Growth, Rates, and Housing: Will B.C. s economy continue to outpace? Vancouver, BC May 1, 218 Bryan Yu, Deputy Chief Economist
Topics Global Economic State Canadian Outlook and Interest Rate Trends B.C. Economy Housing Market
Global economic growth modest, led by emerging markets Annual Change in Gross Domestic Product (%) 1 World 8 6 4 2 Advanced -2-4 -6 2 24 28 212 216 22 Emerging and Developing Source: IMF. Latest: 217
Mostly synchronous upswings; Europe leads Markit Purchasing Managers Indexes = no change from prior month 1 8 Euro area 6 US 4 2 Japan China -2-4 215 216 217 218 Source: Bloomberg. Note: Seasonally adjusted. Latest: Feb. 218
Declining yields; recent increase Government 1-Year Bond Yields: Selected Economies Per cent change 6 5 4 3 2 1-1 24 26 28 21 212 214 216 Latest Source: IMF, Bank of Canada, FRED St. Louis Fed. Note: Annual averages. Latest: Week of Mar. 9, 218 U.S. Canada Germany Japan
Domestic demand; mainstay of U.S. economy U.S. Economic Growth Per cent change at annual rate 6 5 4 3 2 1-1 -2 Q1-14 Q1-15 Q1-16 Q1-17 Source: U.S. Bureau of Economic Analysis. Latest: Q4-17 Real Final Sales to Domestic Purchasers Real GDP
Declining unemployment rate; wages rising faster Unemployment Rate: U.S. Per cent of labour force 7 6 5 4 Hourly Median Wage Rate: U.S. Per cent change, y/y 4.5 4. 3.5 3. 2.5 2. 3 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 1.5 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: U.S. BLS. Note: Seasonally adjusted. Latest: Feb-18 Source: FRB Atlanta. Latest: Jan-18
Fed rate increases: 3 in 218; 3 in 219 U.S. 1y T-Bond Yield and Fed Funds Rate Per cent Forecast 4. 3.5 3. 2.5 2. 1.5 1..5. Dec- 15 Jun- 16 Dec- 16 Jun- 17 Dec- 17 Jun- 18 Dec- 18 Jun- 19 Dec- 19 Jun- 2 Dec- 2 Source: U.S. Federal Reserve, WSJ Feb. 218 forecast. Note: Actuals are monthly averages. F = Forecast 1-y Bond Fed funds 1-y Bond F Fed funds F
Canada growth surge from oil-recession rebound to slow Canada Economic Growth Per cent change in real GDP 4 3 2 1-1 -2-3 -4 24 26 28 21 212 214 216 218 22 Source: Statistics Canada, Central 1 Credit Union.. Actual Forecast
Large improvement in 217 Employment: Canada Persons - millions 3 2 1-1 Unemployment Rate: Canada Per cent of labour force 8.5 8. 7.5 7. 6.5 6. -2 3 5 7 9 11 13 15 17 Source: Statistics Canada. Note: Annual averages. 5.5 3 5 7 9 11 13 15 17
Economy at full capacity Actual and Potential GDP: Canada Chained 27 dollars trillions Chained 27 dollars - billions 1.9 1.8 1.7 1.6 1.5 Q1-7 Q1-9 Q1-11 Q1-13 Q1-15 Q1-17 Source: Statistics Canada, Bank of Canada. Latest: Q4-17 4 2-2 -4-6 -8 Output gap (right) Real GDP Potential GDP
Higher interest rates ahead Bank of Canada Target and 1y GoC Bond Yield Per cent 6 5 4 3 2 1 Forecast Goc 1y Target GoC 1y Target Q1 24 Q1 27 Q1 21 Q1 213 Q1 216 Q1-219 Source: Bank of Canada, Central 1 Credit Union. Latest actual: Q4 217. Forecast Q1 218 to Q4 22.
