the rennie landscape - Fall 2020

rennie landscape fall 2020

Dear Reader, Welcome to the fall 2020 edition of the rennie landscape. If you’re reading this, you’ve officially made it to the last quarter of 2020. Nevermind that just around the corner looms British Columbia’s provincial election, a US presidential election, and a second wave of Covid-19; you have survived sixmonths of a global pandemic, anunprecedented economic downturn, wildfire smoke, and moths. Congratulations. In all seriousness, it is hard to recall another year quite like 2020 has been so far. Perhaps it has been, in a truly absolute sense, an outlier, encapsulating within a single calendar year a series of events whose cumulative probability was so low we won’t see another one quite like it for a generation (or hopefully more). Perhaps. Or perhaps it was inevitable. Perhaps the seas were smooth for so long that skilled sailors we had forgotten how to be; perhaps 2020 was a reversion to some sort of mean. Without the benefit of being future historians, how can we know? What we do know is that as we experience, without hyperbole, unprecedented changes and challenges to our economy and housing market, we are also being presented with a glut of new data and perspectives that we must sift through in order to assemble a cogent view of the future. In this report, and against this backdrop—one notably punctuated by uncertainty and fear—we have attempted to do just that. It is worth stating that this edition of the rennie landscape, more so than any of its predecessors, has purposefully tasked itself with proving an objective foundation for considering the changes we have undergone and others we have yet to experience. While we hope the rennie landscape can answer at least one or two questions you may have, or clarify a thought that simply won't firm up due to the cacophony of information competing for attention, we ask that you nonetheless reach out to us with any questions or thoughts on our future that you may have. We’d love to hear from you. Be safe and stay curious.

Ryan Berlin DIRECTOR OF INTELLIGENCE & SENIOR ECONOMIST intel@rennie.com

rennie.com

contents

ECONOMY

RATES

CREDIT & DEBT

DEMOGRAPHICS

HOUSING

POLICY

KEY INSIGHTS

GET THE DATA

rennie.com

economy

01. economy The loss of jobs during this “Great Suppression” has been historic, and so has the rebound. The recovery has some ways to go.

LEARNING A LESSON FROM THE GREAT RECESSION

As the Great Recession of 2008-09 unfolded, Metro Vancouver lost 38,100 jobs over the course of eleven months, shrinking overall employment by 3.1%. As a result, the region’s unemployment rate, which had been among the lowest in the country, surged from 3.6% to 8% within two years. At the time, it was considered an historically severe economic downturn and, over the next 12 years, that perspective held true. Then came the Great Suppression. While differing in its genesis and the nature of its manifestations, the coordinated economic shutdown that began in March 2020 resulted in a once-in-a-lifetime loss of jobs across Canada and in British Columbia. In Metro Vancouver, the economy shed 264,900 jobs in threemonths,withone in five workers being put out of work (not tomention the many thousands who saw their workdays and weeks reduced).

Having said that, the rebound—associated with a gradual re-opening of the economy— has been equally unprecedented, with employment in Metro Vancouver rising by 9% via the recovery of 113,500 jobs over the following three months (despite August shedding a couple thousand jobs). Having seemingly already touched the bottom of this downturn, we now look ahead to when the region’s job base might recover to its pre-pandemic level. Barring a substantial second wave of Covid-19 through the fall of 2020, there is optimism that a return to the region’s former employment capacity could come sooner than later. The optimismmay well be warranted, though it is noted here that during the Great Recession it took 3.5 years to return to pre-recession employment levels. Our government, businesses, and households would be wise to prepare for the same.

rennie.com

economy

METRO VANCOUVER’S LONG?ROAD TO RECOVERY

1.05

EMPLOYMENT FULLY RECOVERED

1.01

1.00 EMPLOYMENT LEVEL BEFORE DOWNTURN

1.00

0.95

0.90

EMPLOYMENT REMAINS % BELOW PREDOWNTURN LEVEL

0.85

0.80

26 28 30 32 34 36 38 40

MONTHS

THE GREAT RECESSION JAN .

THE GREAT SUPPRESSION FEB .

DATA: MONTHLY TOTAL EMPLOYMENT INDEXED TO THE BEGINNING OF EACH ECONOMIC DOWNTURN WHERE EMPLOYMENT .

SOURCE: LABOUR FORCE SURVEY, STATISTICS CANADA

rennie.com

economy

THE GREAT SUPPRESSION IN A HISTORICAL CONTEXT The recent rise of BC's unemployment rate has precedents in the magnitude of its increase and its peak, but not in its speed.

A universal feature of economic downturns is an increase in the unemployment rate. Indeed, such increases in the unemployment rate are often used (by non-economists) to define recessionary periods in very practical terms. It is no surprise then that British Columbia’s unemployment rate has increased since the beginning of 2020’s Great Suppression. However, both the speed and the magnitude of the change have been dramatic compared to previous downturns. Since the early-1980s, BC has experienced five distinct periods of rising unemployment. Prior to 2020, the most

recent was the more-than-doubling of the province’s unemployment rate over 31 months during the Great Recession. In comparison, BC’s unemployment rate rose by a factor of 3, to 13.4%, between January and May of this year. While this is not the greatest absolute increase in the unemployment rate, or the highest, that the province has experienced—refer to the 1981-84 downturn for those figures—the current rise occurred over only five months. Though it is an uncomfortable feature of the current downturn, it is somewhat mollified by the subsequent declines in the unemployment rate experienced over the past four months.

