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September 2009

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BC Housing Construction to Rebound in 2010 - September 16, 2009

B.C.'s economy is facing a degree of adversity not seen since 1982, but signs suggest that conditions are poised to improve, according to a new report by RBC Economics.

"The downturn in activity this year has been extensive, impacting virtually all parts of the B.C. economy," said Craig Wright, senior vice-president and chief economist, RBC. "As a result, we have revised our projected rate of decline for real GDP in B.C. downward to -2.6 per cent from the -1.9 per cent forecast in our June outlook."

The report indicates that a stunning rally in existing home sales in recent months and the stabilization of retail sales since the spring - with some sales even trending slightly higher - are clear indications that consumer confidence is beginning to return.

"In our view, a continued rise in positive sentiment will signal that B.C.'s economy is in the late stages of the recession and poised to expand again next year," added Wright. "We're projecting that real GDP in the province will rebound to 3.1 per cent in 2010, up marginally from our earlier projection of 2.9 per cent."

According to the report, the recovery in 2010 will reflect improvements in both external and domestic markets for B.C. A strengthening global economy is expected to boost demand for commodities and re-invigorate the province's export sector. At home, continued expenditures on capital investment projects should be supplemented by rises in consumer spending and new housing construction. The report also anticipates that B.C.'s economic performance next year also will be brightened by increased tourism spending associated with the 2010 Olympic and Paralympic Winter Games.

The main theme of the RBC Provincial Outlook is that, while the collective performance in Canada has largely unfolded as anticipated, recent developments on the provincial side indicate that the contraction in activity is more widespread than previously thought. In response, RBC has adjusted its forecast and is projecting that nine provinces will post negative growth in 2009, leaving Manitoba as the sole province expected to show positive, if modest, growth this year. RBC is forecasting that the economies of all ten provinces will expand in 2010, with western Canada leading the way. Saskatchewan and Nova Scotia are now expected to contract (due primarily to poor summer crop conditions and weakened capital spending, respectively). On the other hand, Ontario has shown encouraging signs that a rebound will emerge during the second half of this year, prompting a reduced rate of decline overall in 2009.

Government Spending Supports Non-Res Construction - September 10, 2009

The recession has weakened the outlook for Canada's non-residential construction industry in 2009, but the industry is benefiting from increased government spending on infrastructure, according to the Conference Board's Canadian Industrial Outlook - Canada's Non-Residential Construction Industry - Summer 2009.

"Although profits are expected to decline by 33 per cent from last year's highs, the industry is performing surprisingly well. Strong spending on institutional buildings, notably social housing, schools and hospitals, is supporting the industry's outlook this year," said Michael Burt, Associate Director, Industrial Economic Trends.

The industry posted record profits of $1.9 billion in 2008, which will dip to $1.3 billion in 2009. The recession lowered demand for office and industrial space. But the industry-particularly in western Canada- had already started to cool down before the recession began, which made the downturn less abrupt. On the downside, prices are forecast to decline this year after three years of strong growth. In addition, cost growth remains a concern: key material costs have not fallen significantly, and a labour shortage still exists for specific trades. Profits are forecast to range between $1.2 billion and $1.3 billion annually between 2010 and 2013.

BoC Decides to Leave Interest Rate Low - September 10, 2009

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

A Bank spokesperson said that global economic and financial developments have been broadly in line with the Bank's expectations and that following a deep, synchronous recession, recent indicators point to the start of recovery in major economies, supported by aggressive policy stimulus and the stabilization of global financial markets.

In Canada, economic growth, the output gap, and inflation in the first half of 2009 have evolved largely as expected in the Bank's July Monetary Policy Report (MPR).

Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are supporting domestic demand growth in Canada. Combined with recent information on inventory adjustments and automotive production, this suggests that GDP
growth in the second half of 2009 could be stronger than the Bank projected in July. Total CPI inflation is still expected to trough in the current quarter before returning to the 2 per cent target in the second quarter of 2011 as aggregate supply and demand return to balance.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.