Interest rates on the rise Government benchmark yields United States, % Canada, % 3.5 3. US 1 yr US 2 Year 3.5 3. CAN 1 Yr CAN 2 Year 2.5 2.5 2. 2. 1.5 1.5 1. 1..5.5. 1/1/14 12/17/14 12/2/15 11/16/16 11/1/17. 1/1/14 12/17/14 12/2/15 11/16/16 11/1/17 Source: Bloomberg, Central 1 Credit Union. Note: seasonally adjusted. Latest: March 23, 218
Mortgage growth slows Household Mortgage Financial Flow: Canada Dollars - billions 25 2 15 1 5 Q1 199 Q1 1995 Q1 2 Q1 25 Q1 21 Q1 215 Source: Statistics Canada. Note: seasonally adjusted. Latest: Q3 217
Debt at record highs Household Debt Ratios: Canada Per cent 2 175 15 125 1 75 5 25 Q1 199 Q1 1995 Q1 2 Q1 25 Q1 21 Q1 215 Source: Statistics Canada. Latest: Q3 217 Disposable income GDP
Households not over-levered Household Debt Leverage Ratios: Canada Per cent 26 24 22 2 18 16 14 12 1 Q1 199 Q1 1995 Q1 2 Q1 25 Q1 21 Q1 215 Source: Statistics Canada. Latest: Q3 217 Net worth Assets
CAD forecast to track near 8 cents 1.1 1..9.8.7 Daily USD/CAD 1.1 1..9.8.7 Outlook.6 1/1/14 12/24/14 12/16/15 12/7/16 11/29/17.6 2 24 28 212 216 21 Source: Bloomberg, Central 1 Credit Union. Latest: 4/13/218
NAFTA Risks Round eight of negotiations in April; political time crunch looms Steel and Aluminum tariff exemptions expire May 1 st (A) Modernization (tweaks) or (B) U.S. Rebalancing (B)Contentious items rules of origin, dispute settlement, supply management, procurement, sunset clause Some movement on Rules of Origin for auto content is positive NO DEAL? Shift to WTO MFN tariffs: U.S.A. 3.5%, Canada 4.2%, Mexico 7.1% Canada-US Free Trade Agreement (CUSFTA) of 1989 returns Economic impact estimates on Canada: Real GDP -.5% to 223, employment -25k to -5k, investment -.9%, CPI -.3% Negative for autos, fossil fuels, petrochemicals, business services, metal products, M&E, food, and others Ontario, Alberta, Saskatchewan, New Brunswick
Other Trump effects China- U.S trade relations Global steel, aluminum, solar panels and washing machines Tariffs on $5B of Chinese goods as retribution for unfair technology practices Trump proposing another $1B China response of tariffs on $3 billion due to steel, $5B warning Deepening trade war could slow global trade and growth Geo-political North Korea, Syria
B.C. a key growth driver in recent years 214-16 Average GDP Growth 4. 3. 2. 1.. -1. -2. BC AB SK MB ON QC PEI NB NS NFLD Source: Statistics Canada, Central 1 Credit Union
British Columbia: Growth trends historically strong Real GDP and Employment Growth Per cent 8 6 4 2 Real GDP Employment -2-4 1987 1992 1997 22 27 212 217 Source: Statistics Canada, Central 1 Credit Union. Note: 217 real GDP is estimate, 218-22 Forecast.
Growth driven by southern B.C. markets Employment Growth (%) Unemployment Rate (%) North Coast & Nechako Northeast Cariboo Kootenay Thompson--Okanagan Vancouver Island and Coast Lower Mainland--Southwest British Columbia 217 216 North Coast & Nechako 217 Northeast 216 Cariboo Kootenay Thompson--Okanagan Vancouver Island and Coast Lower Mainland--Southwest British Columbia -4. -2.. 2. 4. 6. 8.. 2. 4. 6. 8. 1. 12. Source: Statistics Canada, Central 1 Credit Union
Consumer driven growth in B.C. s Economy. GDP growth by Expenditure Per cent 18 15 12 9 6 3-3 -6 21 212 214 216 Source: Statistics Canada, Central 1 Credit Union. Note: 217 real GDP is estimate, 218-22 Forecast. Real GDP Household consumption Residential Investment Government Expenditure Non-Res Investment
B.C. strongest amongst peers Employment Growth (%) British Columbia Alberta Saskatchewan Manitoba Ontario Quebec New Brunswick Nova Scotia Prince Edward Island Newfoundland and Canada -6. -4. -2.. 2. 4. 6. Unemployment Rate (%) British Columbia Alberta Saskatchewan Manitoba Ontario Quebec New Brunswick Nova Scotia Prince Edward Island Newfoundland and Canada. 5. 1. 15. 2. Source: Statistics Canada, Central 1 Credit Union
Hiring surges, labour market tightens up B.C. Labour Market Indicators (%) 4 3 2 1 1 8 6 4 2 Indexed Employment, s.a. (s) 115 11 15 1 95 B.C. Rest of Canada 9 214 215 216 217 218 Employee Compensation Growth 8 6 21 212 214 216 4 2 Emp Ch (L) Unemp Rate (R ) Source: Statistics Canada BC AB SK MB ON QC Atl
Retail sales exceptionally strong Retail Sales Growth (%) 12 1 8 B.C. retail growth by segment 2 18 16 6 14 4 12 2-2 -4-6 -8 Vancouver CMA Rest of BC 26 28 21 212 214 216 1 8 6 4 2 Total Furn & Furnishing MV and Parts Gas Excl MV and Gas Source: Statistics Canada
Record housing starts Annual housing starts, Units (s) 5 BC Total Vancouver CMA 45 4 35 3 25 2 15 1 5 199 1994 1998 22 26 21 214 Source: CMHC, Central 1 Credit Union 4.5 4. 3.5 3. 2.5 2. 1.5 1..5. 2 24 28 212 216 Abbotsford- Mission Victoria Kelowna
Exports sectors show plenty of strength Int l Goods Exports $ (billions) Per Cent 5 45 4 35 3 25 2 15 1 5 % change Dollar Exports 2 23 26 29 212 215 Source: Statistics Canada 2 15 1 5-5 -1-15 -2-25 -3
Non-residential investment weak in 217 but on rise Non-Residential Building Investment ($ millions) 1,7 1,6 1,5 1,4 1,3 1,2 1,1 Current $ 27 $ 1, 21 212 214 216 218 217 Real Growth (%) Total nonresidential Institutional and governmental Commercial Industrial -2-1 Source: Statistics Canada, Central 1 Credit Union.