A SIGNIFICANT & HISTORICALLY RAPID RISE IN BC’S UNEMPLOYMENT RATE

18%

15.7%

16%

14%

13.4%

12%

10.7%

9.8%

10%

8.7%

7.8%

6.8%

5.5%

4.5%

4.3%

JAN MAY

JAN JUN

MAY DEC

AUG FEB

JAN MAY

MONTHS BETWEEN LOW & HIGH UNEMP. RATE

PREDOWNTURN UNEMP. RATE

PEAK UNEMP. RATE DURING DOWNTURN

SOURCE: LABOUR FORCE SURVEY, STATISTICS CANADA DATA: UNEMPLOYMENT RATE, SEASONALLYADJUSTED

rennie.com

economy

THE GREAT SUPPRESSION: A DIFFERENT KIND OF RECESSION, PART I Part-time workers have shouldered a disproportionate share of the job losses in British Columbia in 2020.

The Great Recession of 2008-09 was particularly severe in Canada and in BC for the simple reason that all of the jobs losses—and then some—were, on a net basis, in full-time work. More specifically, while 127,000 employed persons in British Columbia were put out of work between June 2008 and March 2009 (again, on a net basis), 163,000 full-time workers lost their jobs, equivalent to 128% of the total employment decline. How could this be? Because during the period there

was actually a 36,100-job increase in part- time positions. In comparison to the changes seen during that recession is the observation that of the 103,400 jobs lost to-date province- wide during our current downturn (that is, between February and August 2020), almost two-thirds (63%) have been in part-time work. Compare this to the 23% of all jobs that were part-time prior to the commencement of the Great Suppression.

BC'S PARTTIME WORKERS BEARING THE BRUNT OF JOB LOSSES IN

36.1 36.1

-38.0 -38.0

-50 -50

-65.4 -65.4

-100 -100

-103.4 -103.4

-127.0 -127.0

-150 -150

-163.0 -163.0

-200 -200

GREAT RECESSION JUL MAR GREAT RECESSION JUL AR

GREAT SUPPRESSION FEB APR GREAT SUPPRESSION FEB APR

PARTTIME PARTTI E

FULLTIME F LLTI E

TOTAL T TAL

SOURCE: LABOUR FORCE SURVEY, STATISTICS CANADA DATA: EMPLOYMENT, THOUSANDS, UNADJUSTED FOR SEASONALITY

rennie.com

economy

THE GREAT SUPPRESSION: A DIFFERENT KIND OF RECESSION, PART II BC’s service sector has been hit hard by job losses in 2020, potentially altering the structure of the economy for years to come.

In case it’s not yet obvious as we continue to probe the features of 2020’s Great Suppression, the current downturn has been historicallyunique initspaceofpermutation, depth of decline, and composition of change. And with respect to the latter, it has not only been the unique mix of full- versus part-time job losses that has been notable, but also which sectors have been hit the hardest. In British Columbia, and indeed in all industrialized economies, the broadly- defined service sector employs the majority of people; in this province, 75% of jobs are service-based, with the remaining 25% in goods-producing sectors.

Notably, the Great Recession of 12 years ago was characterized not only by the loss of many full-time jobs, but jobs in sectors such asconstruction,manufacturing, finance, and real estate. In fact, together, these sectors accounted for 65% of BC’s total job losses during that time. Things are very different this time around. The sectors above noted accounted for only 19% of job losses between February and April 2020, while retail trade, wholesale, food services (restaurants and cafes), and accommodation (hotels) accounted for 49%—up from 14% in 2008-09.

rennie.com

economy

NO THANKS FOR BC’S HOSPITALITY WORKERS

100%

19%

90%

80%

70%

65%

60%

49%

50%

40%

30%

14%

20%

32%

21%

10%

GREAT RECESSION JUL MAR

GREAT SUPPRESSION FEB APR

CONSTRUCTION, MANUFACTURING, FINANCE, REAL ESTATE RETAIL, WHOLESALE TRADE, FOOD, ACCOMMODATION ALL OTHER

SOURCE: LABOUR FORCE SURVEY, STATISTICS CANADA DATA: SHARE OF EMPLOYMENT LOSSES, UNADJUSTED FOR SEASONALITY

rennie.com

economy

AN UNEVEN RECOVERY FROM COAST-TO-COAST Between February and April of this year, more than 3 million jobs across Canada were cast aside as our country entered a collective shutdown to ward off the worst of the emerging pandemic. No province was spared, with job losses ranging from 75,400 on the East Coast (Nova Scotia), to 1.09 million in Central Canada (Ontario), to 361,000 in the Prairies (Alberta), to 396,000 on the West Coast (BC). In relative terms, job losses during this brief period ranged from a low of 12.7% in Saskatchewan to a high of 18.7% in Quebec, averaging 15.5% nationally.

the original shutdown and subsequent re- opening, and the underlying composition of each respective economy. This is also true for regional economies. Across Canada’s 33 Census Metropolitan Areas (CMAs), the pace of recovery has varied widely. For example, while Canada as a whole has recovered 44% of its original job losses, the Kitchener-Cambridge-Waterloo CMA has only regained 20% of all lost jobs. With the worst of the Covid-19 outbreak hitting Quebec and Ontario early in March, those two provinces have seen their regional economies recover relatively quickly. In contrast, each of BC’s four CMAs has re- captured less than half of its job losses, with Vancouver employment still 69% below its early-year peak. With each month’s employment increment adding fewer jobs than the month before, BC’s rehabilitation is likely to be long-term.