The Bank says that while the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.

Persistent strength in the Canadian dollar remains a risk to growth and to the return of inflation to target. In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April MPR.

Housing Starts Up Country Wide - September 9, 2009

The seasonally adjusted annual rate of housing starts increased to 150,400 units in August from 134,200 units in July, according to Canada Mortgage and Housing Corporation (CMHC).

“Housing starts are trending higher, reflecting improvements in both the single and multiple segments,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “The improvement in housing starts is consistent with our expectation of a stronger second half for 2009.”

The seasonally adjusted annual rate of urban starts increased by 14.0 per cent to 131,800 units in August. Urban multiple starts increased by 23.8 per cent to 77,600 units, while urban single starts moved up 2.5 per cent to 54,200 units in August.

August’s seasonally adjusted annual rate of urban starts increased by 56.0 per cent in British Columbia, by 16.1 per cent in the Prairies, by 13.8 per cent in Ontario, by 9.6 per cent in Atlantic Canada, and by 2.5 per cent in Quebec.

Rural starts were estimated at a seasonally adjusted annual rate of 18,600 units in August.

Lower Prices Boost Home Sales - September 9, 2009

The stunning rally staged by B.C.'s resale housing market this spring and summer largely reflects the significant decline in the costs of owning a home in the province, according to the latest housing report released today by RBC Economics.

"The cumulative declines in homeownership costs over the past five quarters have been the sharpest since 1991, which has helped revitalize B.C.'s resale housing market," noted Robert Hogue, senior economist, RBC. "Nonetheless, affordability levels are still above long-term averages, which suggests that affordability in B.C. has yet to be fully restored."

The RBC Affordability measure for British Columbia, which captures the proportion of pre-tax household income needed to service the costs of owning a home, indicated that, in the second quarter of 2009, homeownership costs of detached bungalows in the province moved down to 58.4 per cent, the standard townhouse down to 45.6 per cent, the standard condominium down to 32.7 per cent and the standard two-story home down to 64.4 per cent.

In Vancouver, resale activity staged a huge comeback through the spring and summer. Sales of existing homes more than tripled by July, after falling to their lowest levels in about 19 years at the end of 2008.

"While the significant drop in homeownership costs since the spring of 2008 has re-energized this market, housing is still expensive in Vancouver, relative to other cities in Canada," added Hogue.

RBC's Affordability measure for a detached bungalow for Canada's largest cities is as follows: Vancouver 63.4 per cent, Toronto 46.5 per cent, Ottawa 38.6 per cent, Montreal 37.3 per cent and Calgary 35.7 per cent.

The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Victoria and Vancouver. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.

The property benchmark for the Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow.
Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading,
the more costly it is to afford a home. For example, an Affordability reading of 50 per cent means that homeownership costs, including mortgage payments,
utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.

Building Intentions Down 2.5 Per Cent in BC - September 8, 2009

Contractors across the country took out just over $4.6 billion worth of building permits in July, an 11.4% decrease from June says a report released this morning by Statistics Canada. An important factor in the decline was a strike by civic workers in the city of Toronto, which shut down municipal offices for most of the month.

Municipalities issued about $2.6 billion in residential permits in July, down 4.1%, and just over $2.0 billion in non-residential permits, a 19.3% drop.

Excluding Toronto, the total value of building permits declined by 1.8%. The value of residential permits increased 7.4% instead of declining. Non-residential permits declined by 11.6%.

Provincially, the value of building permits fell in four provinces in July: Ontario, Alberta, Quebec and British Columbia. The most significant decrease occurred in Ontario (-27.5% to $1.4 billion), again mainly as a result of the situation in Toronto.

Residential sector: Intentions up for single-family permits, down for multi-family

Municipalities issued $1.8 billion in single-family permits in July, up 5.2% and a fifth consecutive monthly increase. The gain was a result of higher construction intentions in all provinces except Quebec and Newfoundland and Labrador.