B.C. Forecast Summary 215 216 217 218 219 22 Real GDP, % Change 3.5 3.5 4.3 3. 2.3 3.3 Nominal GDP, % Change 4. 4.8 6.7 5.2 4.8 5.8 Employment, % Change 1.2 3.2 3.7 2.2 1.4 1.6 Unemployment Rate, (%) 6.2 6. 5.1 4.4 4.3 4. Population, % Change 1. 1.3 1.3 1.1 1.1 1.1 Housing Starts (s) 31.4 41.8 43.5 4.5 39.5 4.5 Retail Sales, % Change 6.9 7.4 9.6 5.1 5.3 6. Personal Income, % Change 6. 4.7 5.8 6.3 5.3 6. Net Operating Surplus Corporations, % Change -1.9 9.8 8.2 3.9 3.4 2.2 Consumer Price Index, % Change 1.1 1.9 2.1 2.2 1.9 2.1
Growth profile transitions from consumer to investment led Per cent change year-over-year 2 16 12 8 4-4 -8-12 Household Consumption Government Res Inv Non-Res Inv Gov Investment 216 217 218 219 Source: Statistics Canada, Central 1 Credit Union
Positive Drivers Consumer demand remains strong on employment growth cycle and rising wages, but growth to decelerate Housing investment crests, previous starts still supports growth Business investment gears off high growth economy, lifts productive capacity Capital investment to pick up on major public-sector projects, various major private projects Exports to rise on stronger external demand, but growth decelerates Negative Drivers Housing cycle to slow on B-2 measures, provincial tax regime, higher interest rates Commodity investment remains weak
B.C. labour market tightening, wage acceleration to continue Per Cent Average hourly wage growth, y/y Per Cent 1 8 Employment Growth Unemployment Rate 6 4 2-2 -4 2 24 28 212 216 22 Source: Statistics Canada, Central 1 Credit Union. 7 6 5 4 3 2 1-1 -2 25 28 211 214 217
Interprovincial migration to wane, international steady Persons (s) 4 3 2 1-1 Net International Immigration Net Interprovincial Migration Net Non- Permanent -2 2 25 21 215 22 Source: Statistics Canada, Central 1 Credit Union.
