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Output in the the Canadian economy contracted 0.1 per cent in February after posting a 0.3 per cent increase in January.  The decline in GDP was the result of a sixth straight monthly decline in the the mining and quarrying sector as global demand for metals and potash remains subdued. The oil and gas sector also declined due to mandated cuts to Alberta oil production. Activity at offices of real estate agents and brokers was down 6.6 per cent, the fourth decline in the last five months largely due to lower housing activity in BC and Ontario.

Given today's very weak GDP report, we are currently tracking first quarter growth in the Canadian economy at just 1 per cent. Slow economic growth should keep the Bank of Canada sidelined for much if not all of 2019, particularly if global trade uncertainty continues and if their optimistic forecast for a second half housing recovery does not come to pass. 



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The Bank of Canada left its target for the overnight rate unchanged at 1.75 per cent this morning. In the statement accompanying the decision, the Bank noted that ongoing uncertainty related to global trade conflicts is undermining business sentiment and contributing to a slowdown in growth across many countries. That circumstance has led to central banks, including the Bank of Canada, slowing the pace of interest rate normalization. The Bank expects global uncertainty, along with weaker-than-anticipated housing and consumption spending, to be a drag on economic growth through the first half of 2019. Overall, the Bank judges that accommodative monetary policy (meaning low interest rates) continue to be warranted.

The Canadian economy is showing some signs of improving in the first quarter after registering less than 0.5 per cent growth in the final quarter of 2018.  However, the drag from lower Alberta oil production and the ongoing negative impact of the mortgage stress test means that Canadian economic growth will likely be modest, in a range of 1-1.5 per cent this year. That places any further tightening this year by the Bank of Canada in doubt, though a recent uptick in inflation has quieted talk of a rate cut.  As we forecast a month ago, 5-year fixed rates have fallen further with most Banks now offering borrowers a 3.24 per cent rate, a level we expect to prevail for much of 2019.



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Canadian retail sales rose in February after posting three consecutive monthly declines.  Retail spending increased 0.8 per cent to $50.6 billion as 5 of 11 retail sub-sectors representing 73 per cent of the retail sector reported higher sales.   In BC,  retail sales declined 1.9 per cent on a monthly basis, largely the result of declining sales at new car dealers, though sales at building material and garden equipment suppliers was also down, a product of lower home sales in the province.  On a year-over-year basis, BC retail sales were flat.

Given all available data for the first quarter of 2019, we are currently tracking Canadian economic growth at about 1.5 per cent. That's compared to just 0.4 per cent growth in the previous quarter but still below estimates of long-run trend growth. 



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Canadian inflation, as measured by the Consumer Price Index (CPI), registered 1.9 per cent in the twelve months to March,  a 0.4 point rise over February.  Excluding falling gasoline prices, CPI inflation measured 2.2 per cent. The Bank of Canada's three measures of trend inflation were also higher in March averaging just under 2 per cent.  In BC, provincial consumer price inflation was 2.6 per cent in the 12 months to March. 
 
An uptick in inflation somewhat complicates the Bank of Canada's decision on interest rates next week, though incoming economic data remains mixed and we believe the Bank will remain sidelined.



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Stress Test Creating Pent-up Demand in B.C.

Vancouver, BC - April 15, 2019.


The British Columbia Real Estate Association (BCREA) reports that a total of 5,707 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in March, a decline of 23 per cent from the same month last year. The average MLS® residential price in the province was $687,720, a decline of 5.4 per cent from March 2018. Total sales dollar volume was $3.9 billion, a 27.1 per cent decline from the same month last year.


BC home sales continue to be adversely impacted by federal mortgage policy, said BCREA Chief Economist Cameron Muir. The erosion of affordability caused by the B20 stress test has created near recession level housing demand despite the province boasting the lowest unemployment rates in a decade.


The sharp erosion of affordability caused by the B20 stress test is now creating pent-up demand, as many would-be home buyers are forced to wait on the sidelines, added Muir. Unfortunately, new home construction is slowing as well, which will likely lead to another housing supply crunch down the road.


Total MLS® residential active listings increased 36.2 per cent to 34,295 units compared to the same month last year. The ratio of sales to active residential listings declined from 29.4 per cent to 16.6 per cent over the same period.



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Canadian housing starts increased 16 per cent on a monthly basis in March to 192,527 units at a seasonally adjusted annual rate (SAAR).  The trend in Canadian housing starts was essentially unchanged,  averaging 202,000 units SAAR over the past six months.

