Q4 2019
Hello, As we round the corner into a new year and a new decade, we are pleased to present this digital-only fourth edition of the rennie landscape, which highlights economic trends, demographic changes, and other factors that shaped the Metro Vancouver market in Q4 2019. The data presented in this report describes a local economy that continues to grow, but in a more muted—and perhaps more sustainble—manner than we saw in Q3 2019: job and wage growth are still evident, if not booming; the labour market remains tight; and interest rates have inched a little bit lower. There are, however, two outliers to the generally more moderate pace of the regions's changing dynamics: the expansion of residential housing construction, with starts on pace to reach an all-time high in Metro Vancouver in (full- year) 2019; and the near-record level of population growth experienced in British Columbia in the most recent quarter. There is much to contemplate as we chart our courses through 2020 and beyond. We hope this edition of the rennie landscape is one of the tools that helps to get you where you want to go. As always, please let us know if you have any questions. Enjoy.
Ryan Berlin SENIOR ECONOMIST intel@rennie.com
Andrew Ramlo VP, INTELLIGENCE aramlo@rennie.com
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contents
04
ECONOMY
16
RATES
24
CREDIT & DEBT
30
DEMOGRAPHICS
36
HOUSING
44
POLICY
48
THE POCKET GUIDE
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economy
01. economy BC doesn’t rely much on other countries to drive provincial economic growth. In the short-run that’s okay, but in the long-run we would benefit from being more open.
THE PROS AND CONS OF BC’S LACKING INTERNATIONAL EXPORTS
One way to define the components that comprise an economy’s gross domestic product (GDP) is via the “expenditure approach”, which categorizes GDP into consumption spending, government spending, investment, exports, and imports. Each of these components plays a unique role in shaping both current and potential future GDP and to better understand them it helps to recall a useful, though admittedly overly- simplistic, analogy that involves a bathtub. Think of the water in the bathtub as GDP. New consumption spending, government spending, and—for the sake of this analogy— investment is the water swirling around in the tub, neither adding to it nor reducing its level. In contrast, exports are represented by the inflow of water from the faucet, adding to GDP when the tap is on. Imports are the flow of water down the drain subtracting from GDP when the drain isn't plugged.
With this context, how should we view BC’s relatively low share of GDP that is accounted for by international exports (of both goods and services)? Compared to the Canadian average of 32%, BC’s exports account for only 24% of our GDP—second-lowest only to PEI, and sitting in stark contrast to our neighbours Alberta (39%) and Saskatchewan (45%) and our counterpart in central Canada, Ontario (33%). On the one hand, BC would be wise to expand and deepen its export destinations beyond and into its current trading partners lead by the US, China, South Korea, and Japan. However, viewed differently, our low exports-to-GDP ratio here on the west coast can be seen as something of a buffer to the transmission of external trade squabbles, including those between the US-China, the US-Europe, and the UK-EU. While this might be true in the short-run, we would certainly benefit in the longer-run from stronger international trade ties.
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economy
THROWING SHADE AT BC’S EXPORT EXPOSURE
NO DATA AVAILABLE FOR NORTHERN CANADA
26-30% <20% INTERNATIONAL EXPORTS AS SHARE OF GDP 21-25%
31-35%
35%<
SOURCE: NATIONAL ECONOMIC ACCOUNTS, STATISTICS CANADA DATA: INTERNATIONAL EXPORTS AS A SHARE OF PROVINCIAL GDP, 2018
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economy
NON-RESIDENTIAL BUILDING INVESTMENT SOARS IN METRO VANCOUVER The magnitude of infrastructure investment is one predictor of an economy’s future potential to grow, and it appears Metro Vancouver is on the right track.
During the past year, where the economic theme has been slower growth and greater uncertainty, Canada made modest gains in the value of residential building investment (+4% between Sept. 2018 and Sept. 2019). It made stronger gains, however, in the value of non-residential investment (+6%; this covers commercial, industrial, institutional, and governmental infrastructure). Non-residential investment growing faster than that of residential can be viewed as a positive for the Canadian economy, especially considering the 11% year-over-year gain in the value of commercial building investment
over the period. More commercial investment means more jobs now and more space for jobs in the future. In comparison, the value of residential investment in Metro Vancouver fell by 9% over the same period—the result of pre-sale market ups-and-downs from previous years— however it also experienced 48% growth in non-residential investment. The increases in institutional and governmental (52%), commercial (50%), and industrial investment (16%) won’t last indefinitely, but it is a sign that the region is creating employment capacity for years to come.