Housing market conditions have changed B-2 Measures having significant impact on early-218 sales Mortgages rates on the rise Provincial government speculation tax and other property taxes negatively impacting consumer sentiment Access to credit impeded, impacting top end of the market, pushing purchasers down the housing ladder Strong market conditions continue for apartment and townhomes Worsening relationship between BC and Alberta may impact recreation and retirement market
Lower Mainland home sales drop 3% in early 218 Lower Mainland MLS Sales Units 8, 7, 6, 5, 4, 3, 2, 1, Seasonally-Adjusted (L) 21 212 214 216 218 Units 3,5 3, 2,5 2, 1,5 1, 5 Det TH Apt 214 216 218 Source: CREA, Central 1 Credit Union. Note: seasonally adjusted. Latest: Feb-18
Detached home values creep higher, multi-units strong Vancouver CMA, Median Resale Price ($) ($s) 1,4 y/y % change 1,2 4 1, 3 8 2 6 1 4 2-1 Detached Apartment Attached 21 212 214 216 218-2 21 212 214 216 218 Source: Landcor, Central 1 Credit Union. Note: seasonally adjusted. Latest: Mar-18 5
Sales to Active Listings Ratio Housing Price Index, 214=1 8 Lower Mainland: Demand cools, multi-family market strong Per Cent Index 2 $656,2 7 Detached $78,3 Attached 18 6 Apartment $1,335,9 16 5 4 3 2 1 14 12 1 Detached Attached Apartment 21 212 214 216 218 8 214 215 216 217 218 Source: CREA, Local Real Estate Boards, Central 1 Credit Union
Divergence in cycle Detached Market 6 Apartment Market 5 5 4 annualized % change 4 3 2 annualized % change 3 2 1 1 1 2 3 4 5 6 7 8 1 2 3 4 5 Sales-to-Active Listings Source: Landcor, REBs, Central 1 Credit Union. Sales-to-Active Listings
New Listings Inventory still low, strong economy limits upward momentum Active Listings 5, 4,5 4, 3,5 3, 2,5 2, 1,5 Detached 1, 5 Apartment 21 212 214 216 218 14, 12, 1, 8, 6, 4, 2, Detached Apartment 21 212 214 216 218 Source: CREA, Local Real Estate Boards, Central 1 Credit Union
Speculation climbs with price momentum in apartment sector Vancouver CMA Holding Periods, (% of resales transactions) 7% 6% 5% Apartment Condos less than 1-year less than 2-years 7% 6% 5% Detached Units less than 1-year less than 2-years 4% 4% 3% 3% 2% 2% 1% 1% % 199 1994 1998 22 26 21 214 218 % 199 1994 1998 22 26 21 214 218 Source: CREA, Central 1 Credit Union. Note: seasonally adjusted. Latest: March
New home inventory similar trend, but lots in the pipeline New home inventory Units under construction 6, 5, 4, 3, 2, 1, 199 1994 1998 22 26 21 214 218 45, 4, 35, 3, 25, 2, 15, 1, 5, 199 1994 1998 22 26 21 214 218 Source: CREA, Local Real Estate Boards, Central 1 Credit Union
Land base highly constrained, density drives land prices Land Area, Square kilometres 7, 6, 5, 4, 3, 2, 1, Calgary Toronto Victoria Vancouver Densification reflects size of Metro Vancouver land base which has not changed in 35 years Population growth is about 4k per year, which will continue to put upside on the land base The region will build up not out. Little opportunity to build outwards U.S. constraints Southern expansions, North is constrained by mountains, west by the oceans, leaving on the east Adding to this is an agricultural land reserve which makes up 2% of the land base Source: Statistics Canada, Central 1 Credit Union. 1981 216
ALR makes up 2% of the land base in Greater Vancouver Source: Metro Vancouver, Central 1 Credit Union.
Metro Vancouver land utilization to increase Persons per square km. 1,2. 1,. 8. 6. 4. 2.. 1976 1991 26 221 236 Source: Statistics Canada, BC Stats forecast, C1CU. Latest actual : 211. Housing pressures will not alleviate as demand rises Higher density housing required, cities need to rezone multi-family Families looking for the white picket fence will flow east Improved transit is necessary for the region More housing availability is key
Outlook Indicator 215 216 217 218f 219f Lower Mainland Southwest Development Region Employment Growth (% ch.) 1.4 4.7 3.2 2.5 1.3 Unemployment Rate (%) 6. 5.5 4.6 4.1 4. Lower Mainland Southwest Development Region Resale Transactions (Units) 57,873 64,527 58,245 54,8 54, % change 28.8 11.5-9.7-6. -1.5 Median Price ($) 54, 6, 64, 665, 687, % change 6.9 11.1 6.7 3.9 3.3
Questions? Bryan Yu Deputy Chief Economist byu@central1.com
New home inventory similar trend, but lots in the pipeline Apartment completions Units under construction 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 2Q1 212Q1 45, 4, 35, 3, 25, 2, 15, 1, 5, 199 1994 1998 22 26 21 214 218 Source: CREA, Local Real Estate Boards, Central 1 Credit Union
Detached homes and increasingly rare commodity Units (s 3, Per Cent 25, 2, 15, 1, 5, 199 1994 1998 22 26 21 214 5 4 3 2 1 Total Vancouver CMA Housing Starts (L) Single-Detached Share (R ) Densification is the key trend for Vancouver CMA Affordability challenges is due largely to constrained geography, shifting market to apartment and townhome units Only 2% of new home construction is detached product, over time, scarcity will intensify Municipalities are focused on building out multi-family supply Source: CMHC, Central 1 Credit Union Latest: 217