The Canadian economy expanded at a 0.2 per cent monthly rate in July after recording no change in June. Growth was fairly broad based with 12 of 20 industrial sectors reporting higher output, led by gains in manufacturing, wholesale trade and the recovery of real estate transactions after the introduction of the B20 mortgage stress test. With the first month of third quarter GDP data now available, we are tracking overall third quarter growth at 1.8 per cent .

While economic growth in Canada is on pace to slow down slightly compared to the second quarter, output is still expanding at slightly beyond its sustainable, long-run rate. That means continued upward pressure on inflation and further interest rate increases from the Bank of Canada.

Canadian retail sales increased 0.3 per cent on a monthly basis in July, and were 3.7 per cent higher on a year-over-year basis. Retail strength was broad based with sales up in 8 of 11 sub-sectors representing 55 per cent of total retail trade. In BC, consumer spending continues to weaken as retail sales declined 0.5 per cent on a monthly basis and were just 1.2 per cent higher year-over-year. 

Canadian inflation, as measured by the Consumer Price Index (CPI), registered 2.8 per cent in the 12 months to August following a 3 per cent increase in prices in July. The Bank of Canada's three measures of trend inflation all increased in August and average 2.1 per cent.   In BC, provincial consumer price inflation was 2.9 per cent in the 12 months to August.  With inflation trending higher in recent months, the Bank of Canada is almost certain to raise its overnight rate at its next meeting in October.

Canadian manufacturing sales increased for a third consecutive month, rising 0.9 per cent on a monthly basis in July. Sales were higher in 11 of 21 manufacturing sub-sectors, representing 68 per cent  of manufacturing sales.

In BC, where the manufacturing sector employs about 170,000 people,  manufacturing sales fell 1.7 per cent on a monthly basis but were 10 per cent higher year-over-year. Manufacturing in BC has maintained robust growth this year, particularly in the forestry sector. That growth is providing a boost to markets around the province in which the forestry sector is a major employer.

Click on the image for August's very informative video market update & insights:

Canadian housing starts declined 2 per cent on a monthly basis in August to 201,000 units at a seasonally adjusted annual rate (SAAR).  The trend in Canadian housing starts continued to moderate lower, averaging 214,000 units SAAR over the past six months.

In BC, total housing starts increased 8 per cent on a monthly basis to 46,000 units SAAR and were up 29 per cent year-over-year. On a monthly basis, starts of multiple units were up 11 per cent to an annual rate of 37,000 units SAAR while single detached fell 4 per cent to 9,100 units SAAR. Compared to August 2017, multiple units starts were up 45 per cent while single detached starts were 11 per cent lower.
 
Looking at census metropolitan areas (CMA) in BC: 

• Total starts in the Vancouver CMA were down 2 per cent on a monthly basis to 24,800 units SAAR as multiple units starts dipped 5 per cent from July. Compared to this time last year, total starts in Vancouver were 18 per cent higher. The City of Vancouver  and Burnaby accounted for over half of new starts in August.

• In the Victoria CMA, housing starts jumped 45 per cent from July to 7,050 unit SAAR and were more than triple the pace of starts from August 2017 due to a surge of new multiple unit starts.

• In the Kelowna CMA, new home construction doubled on a monthly basis to 3,950 units SAAR, driven by strong apartment starts. On a year-over-year basis, however, total starts were down 35 per cent. The first 8 months of the year have seen a 29 per cent decrease in single detached and a 28 per cent decline in multiple units compared to the record setting level of starts in 2017.

• Housing starts in the Abbotsford-Mission CMA fell 71 per cent on a year-over-year basis as very few multiple unit projects got underway in August.  On a monthly basis, starts fell 80 per cent,  following a surge in multiple units starts in July.

Total Canadian employment declined by 52,000 jobs in August, reversing similar sized gains from July.  Part-time job losses, concentrated in Ontario, were the culprit behind the out-sized decline, falling by 92,000 jobs while full-time jobs rose by 40,000.   The national unemployment rate increased 0.2 points to 6 per cent and total hours worked across the economy rose 1.6 per cent.  Total employment was up 0.9 per cent over this time last year.
 
In BC, employment rose for a second consecutive month as the economy added close to 10,000 jobs in August. On a year-over-year basis, employment was flat and the provincial unemployment rate rose 0.3 points to 5.3 per cent as more people were actively searching for work.

