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A Brief British Columbia Economic Update

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Blog by Doug Treleaven | June 13th, 2017

Once again, the B.C labour market saw another hefty gain in May, continuing the upswing in employment rates. B.C outpaced the national performance with an increase of 0.5% in May, compared to the national performance of 0.3%, behind only Prince Edward Island. This robust expansionary gain is aligned with B.C's high economic growth, with real GDP growing at an average pace of 3% per annum over the last 3 years.

Among key industry drivers, gains from April were service-sector driven and with significant gains in finance insurance and real estate (3.0 per cent), building and support services (7.8 per cent), and health services. In contrast, laggards included utilities (-6.9 per cent), and public administration (-2.9 per cent).

The Canadian economy is growing at a solid pace but significant concerns over the housing market and consumer debt levels remain. The Governor of the Bank of Canada (BoC) said that consumer debt levels have reached record levels and consumers are increasingly using home equity since disposable incomes have not kept pace with rising real estate prices. Although the Canadian mortgage market is relatively safe, especially when compared to the US debacle that caused the 2008 global financial crisis, any large economic shock could quickly push a large number of consumers into insolvency which would then lead to a correction in housing prices.

The latest MLS® data for B.C.’s Lower Mainland housing market put to bed any talk of a housing market softening in the region as prices surged and sales continued to rise. However, time will tell if the shifting political landscape of a minority government and prospects of provincial policy to curb housing market activity will curtail demand in the second half of the year.

Underpinned by strength in the economy, low interest rates, and desire for homeownership, sales continued to track higher. While mortgage rates remain low, with the economic growth and weak Canadian dollar, the BoC is likely to raise interest rates a couple of times in 2018, although the BoC may act more quickly if Canada’s economy continues to heat up. For consumers looking to stay in one property for the next 5 years, fixed terms are probably the best choice especially when the variable rate increases that should happen over then next 2 years are taken into account.

Current market trends point to further price growth in over the next few months, but policy uncertainty could weigh as an NDP-led and Green-backed minority government will likely lead to tightening of housing policy, and could include some form of occupancy tax, and expansion of the foreign buyer tax. This could shift consumer sentiment, or delay purchasing decisions.