Economic and Housing Outlook Macdonald Realty Monday, January 23, 212 Helmut Pastrick Chief Economist Central 1 Credit Union
Outline: European developments U.S. economy and forecasts Canadian economic forecasts B.C. and Metro Vancouver economic conditions Metro Vancouver housing Summary
Market pushing riskier sovereign debt bond yields higher 1-year Govt. Bond Yields, Selected European Economies Per cent 4 3 2 1 1/4/1 8/9/1 3/1/211 1/6/211 Greece Portugal Ireland Italy Spain Germany Source: Bloomberg. Latest: 1/18/212
Market turns negative on Italy and Spain sovereign debt, France under pressure 1-year Govt. Bond Yields, Selected European Economies Per cent 15 Portugal Ireland 1 5 1/3/211 4/18/211 8/1/211 11/14/211 Italy Spain France Germany Source: Bloomberg. Latest: 1/18/212
Italy, Spain have highest funding needs; in excess of 1 1 trillion in 211-13 Gross Financing Needs, Selected European Economies Euros - billions 4 3 2 1 211 212 213 Italy Spain Belgium Greece Portugal Ireland Source: IMF Fiscal Monitor Sept. 211.
Banks are tightening credit conditions for European business Net percentage of banks 8 6 4 2 Credit Conditions for Business Enterprises, Euro Area Actual (past 3 mos.) Expected (next 3 mos.) -2 Q1-7 Q1-8 Q1-9 Q1-1 Q1-11 Source: ECB Euro Area Bank Lending Survey. Latest: Q4-11 (October)
Europe in recession, manufacturing output contracting Eurozone Manufacturing PMI and Industrial Production Balance of opinion (%) 65 6 55 5 45 4 35 3 Jan-8 Jan-9 Jan-1 Jan-11 25=1 115 11 15 1 95 9 85 PMI (L) IP (R) Source: Eurostat, Markit. Note: Seasonally adjusted. Latest: PMI Dec., IP Nov.
Mild recession in 212, weak growth thereafter Euro Zone Economic Growth - Consensus Scenario Per cent change in real GDP 6 4 2-2 -4-6 Actual Forecast 1996 21 26 211 216 Source: Eurostat, Consensus Forecasts Jan. 212. Latest actual: 21
Deep and severe recession associated with banking crisis Euro Zone Economic Growth, Banking Crisis Scenario Per cent change in real GDP 6 4 Forecast 2-2 -4 Actual -6 1996 21 26 211 216 Source: Eurostat, C1CU forecasts. Latest actual: 21
China's manufacturing expands at a slower pace in 211 Industrial Production, China 25=1 26 24 22 2 18 16 Per cent change annualized 25 2 15 1 5 IP (L) % chg. (R) 14 Jan-8 Jan-9 Jan-1 Jan-11 Source: World Bank. Note: Seasonally adjusted. Latest: Dec-11
U.S. employment rising; remains well below pre-recession levels U.S. Payroll Employment, Total and Monthly Change Persons - millions 14 138 136 134 132 13 Total (L) Persons - thousands Change (R) 1 5-5 128 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11-1 Source: U.S. BLS. Note: Seasonally adjusted. Latest: Dec-11
Government employment dropping, private sector expanding U.S. Private and Government Employment Trends 27=1 14 12 Census hires 1 98 96 Government Private 94 92 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Source: U.S. BLS, C1CU. Note: Seasonally adjusted Latest: Dec-11
U.S. housing sales at or near cycle bottom Existing Home Sales, Monthly Units - millions, saar 6 5 5 4 4 3 Jan-8 Jul-9 Jan-11 Source: NAR. Latest: Dec-11 Units - millions 8. 7. 6. 5. 4. 3. 1996 21 26 211 Source: NAR Annually, U.S.