The value of permits for multi-family dwellings declined 19.3% to $824.3 million in July. Excluding Toronto, they increased 8.0%.

Ontario, Quebec, Manitoba and New Brunswick reported decreases in multi-family construction intentions. British Columbia, Alberta and Nova Scotia posted the largest dollar increases.

Municipalities approved the construction of 12,364 new dwellings in July, down 3.8%. The decrease was primarily due to a 15.8% decline in the number of multi-family dwellings, which totalled 5,954 units.

The number of single-family dwellings approved rose 10.8% to 6,410 units, the highest level since November 2008.

Non-residential sector: Decreases in all three components

The value of building permits declined in all three components in July. Provincially, Ontario, Alberta and British Columbia reported decreases in all three components.

After two consecutive monthly increases, the value of permits for commercial buildings decreased 18.6% to $1.0 billion. In Ontario, the decrease came mainly from construction intentions for hotels, restaurants and laboratories. In Alberta and Quebec, the decrease came mainly from office and recreational buildings.

In the institutional component, the value of permits decreased 19.7% to $734 million. British Columbia and Alberta accounted for the largest decreases in July, due to declines in educational building projects. Ontario followed with decreases mostly in educational and government buildings.

The value of permits for the industrial component declined by 20.5% to $264 million. This was due largely to a reduction of permits issued in Toronto. Overall, six other provinces also experienced some decline in construction intentions.

Provinces: Largest increase in Saskatchewan

In July, six provinces recorded increases in the value of building permits. Saskatchewan recorded the largest gain (+57.5%), the result of increases in all components.

The value of building permits decreased in the four largest provinces.

In Alberta, the total value of building permits declined 10.9% to $753.5 million, reflecting decreases in all three components of the non-residential sector. In British Columbia, total intentions fell 2.5% to $618.6 million, again the result of declines in all three non-residential components. However, permits in the residential sector of both provinces rose, thanks to strong results for both single- and multiple-family dwellings.

Quebec experienced a decline of 6.1% to $1.1 billion, due to decreases in the residential sector and the commercial component.

Metropolitan areas: Decreases in Toronto, Calgary and Kelowna

The total value of permits decreased in 17 of 34 census metropolitan areas (CMA).

The largest decrease occurred in the CMA of Toronto, where only the institutional component showed a gain. Excluding the city of Toronto, however, the value of permits in the rest of the remaining part of the CMA rose 1.2%, thanks to gains in the single and institutional components.

The CMA of Calgary recorded decreases in all components of the non-residential sector and increases in all components of the residential sector. Kelowna registered decreases in both sectors.

The total value of permits in the Vancouver CMA increased, the result of gains in all components except for industrial permits.

Housing Construction Set to Rebound - September 3, 2009

Housing starts are expected to rebound in the second half of 2009 and will reach 141,900 for the year. Starts will increase to 150,300 for 2010, according to Canada Mortgage and Housing Corporation’s (CMHC) third quarter Housing Market Outlook, Canada Edition report. The overall forecast totals for housing starts remain unchanged from the second quarter release.

"Economic uncertainty and lower levels of employment tempered new housing construction in the first half of this year", said Bob Dugan, Chief Economist for CMHC. "In the second half of 2009 and in 2010, we expect housing markets across Canada to strengthen."

Improving activity on the resale market and lower inventory levels in both the new and existing home markets are expected to prompt builders to increase residential construction.

Existing home sales, as measured by the Multiple Listing Service (MLS®), have rebounded strongly since January and will reach 420,700 units in 2009 and remain close to that level at 419,400 units in 2010. The average MLS® price is expected to moderate to $301,400 in 2009 and to increase to $306,300 in 2010.

In British Columbia, where there were 34,321 housing starts in 2008, forecasts indicate 16,250 starts for 2009 increasing to 22,000 starts in 2010.