As uneven as the losses were, so too has been the pace of recovery, ranging from Ontario’ 9.4% growth (or rate of re-capture) from April’s employment lows to Quebec’s 17.7% (BC has seen employment grow by 11.5% since April). Many factors are at play in each province’s recovery, including the incidence of Covid-19, the specific nature of

rennie.com

economy

With more than half of Metro Vancouver’s job losses during the Great Suppression still not re-captured, a full recovery will take time.

EAST BESTS WEST AS JOB GROWTH CRESTS

100%

98%

80%

60%

46%

44%44%

43%

39%

40%

31%

20%

SOURCE: LABOUR FORCE SURVEY, STATISTICS CANADA DATA: SEASONALLYADJUSTED, MONTH MOVING AVERAGE; SHARE OF JOBS LOST STARTING IN MAR THAT WERE RECOVERED AS OF AUG

rennie.com

economy

A PARADOXICAL WAGE JUMP AS EMPLOYMENT SLUMPS As wages “rise” in BC in the midst of the Great Suppression, many are surprised; history says they shouldn’t be.

It is a strange feature of economic downturns that oftentimes aggregate measures of income actually rise. There are numerous instances of this, but due to constraints on word count on this page let’s just consider the experience of the Great Recession: as job losses mounted in British Columbia through the latter half of 2008 and into 2009, median weeklywages for full-timeworkersseemingly began to accelerate, reaching as high as a 8.2% year-over-year increase by April 2009. How could this be, when so much slack was building up in the labour market? The reality is that many of those full-time workers earning wages during the depths of the Great Recession were higher-income- earners than those who had lost their jobs. In other words, with many of the lost full-time jobs being associated with lower-paying, full-time positions—and no longer included in the measure of median wages once the job was lost—the result was that the higher wages of the remaining

full-time workers gave the impression that compared to a year earlier, incomes had been dramatically increasing. In fact they had not. So describes the current economic environment in British Columbia, with year-over-year median wages for full-time workers rising by 9.8% in August 2020. To underscore the point made in the previous paragraph, median full-time weekly wages actually “rose” on a year-over-year basis by 18.3% in April—that’s right, at the bottom of the downturn. So while top-level wage estimates purport to paint a rosy picture for incomes, they really are, in the instance of the Great Suppression, a product of the nature of job lost versus those retained. Only as the recovery evolves more fulsomely will we develop a more accurate picture of how incomes have changed.

rennie.com

economy

WAGE GROWTH ACCELERATES THROUGH THE SUPPRESSION

10%

9.8%

7.7%

5.4%

4.0%

AUG

WAGE RATE: END OF PERIOD

$1,020

$1,000

$1,120

$1,077

BRITISH COLUMBIA

CANADA

SOURCE: LABOUR FORCE SURVEY, STATISTICS CANADA DATA: SEASONALLYUNADJUSTED MEDIAN WEEKLY WAGE GROWTH FOR FULLTIME JOBS

rennie.com

economy

WITH ITS EBBS AND ITS FLOWS, THE STOCK MARKET GROWS Disconnected from reality, or totally intuitive? Regardless of your perspective, the truth is that stock markets have performed shockingly well.

Back in February, all of the major stock market indices were at all-time highs: at its peak the Dow Jones Industrial Average closed just below 30,000, the NASDAQ was a shade under 10,000, the S&P 500 could almost touch 3,400, and the Toronto Stock Exchange, or TSX, peaked just below 18,000. It was heady times for equities investors (and whether you know it or not, you were, and are, likely to be an equities investor). March brought considerable turmoil to these, and other, indices, which plummeted by up to 40% into the middle of the month as

the bottom fell out of the global economy. Then something remarkable happened. Over the ensuing five months, virtually all indices recovered (on the back of technology stocks), withall indices at, or very close to, their levels at the opening of 2020. This is more than a simple curiosity for housing markets: with stock market-based savings preserved for the time being, most would-be buyers—from first-timers to down-sizers—are as able today as they were pre-pandemic to participate in the for- sale market.

FROM LOW TO HIGH: EQUITIES MYSTIFY

1.40

1.31

NASDAQ UP %

1.20

1.19

1.00

STOCK MARKET VALUES ON JAN

1.03 0.95 0.96

1.00

0.80

0.64

DOW JONES DROPS %

0.60

0.40

0.20

0.00

JAN

FEB

MAR

APR

MAY

JUN JUL

AUG SEP

S&P

TSX

NASDAQ

DOW JONES INDUSTRIAL AVERAGE

DATA: INDEXED STOCK MARKET INDICES JAN .

SOURCE: YAHOO FINANCE

rennie.com

economy

TAKING STOCK Household savings remain largely intact despite intense volatility in the stock market. ›

rennie.com

rates

02. rates

Rates are low, low, low, and the Bank of Canada’s forward guidance suggests they will stay where they are for years to come.

HERE’S THE LOWDOWN ON LOWDOWN RATES

In previous editions of the rennie landscape, we wrote about the likelihood that interest rates in Canada would remain low for a very long-time —bobs and weaves aside. This perspective was rooted in the notion that not only is the long-term outlook for consumer price inf lation moderate at most and low most likely, but that our demographics are such that baby boomers’ savings exceeds the demand for credit from younger generations. These notions are still valid and entirely applicable in our current economic environment—an environment that morphed seemingly overnight back in March as the pandemic set in and our economy went into shutdown mode. The Bank of Canada responded by slashing its policy interest rate that governs the short-termmarket from 1.75% to 0.25%, while Canadian government bond yields

cratered (to the point where in August, a $100 investment in a 5-year Canadian government bond would return the investor a mere $2.05 over the term of the bond). The decline in the Bank of Canada’s policy rate was intended to support borrowing and spending, while the decline in bond yields ref lected investors’ collective f light from risk as government bonds faced insatiable demand on all fronts, including from the Bank of Canada itself. With the economy expanding in fits and starts for the foreseeable future, and with governments at all levels expected to borrow and spend heavily for years, the Bank of Canada has all but committed to maintaining interest rates where they are into 2023. This in turn should provide home buyers and home builders with a little bit of certainty in a very uncertain world.

