cent year-over-year. Retail sales in the province continue to moderate back to historical trend after growing more than 9 per cent in 2017.

Canadian inflation, as measured by the Consumer Price Index (CPI), ticked slightly lower in April to 2.2 per cent after registering 2.3 per cent in March. The Bank of Canada's three measures of trend inflation were slightly higher with two of the three measures moving above 2 per cent.   In BC, provincial consumer price inflation was 2.7 per cent in the 12 months to March.  Stronger than expected first quarter growth and inflation at or near the Bank of Canada's target of 2 per cent means an interest rate increase from the Bank is very likely, potentially at its next meeting on May 30th.

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Vancouver, BC - May 14, 2018.

The British Columbia Real Estate Association (BCREA) reports that a total of 8,203 residential unit sales were recorded by the Multiple Listing Service® (MLS®) across the province in April, a 16.8 per cent decrease from the same month last year. The average MLS® residential price in BC was $730,507, up 0.2 per cent from the previous year. Total sales dollar volume was $5.99 billion, a 16.7 per cent decline from April 2017.

BC home sales were essentially unchanged in April compared to March, albeit up nearly 1 per cent on a seasonally adjusted basis," said Cameron Muir, BCREA's Chief Economist. The impact of more burdensome mortgage qualifications for conventional borrowers is expected to soften over the next several months as potential buyers adjust both their finances and expectations.

The supply of homes for sale in April increased 4 per cent from the previous month. However, total active listings on the market continue to remain low from a historical perspective. Most regions of the province have begun trending toward more balance between supply and demand, causing less upward pressure on home prices.

Year-to-date, BC residential sales dollar volume was down 6.7 per cent to $19.9 billion, compared with the same period in 2017. Residential unit sales decreased 11.8 per cent to 27,135 units, while the average MLS® residential price was up 5.7 per cent to $731,661.

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Canadian employment was essentially unchanged in April on a monthly basis but up 1.5 per cent compared to 1 year ago. The national unemployment rate remained unchanged at 5.8 per cent and total hours worked across the economy grew by 1.9 per cent.

In BC, employment grew by 2,900 jobs. With the economy close to its full-employment level, part-time work is being largely converted into full-time work. In April, BC added 18,200  full-time positions while losing 15,300 part-time jobs. Overall, the level of employment in BC has been trending sideways for several months and was up just 0.9 per cent year-over-year in March. The provincial unemployment rate moved 0.3 points higher to 5 per cent.

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The total value of Canadian building permits increased 3.1 cent on a monthly basis in March, led by higher construction intentions of multi-family units in Quebec and BC. Year-over-year, the value of permits was up 10.8 per cent. 

The total value of permits issued in BC jumped 22 per cent on a monthly basis and was 74.2 per cent higher year-over-year at $1.77 billion.  Non-residential permits were up 16.7 per cent on a monthly basis and 94 per cent year-over-year to nearly $1.3 billion. Residential permits increased 16.7 per cent monthly basis and were 67.2 per cent higher year-over-year.

Construction intentions in December were higher in only three of BC's four census metropolitan areas (CMA):

• Permits in the Abbotsford-Mission CMA  declined 17 per cent on a monthly basis to $35.6million. Year-over-year, permit values were up 25.7 per cent. 

• In the Victoria CMA, total construction intentions declined 15.8 per cent to $93.7, a 1.1 per cent dip year-over-year.

• In the Kelowna CMA, permits were up 54.1 per cent monthly basis, but down 21.5 per cent year-over-year to $83.3 million.

• The Vancouver CMA recorded permit activity valued at $1.160 billion, an increase of 27.8 per cent over February and up 114.4 per cent year-over-year. 

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Canadian housing starts fell 5 per cent on a monthly basis in April to 214,379 units at a seasonally adjusted annual rate (SAAR).  The six-month trend in Canadian housing starts was steady at about 226,000 units SAAR.