U.S. housing prices sliding lower Dollars - thousands 22 21 2 19 18 17 16 Median Sale Price, Monthly 15 Jan-8 Jul-9 Jan-11 Source: NAR. Latest: Nov-11 198 Q1=1 4 35 3 25 2 HPI Annually, U.S. 15 1996 21 26 211 Source: FHFA. Latest: Q3-211
U.S. housing starts at or near cycle bottom Units - millions, saar 1.2 1..8.6 Housing Starts, Monthly.4 Jan-8 Jul-9 Jan-11 Source: Census Bureau. Latest: Dec-11 Units - millions 2.5 2. 1.5 1..5 Annually, U.S.. 1996 21 26 211 Source: Census Bureau.
No recession in forecast, more sub-par growth in 212 Percentage change at annual rate in real GDP 5 U.S. Economic Growth -5 High Median Low Actual Forecast -1 Q1-8 Q1-9 Q1-1 Q1-11 Q1-12 Source: U.S. BEA, WSJ January 212 Survey. Latest actual: Q3-11
U.S. economy to grow above 3% after 213 Per cent change in real GDP U.S. Long-term Economic Growth 6 4 2-2 -4 Actual Forecast 1996 21 26 211 216 Source: U.S. BEA, Consensus Forecasts. Latest actual: 21
GDP rebounds in Q3-211 slows into 212, below-trend growth in 212 Canada's Economic Growth Percentage change at annual rate in real GDP 6 3-3 -6 Forecast -9 Q1-8 Q1-9 Q1-1 Q1-11 Q1-12 Q1-13 Actual Consensus BoC C1CU Source: Statistics Canada, Bank of Canada, C1CU. Latest actual: Q3-11
Low interest rates in 212, Bank of Canada on hold until spring 213 Interest Rate Forecasts, Quarterly Per cent 8 6 Actual Forecast 5y mortgage Prime 4 5y GIC 2 Target Q1-8 Q1-9 Q1-1 Q1-11 Q1-12 Q1-13 Source: Bank of Canada, C1CU. Note: Averages. Latest actual: Q4-11
Canadian dollar rising later in 212 Canadian Dollar Exchange Rate US $ 1.1 1..9.8 Actual Forecast.7 Q1-8 Q1-9 Q1-1 Q1-11 Q1-12 Q1-13 C1CU BMO CIBC RBC Scotia TD Source: Bank of Canada, C1CU survey. Latest actual: Q4-11
B.C.'s economic recovery slows in 211 Key Economic Indicators, B.C. Per cent 1 8 6 4 2-2 -4 1996 21 26 211 U. Rate GDP Employment Source: Statistics Canada. Note: C1CU estimate for 211 GDP
Job resurgence in Metro Vancouver, rest of B.C. lower since recession Employment Trends, Metro Vancouver and Rest of B.C. 27=1 11 15 1 95 9 85 8 75 1996 21 26 211 Vancouver Rest Source: Statistics Canada, C1CU.
Labour income advancing at modest pace Per cent 5 4 3 2 1 Change in Fixed-Weighted Average Hourly Earnings, B.C. -1 1996 21 26 211 Source: Statistics Canada. Latest: Average year-to-date Oct-11
Consumer price inflation up in 211 mainly on energy and food Per cent 3 Change in Consumer Price Index, B.C. 2 1-1 1996 21 26 211* Source: Statistics Canada. *Average year-to-date Nov-11
Interprovincial migration turns negative 2 15 B.C. Net Migration by Type, Quarterly Persons - thousands 1 5 Net international Net interprovincial -5 Q1-3 Q1-5 Q1-7 Q1-9 Q1-11 Source: Statistics Canada, C1CU. Note: Seasonally adjusted. Latest: Q3-11
Rising population growth since 24, likely lower in 211 Per cent 3.5 3. 2.5 2. 1.5 1. Metro Vancouver Population Growth, Annually.5 1987 1992 1997 22 27 Source: Statistics Canada. Note: As of July 1. Latest: 21
New business formations up slightly in 211 B.C. Business Incorporations Number - thousands 35 3 25 2 15 1996 21 26 211* Source: BC Finance. *12 mo. to Oct. B.C. Business Bankruptcies Number 12 1 8 6 4 2 1996 21 26 211* Source: OSB Canada. *12 mo. to Oct.