rennie.com

rates

INTEREST RATES: REDEFINING LOW

5.00%

THE GREAT SUPPRESSION

4.00%

3.57%

3.00%

2.00%

1.00%

0.25% 0.15% 0.41%

0.00%

-1.00%

BOC POLICY INTEREST RATE CMHC BENCHMARK MORTGAGE RATE

YR GOC BOND YIELD

ANNUAL CONSUMER PRICE INFLATION

SOURCE: STATISTICS CANADA DATA: SELECTED INTEREST RATES AND CANADA’S ANNUAL RATE OF CPI CHANGE

rennie.com

rates

THE BANK OF CANADA: ITS HAND FORCED, A STRONG PLAY Canada’s central bank has acted swiftly to loosen monetary policy and support the economy through a difficult transitory period.

Generally-speaking, the Bank of Canada cuts its trend-setting interest rate when the economy needs a kick-start; this lower rate then has ripple effects through the economy as other lenders follow suit. This has the effect of incentivizing borrowing, enhancing consumer spending, and deepening business investment beyond levels that would otherwise be achieved with higher rates. This is rarely a panacea for an economy that is f lashing recessionary warning signs due to structural imbalances that need to be addressed, but it does help to prevent a deeper downturn. In past downturns, the Bank of Canada has had more wiggle-room than it had at the outset of the Great Suppression: for example, during the early-2000s recession, the Bank was able to lower rates by 375 basis points, from 5.75% to 2.00%. During the Great Recession, the Bank cut its policy rate by 425 basis points, from 4.50% in November 2007 to 0.25% by April 2009. Such a luxury was not available this most

recent time around, as Canada’s pre- recession policy rate was only 1.75%— notably, the lowest ever going into a recession. The Bank did what it could and promptly cut the rate by 150 basis points to what it refers to as its “effective lower bound” of 0.25%. Fortunately, that isn’t the end of this story as it relates to the Banks’ ability to impact the economy. For the first time ever, the Bank of Canada—in conjunction with its rate cuts— committed to a program of Quantitative Easing, which involves purchasing longer- term debt from the federal government and provincial governments, as well as a limited volume of high-grade corporate bonds. Along with government fiscal supports, the Bank’s efforts have staved off what could have been a much deeper downturn. Hopefully their efforts will have the additional effect of cajoling the economy back to its pre-pandemic levels.

rennie.com

rates

THE CENTRAL BANK GOES ALL IN

7.00%

6.00%

5.75%

5.00%

4.50%

4.00%

3.25%

3.00%

2.00%

1.75%

1.00%

0.25%

0.00%

MONTHS FROM PEAK INTEREST RATE

FEB PEAK

NOV PEAK

JUN PEAK

DEC PEAK

DATA: BANK OF CANADA POLICY INTEREST RATE; EACH SERIES BEGINS WITH PEAK RATE BEFORE DECLINE

SOURCE: STATISTICS CANADA

rennie.com

rates

As consumer demand has sagged, so too have prices. The question is, for how long?

rennie.com

rates

CONSUMER PRICES: A DEFLATING ASSESSMENT

Our society is conditioned to expect things to increase, to improve, to rise: think population, gross domestic product, service quality, technology, incomes, and prices, to name a few. With regard to the latter, that expectation is rooted deeply in historical experience, with consumer prices tending to rise, more or less, each month and each year. This is, by definition, what inf lation is. Our economy rarely experiences def lation—a situation where prices are falling. Yet, that is precisely where we found ourselves beginning in April of this year as the Great Suppression began to live up to its name insofar as the shutdown suppressed

consumer demand. By May, not a province in Canada had avoided price def lation (per changes in the Consumer Price Index), with the national annual rate of “inf lation” descending to -0.4% in May. While prices have rebounded somewhat since then as employment has begun its recovery and the economy has continued to open up, August’s inf lation measure was only 0.15%, which was well below the Bank of Canada’s target of 2%. As noted in the previous section, should inf lation remain low, or negative, for an extended period of time, don’t expect interest rates to budge—a boon to existing home owners and other debt holders.

THE GREAT DECLINE IN THE CONSUMER PRICE INDEX

3.5%

THE GREAT SUPPRESSION

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.15%

0.0%

-0.5%

-1.0%

-1.5%

-2.0%

BRITISH COLUMBIA

CANADA

BOC TARGET

DATA: ANNUAL RATE OF CHANGE IN THE CONSUMER PRICE INDEX BY PROVINCE

SOURCE: STATISTICS CANADA

rennie.com

rates

ONE TRIP TO THE STORE PROVES SOME THINGS COST MORE In BC, the prices of things we’re still buying have increased; the prices of those we’re not have not.

While aggregate measures of consumer price changes do indeed tell a def lationary tale, trends in the prices of specific products and services inform a different narrative. For example, while the prices of gasoline (we’re not driving as much), public transportation (we’re not riding the bus), rented accommodation (available listings are on the rise), and clothing (how many dusty suit jackets are in your closet?) have all fallen compared to a year ago, that of food, owned accommodation, and home entertainment equipment has risen.