BIG INVESTMENTS IN METRO VANCOUVER’S FUTURE
50%
48%
40%
30%
20%
10%
8%
8%
6%
6% 4%
1%
0.0%
-2%
-4%
-5%
-7%
-8%
-10%
-9%
-10%
-20%
EDMONTON VANCOUVER CALGARY
CANADA NON METRO
CANADA TOTAL $10,760.8 $4,881.1
CANADA METRO $8,436.3 $3,891.6
TORONTO
$278.5 $231.1
$541.0
$529.1 $293.3
$989.5
$920.4
SEP VALUE MILLIONS
$1,067.8
$2,324.5
$2,298.5
NON RESIDENTIAL
RESIDENTIAL
DATA: CURRENT DOLLARS, SEASONALLY-ADJUSTED
SOURCE: INVESTMENT IN BUILDING CONSTRUCTION, STATISTICS CANADA
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economy
JOB EXPANSION IS SLOWING, BUT THE EMPLOYMENT BASE IS GROWING Employment growth is slowing across the country after many months of robust gains and Metro Vancouver is not immune to the trend.
After many months of experiencing some of the most robust labour market conditions in the country, Metro Vancouver has more recently seen the pace of job growth lessen. On a year-over-year basis in October, employment in Metro Vancouver grew by only 1.1%, putting it in the bottom one-third of metro area growth in Canada. This in part impacted BC’s overall rate of job growth, which fell to 1.3%. The province’s headline figure was however supported by 3.9% employment growth in Abbotsford-Mission and 3.7% growth in Kelowna (BC’s only other metro area, Victoria, grew by 1.5%).
The 16,100 jobs added across Metro Vancouver (on a net basis) over the past 12 months represented only 4.1% of the growth seen nationwide, and was almost half of the region’s 7.7% share of Canada’s jobs in October 2019. Indeed, current conditions benefit Vancouver’s workers a little less than they did earlier in 2019. But if you ask employers—many of whom have struggled to fill jobs for the past couple of years— they’ll tell you this is a welcome change.
AFTER MONTHS OF FLOWS, METRO VANCOUVER'S JOB GROWTH EBBS
10%
8.6%
8%
6%
3.7% 3.9%
4%
2.1%
1.5%
2%
1.3%
1.1%
0%
-2%
-4%
-6%
SOURCE: LABOUR FORCE SURVEY, STATISTICS CANADA DATA: PAST 12-MONTH CHANGE; 3-MONTH MOVING AVERAGE, SEASONALLY-ADJUSTED
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economy
EMPLOYMENT CHANGES: A FULL-TIME RISE AND PART-TIME DIVE The good news? Metro Vancouver continues to add full-time jobs. The bad news? Part-time positions are falling and it's creating labour market headwinds.
While overall job growth has slowed, some drag is being created within the part-time segment of the economy. In Metro Vancouver, the past year has seen part-time positions drop by 5,900, after 12,100 having been added in the previous year and, on average, 11,900 being added each year over the past- half decade. Had the decline in part-time work been at least offset by a rise in full-time work above what we had seen in previous years, it would be easy to shrug off. However, in adding only 25,000 full-time positions in the past 12 months, full-time gains were 13% below those of one year ago and 16% below the pace of full-time growth experienced between 2013 and 2018.
The result of these changes is that total employment growth over the past 12 months was down 53% on the previous 12 months and 54% versus the average additions in Metro Vancouver in the preceding five years. Like most dimensions of our economy, employment cycles are the norm rather than the exception, so the current slow patch doesn’t raise red flags for the time being—especially since the region’s job base is expected to benefit over the coming years from the current office construction boom. However, a lower-for-longer trajectory, should it materialize on the jobs front, will eventually impact earnings, so it warrants continued monitoring.
