Layoffs and the Crash - Market Update August 2016
September 7, 2016 - The Bank of Canada announces they are going to maintain the overnight rate at 0.5%. This is of course good news for mortgage rates, which will remain historically low. The BOC will revisit the overnight rate on October 17th - I don't think you will see a change. The BOC remains bullish on the balance of 2016, but they have been struggling to stimulate economic activity in Canada despite this historically low rate. Meanwhile economic output has been disappointing on both sides of the border while "adjusted inflation" numbers remain steady. With slumping US and foreign economic activity,where do they think the growth is going to come from - they site infrastructure projects. The BOC reports inflation is steady at 2%, while house hold debt remains historically high and the cost of consumer products continues to rise.
Volume sales continue to decrease to 4 year lows. According to the Real Estate Board's figures for August, Detached home sales were down 44% year over year, apartments down 10%, and attached properties down 25%, but home prices remain virtually unchanged. Is this because there is strong demand for Vancouver real estate, or have property prices remained strong because of the lack of supply? Inventory has been down approximately 30% year over year, but in the past few months this shortage has shrank to 21.9%, meaning that there is more inventory becoming available. Furthermore, with fewer sales numbers the inventory supply could continue to grow through the fall. Seasonally we should see sales pick up again for September and October and then fall off into Christmas, but according to CBC News, The Greater Vancouver Home Builders Association is concerned. Based on the softening of sales numbers and the Foreign Buyers Tax implemented last month - they estimate a loss of 5000 jobs or 10% approximately by December 2016.
On the ground, August opens were slow. Most importantly, the Sales-to-active-listings ratio dropped month over month from 38.6% in July to 29.3%. This is still largely a "Sellers Market", but the correction has been occurring for several months now. The high was back in March 2016 when the ratio was 70%. Click this link for an explanation of the sales-to-active-listings ratio.