This has brought attention to the reality that the consumer price index, which the Bank of Canada uses to measure inf lation, is somewhat rigid in its structure and does not always ref lect true spending patterns. Interestingly, this may have implications for how the Bank views both inf lation and its policy interest rate in the months and years ahead as it refreshes its monetary policy mandate with the federal government in 2021.

MOST PRICES FALL YES, MOST NOT ALL

7.3%

NATURAL GAS TRAVEL SERVICES HEALTH & PERSONAL CARE TOBACCO SMOKER’S SUPPLIES

3.0%

2.0%

1.7%

1.3% 1.3%

CULTURAL RECREATIONAL SERVICES HOUSEHOLD FURNISHINGS EQUIP WATER FOOD OWNED ACCOMMODATION HOME ENTERTAINMENT & SERVICES RECREATIONAL CANNABIS

0.5% 0.5% 0.5%

0.4%

0.0%

-0.2% -0.2%

ACCESSORIES, JEWELLERY ALCOHOLIC BEVERAGES ELECTRICITY PRIVATE TRANSPORTATION FOOTWEAR PUBLIC TRANSPORTATION CLOTHING GASOLINE FUEL OIL & OTHER FUELS RENTED ACCOMMODATION

-0.9%

-1.3%

-2.0%

-2.4% -2.4%

-7.3%

-9.5%

-14.5% -16% -14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8%

SOURCE: STATISTICS CANADA DATA: AUG AUG CHANGE IN THE CONSUMER PRICE INDEX BY CATEGORY, BC

rennie.com

rates

DEFLATED EXPECTATIONS Many prices have fallen, it’s true; but many have also risen—especially for things purchased by you. ›

rennie.com

credit and debt

03. credit & debt Conventional (economic) wisdom says that what you borrow you must pay back, a notion being challenged in these extraordinary times.

WHOEVER SAID DEFICITS MATTER DIDN’T GOVERN IN A PANDEMIC

While past federal governments have had differing political leanings and governed in a variety of unique economic epochs, the historical pattern of budgetary balances has been varied but consistent. In the 120 months preceding April 2020—spanning a period of governance that saw the Conservative and Liberal parties variously at the helm—42 were characterized by a federal budgetary surplus (35% of the time) and 78 were associated with a budgetary deficit (65%), with no one monthly deficit surpassing $14.8 billion and no one surplus exceeding $5.2 billion. So the fact that the government ran deficits in each of April, May, and June of 2020 is not particularly surprising; of note, however, is the magnitude of the deficits in these months. Perhaps the best way to frame the historical significance of recent federal government spending is to observe that the $120.3 billion cumulative deficit generated between April and June is effectively equal to the cumulative deficit of the preceding

106 months ($120.8 billion) combined. This is not to say the deficits aren't warranted—in fact, far from it. With Canada’s economy sailing into unparalleled headwinds, quick and meaningful decisions needed to be made in the early days of the Great Suppression in order to support households, businesses, and lower levels of government through what will ultimately be a transitory period of economic tumult. Expect deficit spending to continue on an unprecedented scale. In turn, expect questions to be asked about our collective ability to repay the accumulating debt. The future is uncertain on this point, though currently historically-low borrowing costs are likely to continue to prevail for years to come. This will soften the blow of a growing debt load and will present Canada with an opportunity to grow our economy out of the red.

rennie.com

credit and debt

GOVERNMENT DEBT ACCRUING AT A HISTORIC PACE

$10

-$10

-$20

$120.8B PREVIOUS MONTHS

-$30

-$40

APRJUN $120.3B

-$50

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

SOURCE: CENTRAL GOVERNMENT OPERATIONS, STATISTICS CANADA DATA: MONTHLY BUDGETARY BALANCE BILLIONS , CANADA

rennie.com

credit and debt

CANADIAN HOUSEHOLDS TIGHTEN THEIR BELTS While governments spend to save the economy, Canadian households are spending their time saving.

Ballooning public debts being created at the federal and provincial levels are garnering much attention—and deservedly so—but a lesser-told tale is evolving in parallel: Canadian households are saving like never before. (It is worth noting here that “savings” is calculated as the amount of disposable income not spent on final consumption goods and services, per Statistics Canada.) In fact, the $94.1 billion innet savings during Q2 2020 was more than four times the next- highest quarterly net savings amount going back to the beginning of 1990 when the data were first collected. It was also almost equal to the total net savings achieved over the

preceding 10 quarters ($95.9 billion). While it seems as though our turbulent economic experience of the past six months has created an elevated desire for households to safeguard their finances in the short-term—while also ref lecting an inability to spend money on certain things, like tropical vacations—it is worthwhile to consider if this may represent a longer-term shift in attitudes towards savings. While a persistently-high savings rate could have negative implications for the pace of future economic growth over the long-term, the journey immediately ahead of us could be a little less bumpy.

HOUSEHOLD SAVINGS ACCRUING AT A HISTORIC PACE

$94.1B Q

$100

$80

$60

$40

$95.9B

PREVIOUS QUARTERS

$20

-$20

SOURCE: FINANCIAL FLOW ACCOUNTS, STATISTICS CANADA DATA: MONTHLY HOUSEHOLD NET SAVING BILLIONS , CANADA

rennie.com

credit and debt

BETTING ON THE HOUSE As household savings increased into the middle of 2020, new household debt slowed. This bodes well for the recovery.