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economy
GROWING TOTAL EMPLOYMENT IN METRO VANCOUVER IS A FULL-TIME JOB
35%
29.6%
30%
28.8%
25.0%
25%
20%
15%
12.1%
11.9%
10%
5%
0%
-5%
-5.9%
-10%
PREVIOUS YR AVG
PREVIOUS YEAR
PAST YEAR
PART TIME
FULL TIME
SOURCE: LABOUR FORCE SURVEY, STATISTICS CANADA DATA: PAST 12-MONTH CHANGE; 3-MONTH MOVING AVERAGE, UNADJUSTED FOR SEASONALITY
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economy
NO REAL SURPRISES AS VANCOUVER JOBLESS RATE RISES What happens when employment grows more slowly than the labour force? The unemployment rate increases—and that’s precisely what has happened in Metro Vancouver over the past year. With the region’s labour force having grown by 1.8% between November 2018 and
recently—making it one of the highest in the country), all of which impact wage changes. However, despite the direction of change in the unemployment rate, one would be wise to not portend doom and gloom for the regional economy for two reasons. The first is that Metro Vancouver continues to enjoy very healthy labour market conditions relative to both its metro peers in Alberta and to the centre of the universe in Ontario, all of which have experienced persistently higher unemployment rates than Vancouver over the past five years. The second is that the rate of unemployment, much like employment itself, is cyclical even at the best of times, with the current rate of 4.9%—while up from last quarter—still within sight of the near-historical-lows achieved in recent years.
November 2019, and the regional job base growing by only 1.1%, the proportion of the labour force actively looking for work rose, pushing the unemployment rate up to 4.9% in November. This is up modestly from a recent low of 4.0% as recently as July, and up from 4.2% one year prior. So, put this one in the category of “what we’re watching” as we progress through 2020, along with total employment growth, full-time and part-time changes, and the region’s job vacancy rate (which held steady at 4.8% most
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economy
The modest rise in Metro Vancouver’s unemployment rate in the past quarter is not yet a cause for alarm as it remains (just) below 5%.
VANCOUVER'S JOBLESS RATE: ABSOLUTELY UP, BUT RELATIVELY LOW
12.0%
10.0%
8.0%
5.7% 5.7% 4.9% 6.9% 7.7%
6.0%
4.0%
2.0%
0.0%
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
EDMONTON CALGARY
TORONTO
VANCOUVER
CANADA
SOURCE: LABOUR FORCE SURVEY, STATISTICS CANADA DATA: 3-MONTH MOVING AVERAGE, SEASONALLY-ADJUSTED UNEMPLOYMENT RATE
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economy
BC’S WAGE GROWTH IS FAST VS RECENT YEARS, SLOW VERSUS CLOSEST PEERS BC’s wage growth has been much improved in recent months, outpacing inflation but not the nation
As with the narrative around other local labour market features, the telling of BC’s perpetually-unfolding wage story is nuanced and in need of context, both spatial and temporal. To start, let’s cut to the chase: British Columbia’s median weekly wage posted annual growth of 4.3% in October 2019. Now, is that a good thing or should it be a cause for concern? Regardless of your tendency to be a pessimist or optimist, there is evidence supporting the need for a balanced view. First, the pessimist’s perspective: while nominal (that is, unadjusted for inflation) wages appear on the surface to have grown at a decent clip over the past year here in BC at 4.3%, wages in Ontario grew by 5.8% and across Canada as a whole by 5.1% over the same period. As well, the most recent 4.3% year-over-year growth represents a slowdown in wage growth from 6.0% in July, 5.4% in August, and 6.1% in September. The direction of change in wage growth is entirely consistent with the changes we are
seeing on the labour force, employment, and unemployment rate fronts so to the extent that changes in these dimensions continue along their current path, wage growth may slow further in the coming months. In contrast, here’s what an optimist sees. At 4.3%, BC’s median weekly wage rate is growing at more than twice the annual average achieved in the half-decade from 2013 to 2018 (2.0% per year) and is considerably faster than BC's consumer price inflation (most recently sitting at 2.2%), meaning real, inflation-adjusted wages across the province are growing. That's a good thing. Additionally, while the latest wage growth rate represents a slowdown from the summer months, it is considerably higher than the middling changes experienced between July 2018 and June 2019, when nominal wages rose no faster than 2.1% and fell by as much as 1.7%. So take your pick on the narrative of your choice. To us, continued growth in wages (above inflation) is welcome news.