In BC, total housing starts declined 17 per cent on a monthly basis to 38,750 units SAAR and were down 11 per cent year-over-year. Multiple unit starts were down 10 per cent year-over year and 21 per cent month-over-month while single detached starts were down 11 per cent year-over-year and were flat compared to March.

Looking at census metropolitan areas (CMA) in BC: 

• Total starts in the Vancouver CMA were down 28 per cent monthly basis to 23,366 units SAAR. Year-over-year, Vancouver starts were down 21 per cent.

• In the Victoria CMA, housing starts were down 8 per cent on a monthly basis. Although single detached starts were nearly double the previous month, a 26 per cent decline in multiple unit starts resulted in an overall decline in new home construction. Year-over-year, total starts were up 26 per cent.
• In the Kelowna CMA, new home construction doubled on a monthly basis due to a surge in multiple unit starts.  However, total starts were down 5 per cent compared to April 2017.

• Housing starts in the Abbotsford-Mission CMA  fell 66 per cent compared to March due to large declines in both single detached and multiple unit starts. Year-over-year, total housing starts were also down 66 per cent.

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The Metro Vancouver* housing market saw fewer home buyers and more home sellers in April.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in the region totalled 2,579 in April 2018, a 27.4 per cent decrease from the 3,553 sales recorded in April 2017, and a 2.5 per cent increase compared to March 2018 when 2,517 homes sold.

Last month’s sales were 22.5 per cent below the 10-year April sales average. “Market conditions are changing. Home sales declined in our region last month to a 17-year April low and home sellers have become more active than we’ve seen in the past three years,” Phil Moore, REBGV president said. “The mortgage requirements that the federal government implemented this year have, among other factors, diminished home buyers’ purchasing power and they’re being felt on the buyer side today.”

There were 5,820 detached, attached and apartment properties newly listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver in April 2018. This represents an 18.6 per cent increase compared to the 4,907 homes listed in April 2017 and a 30.8 per cent increase compared to March 2018 when 4,450 homes were listed.

The total number of properties currently listed for sale on the MLS® system in Metro Vancouver is 9,822, a 25.7 per cent increase compared to April 2017 (7,813) and a 17.2 per cent increase compared to March 2018 (8,380). “Home buyers have more breathing room this spring. They have more selection to choose from and less demand to compete against,” Moore said.

For all property types, the sales-to-active listings ratio for April 2018 is 26.3 per cent. By property type, the ratio is 14.1 per cent for detached homes, 36.1 per cent for townhomes, and 46.7 per cent for condominiums. Generally, analysts say that downward pressure on home prices occurs when the ratio dips below the 12 per cent mark for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.

The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $1,092,000. This represents a 14.3 per cent increase over April 2017 and a 0.7 per cent increase compared to March 2018.

Sales of detached properties in April 2018 reached 807, a 33.4 per cent decrease from the 1,211 detached sales recorded in April 2017. The benchmark price for detached properties is $1,605,800. This represents a 5.1 per cent increase from April 2017 and a 0.2 per cent decrease compared to March 2018.

Sales of apartment properties reached 1,308 in April 2018, a 24 per cent decrease from the 1,722 sales in April 2017. The benchmark price of an apartment property is $701,000. This represents a 23.7 per cent increase from April 2017 and a 1.1 per cent increase compared to March 2018.

Attached property sales in April 2018 totalled 464, a 25.2 per cent decrease compared to the 620 sales in April 2017. The benchmark price of an attached unit is $854,200. This represents a 17.7 per cent increase from April 2017 and a 2.3 per cent increase compared to March 2018.

* Areas covered by the 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.

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The Canadian economy bounced back in February after a down month in January. Real GDP grew 0.4 per cent on a monthly basis in February,  led by higher output in the manufacturing and construction sector as well as a rebound in mining and oil and gas extraction. The output of offices of real estate agents and brokers across Canada fell for a second consecutive month due to the ongoing impact of the B20 stress test.

Given today's release, growth in the Canadian economy is tracking at just under 2 per cent for the first quarter of 2018. Continued above trend growth and rising inflation signal further interest rates increases by the Bank of Canada, possibly as soon as the end of May.

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