Households acquire debt in a few different forms: throughmortgages, non-mortgage loans (including student and auto loans), and consumer credit (think credit cards and lines of credit). Overall, Canadian households saw their debt acquisition levels remain somewhat muted in Q2 2020, at $12.1 billion—a level similar to that of Q1’s $10.4 billion but down 59% from the previous three-quarter average of $29.5 billion. Interestingly, the composition of new debt acquisition shifted in Q2, with the $26.8

billion in newmortgage debt up 82% fromQ1 andmirroring increased home sales activity across the country. Meanwhile, consumer credit declined by its largest amount in history (by $14.5 billion in Q2; down 152%) and non-mortgage loans fell by $179million (down 113%). With savings up and debt accumulation stabilizing, Canadian households appear to be prudently planning for their collective financial near-term futures.

CANADIAN HOUSEHOLDS CLEAN UP THEIR BALANCE SHEETS

TOTAL FOR HOUSEHOLDS

MORTGAGES

CONSUMER CREDIT

NONMORTGAGE LOAN

$13,093

$909

$20,359

$34,361

2019 Q2

$8,504

$728

$22,392

$31,624

2019 Q3

$4,176

$556

$17,379

$22,111

2019 Q4

-$5,736

$1,430

$14,711

$10,405

2020 Q1

-$14,482

-$179

$26,771

$12,110

2020 Q2

-$8,746

-$1,609

$12,060

$17,050

Q1-Q2 2020 CHANGE

152%

-113%

82%

16%

-$27,575

-$1,088

$6,412

-$22,251

Q2 2019-Q2 2020 CHANGE

-211%

-120%

31%

-65%

SOURCE: FINANCIAL FLOW ACCOUNTS, STATISTICS CANADA DATA: NEW MONTHLY HOUSEHOLD DEBT MILLIONS

rennie.com

credit and debt

IS A RISE IN ARREARS A THING TO BE FEARED?

Metro Vancouver’s mortgage delinquencies remain near historic lows. Time to consider what the near-term outlook is as the mortgage deferral window closes.

First, some perspective: Metro Vancouver’s mortgage arrears rate (defined as the share of all outstanding mortgages that are three or more months behind in their payments) most recently stood at 0.15% in Q2 2020, meaning 15 out of every 10,000 outstanding mortgages were delinquent. This is a small proportion by any measure, is roughly half of the Canadian average, and is very near its historical low. The concern going forward has two related parts. First, over the past two years Vancouver’s arrears rate has risen to 0.15% from 0.10%—a 50% increase.

More importantly, as we look ahead to the balance of 2020 and into 2021, the question is whether or not this trend will continue, especially in light of the mortgage deferral window closing within the next six months. According to the big banks, virtually all mortgages on deferral that were scheduled to restart payments by this point in time have done so. This is good news, but should this trend not continue, we may see an elevated level of housing inventory in the coming months along with a moderate slowdown in the pace of price appreciation. Ultimately, only time will tell.

MORTGAGE DELINQUENCIES LOW AND STABLE

0.45%

0.38%

0.40%

0.35%

0.30%

0.28%

0.29%

0.25%

0.20%

0.17%

0.15%

0.11%

0.10%

0.05%

0.00%

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

MONTREAL

TORONTO

VANCOUVER

CANADA

DATA: PROPORTION OF ALL OUTSTANDING MORTGAGES THAT ARE THREE OR MONTHS IN ARREARS

SOURCE: CANADA MORTGAGE & HOUSING CORPORATION

rennie.com

credit and debt

WILL THEY RISE IN THE FALL? Mortgage arrears rates have remained low across Canada, but there is upside risk as the mortgage deferral window closes. ›

rennie.com

demographics

04. demographics

Younger, part-time service sector workers have been hit hardest by the Great Suppression as international migration slows to a trickle.

THE COLD, HARD TRUTH FOR BC’S YOUTH

In a typical month, about a quarter of British Columbia’s workforce comprises workers under the age of 30. This demographic segment has a distinct employment profile, associated with higher- than-average unemployment rates and lower-than-average (often hourly) incomes in part-time, hospitality sector positions. It’s no wonder, then, that our response to the rapidly-evolving pandemic impacted younger workers disproportionately. Strict social-distancing rules meant no more strolling from store to store along Robson Street or in Metrotown, no more morning coffees at the local cafe, and severe limits on traveling resulting in hotels becoming no-

go zones—all typical places of work for the under-30 cohort. As a result, 45% of British Columbia’s job losses between February and April were realized in the under-30 group—almost double the share of jobs they occupied in February. The good news is that as the economy has begun to open back up since then, 58% of the recovered jobs have been those associated with workers under the age of 30. As noted throughout this report, our full economic recovery is many months away, so while this is a good start, continued consideration (and government support) should be given to the impacts of the downturn on this group—as well, of course, as on everyone else.

rennie.com

demographics

AN AGE OF UNEVEN JOB LOSSES IN BRITISH COLUMBIA

35%

45% OF TOTAL JOB LOSSES IN BC FEBAPR

32%

30%

25%

20%

15%

13%

9% 9% 9%

10%

15-24 25-29 30-34 35-39 40-44 45-49

50-54

55-59 60-64

65+

FEB

FEB APRIL

SOURCE: LABOUR FORCE SURVEY, STATISTICS CANADA DATA: DISTRIBUTION OF JOBS AND JOB LOSSES BY AGE, UNADJUSTED FOR SEASONALITY

rennie.com

demographics

INTERNATIONAL MIGRANTS TO BC: FEWER FOR NOW

The Great Suppression has dented the impact of international migrants on BC’s demography in the short-run.