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economy
EARNINGS GROWTH IN BC REMAINS ROBUST
6.0%
5.8%
5.1%
5.0%
4.3%
4.0%
3.3%
3.0%
2.4%
2.4%
2.0%
2.0%
2.0%
1.0%
0.0%
CANADA
ONTARIO
ALBERTA
BRITISH COLUMBIA
MED.WEEKLY WAGE FULL TIME
$1,040
$1,058
$1,192
$1,043
Q Q ANNUAL AVERAGE
Q Q
SOURCE: LABOUR FORCE SURVEY, STATISTICS CANADA DATA: SEASONALLY-UNADJUSTED
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economy
ARE WE WORKING ENOUGH? The pace of growth in hours worked by Canadians slowed in the most recent quarter. Our economic output could follow suit.
In last quarter’s landscape, we explored trends in Canadian’s aggregate hours worked as a means of better understanding—and predicting—the timing of recessionary forces. At that time, we noted that growth in aggregate hours worked slowed on a year- over-year basis—or became negative— immediately preceding each of Canada’s last four recessions. So, a good recession predictor then, right? Maybe not, we said, because aggregate hours worked also followed the same pattern three other times without triggering a recession. So why continue to monitor trends in total hours worked by Canadians? Quite simply,
because there is an intuitive connection between howmuch we’re working (the economic input) and howmuch we’re producing (the economic output). And on that front, quarterly GDP growth has slowed to 0.3% in the most recent quarter as the change in aggregate hours worked bobbed closer to zero, with the annual change in total hours worked having fallen to 1.0% from 1.4% over the past quarter. On balance, signs are pointing to continued labour market growth and, by extension, continued growth in hours worked. This in turn should extend the current period of broad-based economic growth across Canada.
MAYBE WE NEED TO WORK SMARTER
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
CHANGE IN QUARTERLY HOURS WORKED AT MAIN JOB REAL QUARTERLY GDP CHANGE RECESSION
SOURCE: LABOUR FORCE SURVEY & NATIONAL ECONOMIC ACCOUNTS, STATISTICS CANADA
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economy
HOUR GROWTH IS MODEST Canada's total hours worked continues to grow, it's true, but faster growth would better support our economic prospects. ›
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rates
02. rates
Somewhat surprisingly, Canada’s yield curve remains inverted as most economic signals are flashing green.
THE PERSISTENCE OF CANADA’S INVERTED YIELD CURVE
If someone asked us what the words or terms of the year were for 2019 we might choose “quid pro quo” (don’t worry, we’re not going there), recession, or inverted yield curve. In some respects, the inverted yield curve was only brought to the collective attention of the mainstream this past year, as interest rates began to change in unexpected ways in advance of what many predicted would be a recession (and a nasty one at that). As with hours worked, the yield curve (which describes interest rates associated with government bonds with varying terms to maturity and, under normal conditions, slopes upward) is thought by many to have predictive powers when it comes to recessions. In a nutshell, it’s said if conditions are such that short-term interest rates rise above longer- term ones—generating the dreaded inverted yield curve—economic trouble is on the horizon. This is because the greater risks associated with longer-term investments
should be complemented by higher returns than those associated with shorter-term investments that have inherently fewer risks (such as inflation eating away returns). When the yield curve is inverted, investors are essentially saying they feel pessimistic about future economic performance. Here in Canada, we have been experiencing an inverted yield curve (10-year minus 3-month yields) continuously since March 2019. Some recent normalization is evident, with the inversion sitting at only 0.19% in November, down from a high of 0.49% in August. With the Bank of Canada sitting tight with respect to its overnight target rate, GDP and labour market continuing to grow (albeit slowly), and some signs that the various international trade tiffs may be waning, we expect the yield curve to normalize within the next couple of months.
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rates
INVERTED FOR 5 MONTHS, OUR YIELD CURVE STILL ISN’T NORMAL
5.00%
4.00%
3.00%
2.00%
+1.22%
1.00%
0.00%
-0.19%
-1.00%
-2.00%
-3.00%
-4.00%
INTEREST RATE DIFFERENTIAL YR MINUS MO YIELDS
LONGRUN AVG SPREAD
RECESSION
SOURCE: BANK OF CANADA
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rates
PRICE CHANGES REMAIN TAME; FOR RATES, IT’S MORE OF THE SAME With consumer price inflation squarely in the Bank of Canada’s target range, and economic growth muted, interest rates remain near their historical lows.