The total value of Canadian building permits edged 0.1 per cent lower on a monthly basis in July. The decline was the result of lower construction intentions in BC.
 
In BC, the total value of permits fell 11 per cent on a monthly basis to $1.4 billion.  Residential permits decreased 15.4 per cent from June and were down 3 per cent year-over-year, as a result of lower permit activity for multi-family units in Vancouver. Non-residential permits were up 6.7 per cent from June, but were 2 per cent lower year-over-year.
 
Construction intentions in July were down in three of BC's four census metropolitan areas (CMA):

• Permits in the Abbotsford-Mission CMA fell 10 per cent on a monthly basis to $28.3 million. Year-over-year, permit values were down 28 per cent.

• In the Victoria CMA, total construction intentions were down by half on a monthly basis to just $76.7 million, a 40 per cent decline over this time last year.

• In the Kelowna CMA, permits values increased by 13.3 per cent on a monthly basis to $113.2 million, and were up 44 per cent year-over-year.

• The Vancouver CMA recorded permit activity valued at 796.8 million, a 13.5 per cent decline from May and down 9 per cent year-over-year.

The Bank of Canada maintained its target for the overnight rate at 1.50 per cent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy is evolving in line with its projections and that real GDP growth is expected to slow in the third quarter due to fluctuations in energy production and exports. Inflation is anticipated to come down from the 7-year high of 3 per cent rate observed in July, falling back to 2 per cent in early 2019. The Bank further noted that housing markets are beginning to stabilize following the implementation of the mortgage stress test. Overall, the Bank's assessment is that higher interest rates will be warranted to achieve the 2 per cent inflation target, but policymakers are closely monitoring NAFTA negotiations and their impact on the inflation outlook.
   
With the threat of significant trade disruption looming from NAFTA negotiations, the Bank chose to pause its rate tightening cycle. However, strong economic growth over the past year has pushed the Canadian economy beyond its full-employment level, creating upward pressure on inflation. Rising inflation and an economy operating at capacity means that the Bank of Canada will continue on its rate tightening path, likely at it next meeting in October with an ultimate goal of the overnight rate returning to between 3 and 3.5 per cent over the next two years.

The Metro Vancouver* housing market continues to experience reduced demand across all housing types:

The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales in the region totalled 1,929 in August 2018, a 36.6 per cent decrease from the 3,043 sales recorded in August 2017, and a 6.8 per cent decline compared to July 2018 when 2,070 homes sold.

Last month’s sales were 25.2 per cent below the 10-year August sales average. “Home buyers have been less active in recent months and we’re beginning to see prices edge down for all housing types as a result,” Phil Moore, REBGV president said. “Buyers today have more listings to choose from and face less competition than we’ve seen in our market in recent years.”

There were 3,881 detached, attached and apartment homes newly listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver in August 2018. This represents an 8.6 per cent decrease compared to the 4,245 homes listed in August 2017 and an 18.6 per cent decrease compared to July 2018 when 4,770 homes were listed.

The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 11,824, a 34.3 per cent increase compared to August 2017 (8,807) and a 2.6 per cent decrease compared to July 2018 (12,137). The sales-to-active listings ratio for August 2018 is 16.3 per cent. By housing type, the ratio is 9.2 per cent for detached homes, 19.4 per cent for townhomes, and 26.6 per cent for apartments.

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. “With fewer buyers active in the market, benchmark prices across all three housing categories have declined for two consecutive months across the region,” Moore said.

The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $1,083,400. This represents a 4.1 per cent increase over August 2017 and a 1.9 per cent decrease since May 2018.

Sales of detached properties in August 2018 reached 567, a 37.1 per cent decrease from the 901 detached sales recorded in August 2017. The benchmark price for detached properties is $1,561,000. This represents a 3.1 per cent decrease from August 2017 and a 2.8 per cent decrease since May 2018.

Sales of apartment properties reached 1,025 in August 2018, 36.5 per cent decrease compared to the 1,613 sales in August 2017. The benchmark price of an apartment property is $695,500. This represents a 10.3 per cent increase from August 2017 and a 1.6 per cent decrease since May 2018.

Attached property sales in August 2018 totalled 337, a 36.3 per cent decrease compared to the 529 sales in August 2017. The benchmark price of an attached unit is $846,100. This represents a 7.9 per cent increase from August 2017 and a 0.8 per cent decrease since May 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.

Copyright British Columbia Real Estate Association. Reprinted with permission.