In BC, total housing starts were down 10 per cent on a monthly basis to 32,493 units SAAR.  Total starts were down 31 per cent compared to March of last year.  On a monthly basis, starts of multiple units were down 14 per cent to 25,196 units SAAR while single detached starts rose 7 per cent to 7,297 units SAAR.
 
Looking at census metropolitan areas (CMA) in BC: 

  • Total starts in the Vancouver CMA were down 16 per cent on a monthly basis in March at 20,960 units SAAR as multiple unit starts fell 19 per cent from February.   Compared to March 2018, total starts in Vancouver were down 36 per cent.  Housing starts for the first quarter were 16 per cent lower than for the same quarter one year ago.
  • In the Victoria CMA, housing starts fell 49 per to 2,084 units SAAR  after a very strong February in which new starts were on a 4,100 unit annual pace.  New home construction was also down year-over-year, falling 42 per cent compared to last March due to lower starts in the multiple unit sector.
  • There is significant new construction underway in the Kelowna CMA , particularly in the apartment condo market. Total starts jumped 84 per cent from February, including a more than doubling of multi-unit starts.  
  • Housing starts in the Abbotsford-Mission CMA were up 24 per cent in march at 1,870 units SAAR. On a year-over-year basis, new home construction was up 51 per cent with double digit growth in both single and multiple unit starts.



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Canadian employment dipped slightly from February to March, though increased 1.8 per cent year-over-year.  In the past 12 months, the Canadian economy added 332,000 jobs including 204,000 full-time jobs. The national unemployment rate held steady in March at 5.8 per cent.

In BC, employment grew by 7,900 jobs in March, including 3,000 full-time jobs. On a year-over-year basis, employment was up 3.2 per cent. Despite strong job growth, the provincial unemployment rate moved 0.2 points higher to 4.7 per cent as the number of people actively looking for work grew faster than employment.



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Metro Vancouver* home sales dipped to the lowest levels seen in March in more than three decades.


The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales in the region totalled 1,727 in March 2019, a 31.4 per cent decrease from the 2,517 sales recorded in March 2018, and a 16.4 per cent increase from the 1,484 homes sold in February 2019. Last month’s sales were 46.3 per cent below the 10-year March sales average and was the lowest total for the month since 1986.


“Housing demand today isn’t aligning with our growing economy and low unemployment rates. The market trends we’re seeing are largely policy induced,” Ashley Smith, REBGV president said. “For three years, governments at all levels have imposed new taxes and borrowing requirements on to the housing market.” 


“What policymakers are failing to recognize is that demand-side measures don’t eliminate demand, they sideline potential home buyers in the short term. That demand is ultimately satisfied down the line because shelter needs don’t go away. Using public policy to delay local demand in the housing market just feeds disruptive cycles that have been so well-documented in our region.”


There were 4,949 detached, attached and apartment properties newly listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver in March 2019. This represents an 11.2 per cent increase compared to the 4,450 homes listed in March 2018 and a 27.2 per cent increase compared to February 2019 when 3,892 homes were listed.


The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 12,774, a 52.4 per cent increase compared to March 2018 (8,380) and a 10.2 per cent increase compared to February 2019 (11,590). For all property types, the sales-to-active listings ratio for March 2019 is 13.5 per cent. By property type, the ratio is 9.4 per cent for detached homes, 15.9 per cent for townhomes, and 17.2 per cent for apartments.


Generally, analysts say downward pressure on home prices occurs when the ratio dips below 12 per cent 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 $1,011,200. This represents a 7.7 per cent decrease from March 2018, and a 0.5 per cent decrease compared to February 2019.


Sales of detached homes in March 2019 reached 529, a 26.7 per cent decrease from the 722 sales in March 2018. The benchmark price for a detached home is $1,437,100. This represents a 10.5 per cent decrease from March 2018, and a 0.4 per cent decrease compared to February 2019.


Sales of apartment homes reached 873 in March 2019, a 35.3 per cent decrease compared to the 1,349 sales in March 2018. The benchmark price of an apartment property is $656,900. This represents a 5.9 per cent decrease from March 2018, and a 0.5 per cent decrease compared to February 2019.


Attached home sales in March 2019 totalled 325, a 27.1 per cent decrease compared to the 446 sales in March 2018. The benchmark price of an attached home is $783,600. This represents a six per cent decrease from March 2018, and a 0.7 per cent decrease compared to February 2019.



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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