Interest rates continue to trend at relatively low levels after moving upwards toward the end of 2016 and through 2017. Fundamentally, this is due to the nature of inflation trends, with the most recent year- over-year change in the Consumer Price Index (CPI) sitting at 1.86%. This puts it just below the midpoint of the Bank of Canada’s (BoC’s) target range for inflation of 1% to 3%, with inflation exclusively remaining within this range over the past five years, save for a dip in early-2015 due to a collapse of energy prices. This stability is good for the Canadian economy. With price inflation low and the economy continuing to grow, the BoC halted its interest rate hiking regime at the end of 2018, having kept the overnight target rate at 1.75% since. As part of its most recent rate announcement on December 4, 2019, the BoC commented that “future interest rate decisions will be guided by the Bank’s continuing assessment of the adverse impact of trade conflicts against
the sources of resilience in the Canadian economy—notably consumer spending and housing activity.” In other words, don’t expect more cuts in the near-term, barring any really negative economic news. In bond markets, which heavily influence mortgage rates, demand has been relatively strong. With respect to five-year Government of Canada bonds in particular, yields remain at levels equal to about 60% of the recent peak achieved in late 2018. This has reduced fixed mortgage rates, with the five-year CMHC benchmark most recently falling to 4.09% (for borrowers with discounts, their contractual rate would be considerably lower). We’ve been saying that rates would be "lower for longer" for some time now, and despite some upward movement two years ago, they have once again settled near their historical lows. Expect that to continue for the foreseeable future.
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rates
SIT BACK AND ENJOY THE SHOW: LOWER RATES, STATUS QUO
5.00%
4.50%
4.09%
4.00%
3.50%
3.00%
2.50%
2.00%
1.75% 1.46% 1.86%
1.50%
1.00%
0.50%
0.00%
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
BOC OVERNIGHT TARGET RATE YR GOC BENCHMARK BOND YIELD
YR CONVENTIONAL MORTGAGE
CANADIAN CPI INFLATION
SOURCE: BANK OF CANADA & STATISTICS CANADA
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rates
While Canada’s pace of economic growth leaves something to be desired, it is accompanied by a stable price environment and low interest rates.
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rates
MODEST ECONOMIC GROWTH POINTS TO A CONTINUATION OF LOW RATES To put a finer point on the notion that rates are most likely to continue to remain near their long-run lows, one can consider the relationship between government bond yields and annual GDP growth.
In Canada, the long-run trajectory for annual GDP growth is relatively modest (around 2%), meaning there isn’t much of a tailwind for inflation or, by extension, rates. Canada is not alone in this regard, with other similar industrialized countries like the US experiencing both slow GDP growth and low interest rates. Some low-growth countries with less-developed banking sectors do experience high interest rates but low GDP growth, while others experience low GDP growth due to persistently high inflation that belies widespread economic malfunctioning. Due to its stability, institutions, and economic maturity, Canada is not, and won’t be for the foreseeable future, in any of the ‘High Yield’ or ‘High Growth” groups. At the risk of beating a dead horse, expect interest rates to remain low and stable for years to come.
All else being equal, higher rates of GDP growth should translate to higher interest rates (both short- and long-term ones), as quickly-growing economies tend to yield quickly-growing prices. This places an emphasis on the need for Central Banks to attempt to corral inflation through a higher overnight target rate, and it similarly imposes on long-term borrowers the need to compensate investors for the higher inflation that whittles away their return through higher yields.
SLOW AND STABLE WINS THE RACE
8.0%
China
6.0%
Indonesia
Isreal
4.0%
United States
2.0%
Russia
Canada
Switzerland
Turkey
0.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
YR GOVT BOND YIELD
MODEST YIELD HIGH GROWTH
HIGH YIELD HIGH GROWTH
HIGH YIELD MODEST GROWTH
HIGH INFLATION
SLOW & STABLE
SOURCE: THE ECONOMIST
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rates
SLOWING INFLATION CAN BE SEEN FROM EAST TO WEST AND IN BETWEEN In what is yet another sign that economic growth is moderating in Canada, inflation rates are down from coast to coast.
From the perspective of the Bank of Canada, annual price inflation has not presented much risk to the Canadian economy for many years, with the country’s annual rate of price growth ranging from a low of +1.0% to a high of 2.4% over the past half-decade. Of course, inflation varies from province to province because it varies from region to region within each province, with metro areas often experiencing higher-than-average inflation rates due to their typically more dynamic economies versus their non-metro peers.