The biggest driver to population growth in British Columbia is net international migration, consisting of immigrants, emigrants, and non-permanent residents (which includes those in Canada as part of the International Mobility Program, as Temporary ForeignWorkers, or as students with study permits). In the first six months of 2019, the province welcomed 22,530 immigrants and 74,015 non-permanent residents. Fast forward one year, and through the first six months of 2020 immigration to BC was down by 24% (to 17,205) and the number of new non-permanent residents declined by 25% (to 55,165).

Of course, three of the six months for which we have data on international migration to the province in 2020 were during the Great Suppression; in these months (April, May, and June), immigration was down 55% and the inf low of non-permanent residents was down 30% compared to the same months in 2019. Individuals coming to BC from other countries play a vital role in shaping our labour force and populating our post- secondary educational institutions. It is therefore imperative that we find a way to continue to attract these migrants to British Columbia as we progress through our current downturn.

rennie.com

demographics

AN IMMIGRANT GAP AS OFF TURN THE TAPS

4,000

2,000

1,565

1,550

-490

-685

-870

-1,040

-1,555

-2,000

-3,145

-3,385

-4,000

-4,375

-5,420

-6,000

-6,325

-8,000

JAN

FEB

MAR

APR

MAY

JUN

IMMIGRANTS

TEMP. WORKERS & STUDENTS

VS. TOTALS

18,850 fewer non perm. residents

5,325 fewer immigrants

SOURCE: IMMIGRATION, REFUGEES, AND CITIZENSHIP CANADA DATA: MONTHLY INFLOWS OF IMMIGRANTS, IMP PERMIT HOLDERS, TFW PERMIT HOLDERS, AND STUDY PERMIT HOLDERS TO BRITISH COLUMBIA

rennie.com

demographics

PROJECTING A SQUAREROOT RECOVERY IN IMMIGRATION

A return to pre-pandemic targets by 2023 may be the likeliest path for Canadian immigration.

A question that is often pondered as we progress through the Great Suppression is, when will Canadian immigration return to levels consistent with the national targets initially laid out by the federal government in 2017 and updated yearly since then? Though there is much speculation about this, there has been little in the way of concrete estimates for the near-term future. We decided to give it a shot. While acknowledging that there are myriad factors inf luencing future levels of immigration to Canada—including the continued evolution of Covid-19 and shifts in age- and sex-specific labour force

participation rates, to name a couple—our assessment is for immigration to increase from its current level (195,000 immigrants in 2020, down 57% versus 2019) back to trend by 2023, at 355,000 immigrants. This temporal pattern of change is consistent with a steady return of both the national unemployment rate and the employment rate back to pre-pandemic levels. Of course, this is but one of many potential outcomes: should immigration return to trend more slowly, the result will be a national labour market that tightens relatively quickly, and vice versa.

THREE YEARS TO RETURN TO OUR DEMOGRAPHIC NORM

400,000

355,000

360,000

350,000

300,000

290,000

250,000

220,000

200,000

195,000

150,000

100,000

85,000

50,000

20,000

-30,000

-50,000

-60,000

-100,000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 HISTORICAL PROJECTED

IMMIGRATION

NONPERM. RESIDENTS CHANGE

EMIGRATION

SOURCE: DEMOGRAPHIC ESTIMATES COMPENDIUM, STATISTICS CANADA; PROJECTION MODEL, RENNIE INTELLIGENCE DATA: ANNUAL ESTIMATES AND PROJECTIONS OF INTERNATIONAL MOBILITY FLOWS, CANADA

rennie.com

demographics

TIME HEALS As Canada’s labour market returns to full employment in the next three years our international migration f lows will normalize. ›

rennie.com

housing

05. housing

Following 2019’s record high for starts, Metro Vancouver is positioned to see new housing supply dwindle as the economy ramps back up.

NEW CONSTRUCTION STARTING TO SLOW

Following a record-setting year for new housing construction in Metro Vancouver in 2019—when the region tallied more than 28,000 starts—the pace has decidedly cooled in 2020. Specifically, in the 12 months through August 2020, Metro Vancouver registered only 22,401 starts, 16% below the count of starts from the preceding 12 months (26,694). The region is not unusual in that its pace of housing construction has slowed during the pandemic. In fact, while Toronto has seen only a modest increase of 2% in its starts over the past 12 months, Montreal has seen starts activity fall by 14%, while on the west coast BC as a whole is down 13%. Nationally, starts are 1% lower. Part of this has certainly been due to “tools- down” pauses in construction in the early days of the Great Suppression, and then

to less-efficient construction practices in the latter days of the downturn (due to social-distancing constraints), which prevented construction starting on new sites as existing jobs took that much longer to complete. Looking ahead, it is likely that starts activity in Metro Vancouver will continue to face headwinds—not directly because of Covid-19, but rather indirectly because of it. This is because pre-sale project launches slowed considerably through the first six months of 2020, with the 4,429 homes launched in the region representing only 42% of 2019’s full-year total of 10,588— itself the lowest count of pre-sale home launches in almost a decade. This could create a perfect storm for Vancouver’s housing market, with demand returning to pre-pandemic levels at the same time as a dearth of starts is realized.

rennie.com

housing

VANCOUVER’S PACE OF STARTS LAGS ITS COUNTERPARTS

50,000

195,212

40,000

36,556

36,389

30,000

24,096

22,401

20,000

10,000

MONTREAL

TORONTO

VANCOUVER

BRITISH COLUMBIA

CANADA

14%

16%

13%

HOUSING STARTS, PAST MONTHS

CHANGE VS. PREVIOUS MONTHS %

SOURCE: CANADA MORTGAGE & HOUSING CORPORATION DATA: HOUSING STARTS, ALL TYPES

rennie.com

housing

NEW RENTAL SUPPLY MEANS VACANCY RATES SOON COULD BE HIGH ER

While increased rental supply is almost always a welcome sight, recent economic trends may drive a wedge between supply and demand.