Tourist traffic at very low levels Persons - millions B.C. International Tourist Entries 5.2 5. 4.8 4.6 4.4 4.2 4. 1996 21 26 211 Source: Statistics Canada. Note: 12 months ending Oct-11.
Lacklustre retail sales performance in 211 Dollars - billions 28 26 Retail Sales - Metro Vancouver 24 22 Current $ 22 $ 2 18 1996 21 26 211 Source: Statistics Canada, C1CU. Note: 12 months ending Oct-11.
Metro Vancouver Non-residential Building Construction Investment Spending Dollars - billions 3. 2.5 Commerical and Industrial Institutional-Government Dollars - billions 1. Current $ 22 $.8 2..6 1.5.4 1. 1997 24 211 Source: Statistics Canada..2 1997 24 211 Note: Annual totals.
Housing sales holding at moderate levels MLS Residential Sales, Monthly Units - thousands, s.a. 5 7 New Listings, REBGV Units - thousands, s.a. 4 6 3 5 2 4 1 Jan-8 Jul-9 Jan-11 Source: CREA. Latest: Dec-11 3 Jan-8 Jul-9 Jan-11 Source: CREA
Listings on market at normal levels relative to sales activity Active Listings and Sales-to-active Listings Ratio Units - thousands 2 18 16 14 12 1 Jan-8 Jan-9 Jan-1 Jan-11 Ratio 4 3 2 1 Listings (L) Ratio (R) Source: REBGV, C1CU. Note: Seasonally adjusted. Latest: Dec-11
Home price rise slows during 211 REBGV MLS Housing Price Index 21=1 28 26 24 22 Per cent change at annual rate 3 2 1-1 HPI (L) % change (R) 2 Jan-8 Jan-9 Jan-1 Jan-11-2 Source: REBGV, C1CU. Note: Seasonally adjusted. Latest: Dec-11
Sales at low point of cycle Units - thousands 75 Residential Sales, Metro Vancouver 6 45 3 15 76 81 86 91 96 1 6 11 Source: Landcor Data Corp. Latest: 12 months ending Nov-11
Housing starts rebound from recession low to above-average level Units - thousands 25 Metro Vancouver Housing Starts 2 15 1 5 1996 21 26 211 Source: CMHC.
Prices at record high, growing divergence between average and median prices Residential Avg. and Median Sale Prices, Metro Vancouver Dollars - thousands 8 6 4 Average Median 2 76 81 86 91 96 1 6 11 Source: Landcor Data Corp.
Price-to-income ratios at record high; over-valued and reverts to mean? Ratio 7 6 Residential Price-to-income Ratios, Metro Vancouver 5 4 3 Average price Median price 2 1 76 81 86 91 96 1 6 11 Source: C1CU. Note: Based on average total income of non-elderly families.
Low flipping activity in current market 4 Holding Period of Sales, Metro Vancouver Per cent of sales 3 2 1 yr. or less 3 mo. or less 1 Jan-8 Jan-9 Jan- Jan-1 Source: Landcor Data Corp. Latest: Nov-11
Long-term price trend upward due to rising demand in land-constrained market Residential Median Sale Price and Population Density Metro Vancouver Dollars - thousands Persons per sq. km. 8 15 6 4 211 * 12 9 Median price (L) Density (R) 2 6 76 86 96 6 16 26 36 3 Source: Statistics Canada, Landcor Data Corp., BC Stats for population projections Note: Dashed lines are projections. Land area = 2,877.4 sq. km.
Summary: European debt-banking crisis largest risk; policymakers avoid euro and banking collapse U.S. economy grows below trend in 212 and 213 on fiscal drag and weaker exports Low interest rates in 212-13 B.C. economy grows at moderate pace in 212-13; higher growth awaits global and U.S. resurgence Housing market activity range-bound near term; no recession, no bubble