With the release of second quarter statistics, I am getting back to economics and numbers regarding our local market this week. Let’s start with the recent Bank of Canada announcement. Based on strong business and export growth, the Bank of Canada raised its overnight rate to 1.50% on July 11th. Canadian Banks responded by increasing their prime rate by 0.25%. Bank Prime now sits at 3.70% which is higher than 5 year fixed rate rates. The yield curve is now inverted which is a sign of a late cycle economy. While there are no immediate recession concerns, we believe the Bank of Canada is now going to wait and see how our economy unfolds with fresh trade war concerns looming. We must keep in mind that the Bank of Canada raised their overnight rate as a result of April and May data points indicating Canada’s economy was operating close to full potential with job gains and inflation topping the central bank 2% threshold.
Will the Canadian Economy Grow?
Prior to any additional hikes it remains to be seen if our economy will continue to grow at a greater than 2% inflation rate given a slowing housing market, high levels of consumer debt, rising interest rates and, trade disputes/protectionism. Will global demand and strong commodity prices continue to boost Canada’s business growth and sustain our economy? We think global growth and slowing domestic forces counter-balance themselves quite well and expect the central bank to sit back and monitor the economy into the fall before considering more rate hikes. The longer term concern to us is our economy becoming more reliant on business growth and global demand than consumer driven. There is a clear need for consumers to reduce debt and save. With economic momentum shifting to external drivers such as exports and commodities, debt heavy consumers become more vulnerable to economic forces beyond our control.
BC’s Economy Remains Healthy
Shifting to our local economy, BC’s economy remains healthy. Our unemployment rate was the lowest in the country at 4.8% in May with Consumer Price Index (Inflation measure) at 2.7%, slightly higher than Canada’s overall CPI of 2.5%. Of note in the employment report was a slowdown in construction jobs after BC housing starts fell 15.5% in June. In Vancouver housing starts fell by 36%, the fourth largest decrease among all Census Market Areas. With rising interest rates, the recent B-20 Stress Test and a $704,200 benchmark price for a condo, listing inventory is growing with new starts slowing down. Overall Vancouver’s real estate market is moving into balance with some excellent opportunities for move up buyers!
If you know anyone who wants to explore possibilities for a move-up buy, we’d love to hear from you. Thanks again for your amazing support and have a great week!