Early learnings from the Great Suppression are that Metro Vancouver’s for-sale housing market has rebounded with vigour after a brief period of inactive demand, while the region’s rental market may be undergoing more dramatic changes. Ultimately it is the nature of our current economic downturn that has in turn dictated how the markets for goods and services—and homes—have evolved in response. To reiterate some observations noted earlier in this report, the Great Suppression has been marked by significant job losses, yes, but more importantly a tremendous decline in the number of part- time jobs held by younger workers in the hospitality sector. In turn, the fact that the prevalence of renting is much higher in the younger cohorts (relative to owning)—and with higher incidences of people living at home with their parents when they are under the

age of 30 than when they are over 30—may explain the seeming imperviousness of the for-sale housing market to the effects of the Great Suppression to this point in time. On the f lip side, there is considerable evidence that the region’s rental market is being punctuated by an increase in listings due in part to many tenants having doubled- up or moved back home with their parents as they ride out the effects of the recession. All of this is to say that as new rental home completions in the first eight months of 2020 virtually mirror the number from the same period of 2019 (approximately 3,500 rental completions), and as the high number of starts from 2019 become completions in 2020 and 2021, the region may finally see its rental housing vacancy rate rise to a more tenable and reasonable level. This will benefit tenants and undoubtedly present challenges for some landlords.

rennie.com

housing

RENTAL HOUSING ADDITIONS HOLD STEADY

100%

35% PAST YEAR AVERAGE

90%

80%

70%

60%

50%

40%

30%

20%

10%

RENTAL % OF ALL APARTMENT COMPLETIONS

MONTH MOVING AVERAGE

SOURCE: CANADA MORTGAGE & HOUSING CORPORATION DATA: TOTAL AND RENTAL APARTMENT COMPLETIONS

rennie.com

housing

The verdict on long-run housing changes remains out, but the verdict on short-term ones is in: people want more space and less of each other.

rennie.com

housing

THE DEMAND OF TODAY: MORE SPACE, FURTHER AWAY Our collective response to the spread of Covid-19 has created many unintended consequences, ranging from lower

In summary, 70% of home sales in the region were in so-called “suburban markets” (anything outside of Vancouver, Richmond, and Burnaby) between April and August 2020, compared to 66% of sales in the previous 12 months. Additionally, 63% of sales in the past five months were of the ground-oriented variety (37% were condo apartments), compared to 58% in the preceding year. While the future of cities generally, and of workplaces more specifically, remains unsettled, it is clear that there has at least been a short-term adjustment in home purchasing patterns as a result of our recent experience.

greenhouse gas emissions, to fewer traffic accidents, to greater consumption of Netf lix. Well, we can add to this list changing home- purchasing patterns, at least here in the Metro Vancouver. Two trends have emerged in the region’s resale market in the past five months: first, buyers have shifted their focus to the suburbs, and second, buyer preferences have honed in on townhomes and detached homes.

A SUPPRESSIONAL SHIFT IN METRO VANCOUVER'S SALES MIX

100%

90%

30%

34%

37%

80%

42%

70%

60%

50%

40%

70%

66%

63%

30%

58%

20%

10%

APR MAR

APR AUG

APR MAR

APR AUG

1,202 2,351

1,091 2,559

1,452 2,025

1,322 2,256

URBAN CORE SUBURBAN

CONDO G.O.

URBAN CORE

SUBURBAN

GROUND ORIENTED

CONDOS

SOURCE: GREATER VANCOUVER & FRASER VALLEY REAL ESTATE BOARDS DATA: MLS SALES COUNTS

rennie.com

housing

LOCAL FUNDAMENTALS GUIDING THE MARKET

While the debate around the impact of foreign buyers in Metro Vancouver rages on, the data continue to tell a singular story.

With somanyCovid-induced changes having transpired—and continuing to evolve— across our society, our economy, and our housing market, the one constant through it all has been the role played by foreign buyers in the Metro Vancouver housing arena. And to be clear, the role continues to be minimal. The latest data on foreign home purchases in Metro Vancouver (that is, home purchases by non-Canadian citizens, regardless of where they reside) show that foreign buyers accounted for 1.9% of all

sales in July 2020, up slightly from June’s 1.6% but below the high for 2020 from January (2.5%). All in, there have been 530 home purchases by foreign buyers in the first seven months of 2020, equivalent to 75 per month, on average, out of an average of 4,268 residential sales. Like it or not, the path forward for the region’s housing market will continue to be dependent on local buyers.

VANCOUVER FOREIGN BUYERS REMAIN SCARCE

3.5%

3.2%

3.0%

2.8%

2.5%

2.0%

1.9%

1.8%

n/a

1.6%

1.5%

1.4%

1.2%

1.0%

0.5%

n/a

0.0%

FEB MAR APR MAY JUN JUL

AUG SEP OCT NOV DEC JAN

FEB MAR APR MAY JUN JUL

90 85 nr

57 78 58 73 131 86 50 57 129 61 69 56 61 63 91

FB SALES COUNT

SOURCE: BBC MINISTRY OF FINANCE DATA: SHARE OF RESIDENTIAL SALES TO NONCANADIAN CITIZENS FOREIGN BUYERS

rennie.com

Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52

Made with FlippingBook - professional solution for displaying marketing and sales documents online