Underscoring this point is Metro Vancouver, which has experienced inflation to the tune of 2.3% in the year ending in October 2019; this is 22% higher than Canada’s 1.9% over the same period. Notably, though, inflation in Metro Vancouver has come down in the past year (from an annual rate of 2.7%). Even with wages growing more slowly in the near-term, workers will benefit from relatively modest inflation via continued increases in their real (that is, inflation-adjusted) incomes.
A SIGH OF RELIEF FOR CONSUMERS: INFLATION ABATES
3.5%
3.0%
3.0%
2.7%
2.7%
2.5%
2.5%
2.4%
2.3%
1.9%
2.0%
1.7%
1.6%
1.5%
1.4%
1.0%
0.5%
0.0%
CALGARY
EDMONTON
VANCOUVER
CANADA
TORONTO
Q Q
Q Q
SOURCE: STATISTICS CANADA DATA: PAST 12-MONTH CHANGE IN CONSUMER PRICE INDEX
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rates
ADJUSTING FOR INFLATION Consumer prices are rising across Canada and in Metro Vancouver, but at a rate that supports continued economic expansion. ›
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credit and debt
03. credit & debt Low unemployment and interest rates have conspired to keep BC’s mortgage arrears rate at historically low levels.
BC’S ARREARS RATE LOW AS ALBERTA’S CONTINUES TO GROW
During challenging economic times, households are much more likely to default on things like credit cards, lines of credit, and car loans than they are the mortgage on their principal residence. Considering that a deterioration of mortgage market conditions (vis-a-vis rising mortgage arrears rates) would signal that economic conditions were already well on their way to the land of gloom. Then why consider trends in mortgage arrears rates if by the time they’ve moved up economic damage has already been inflicted? Quite simply, it remains useful to evaluate trends in mortgage arrears for not only what they do show, but also for what they don’t show. Currently at 0.14% (down from 0.39% five years ago), the trend in BC’s mortgage arrears rate shows a stable mortgage market that is buttressed by borrowers who can afford their payments in the current interest rate
environment. Conversely, the province’s mortgage arrears trends don’t on their own belie any simmering economic potholes with the province’s arrears rate remaining virtually unchanged for the past two years. The low and declining arrears rate in BC tracks well with the province’s unemployment rate, which by the end of Q3 (the latest date for which we have arrears data) stood at 4.4%. Given that the unemployment rate came up slightly into November, it might be reasonable to expect the arrears rate to (at worst) move up slightly or (at best) not change from its current level. Having said that, both the unemployment rate and mortgage rates are expected to remain at or near their current levels through 2020. Translation: expect continued stability in our mortgage market over the next 12 months.
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credit and debt
AS UNEMPLOYMENT GOES, SO GOES MORTGAGE ARREARS
7%
0.60%
0.50%
6%
0.50%
5%
4.4%
0.40%
4%
0.30%
3%
0.23%
0.20%
2%
0.14%
0.09%
0.10%
1%
0.00%
0%
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Q2 Q3 Q4 Q1
Q3 Q2 Q1
CANADA ONTARIO ALBERTA BRITISH COLUMBIA BC UNEMPLOYMENT RATE (RIGHT AXIS)
SOURCE: CANADIAN BANKERS’ ASSOCIATION & LABOUR FORCE SURVEY, STATISTICS CANADA
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credit and debt
RISING PAYMENTS ASIDE, STABILITY IN CANADA’S MORTGAGE MARKET PRESIDES They may not be sexy, but Canada’s latest mortgage market indicators appear sustainable.
Compared to the recent past, each of Canada’s headline mortgage metrics has abated in the most recent year (that’s a good thing). For starters, outstanding mortgage debt held by Canadians, while increasing by 3.7% between Q2 2018 and Q2 2019, grew at a significantly slower pace than in years past, when it increased by 6.3% (in 2015-16) and by a further 6.9% (in 2016-17), though it was up slightly from last year’s 2.6%. Some of this is predicated on slowing growth in the number of active mortgages, most recently having grown by 2.0% year-over-year
after expanding by 3.5% and by 2.9% in 2015-16 and 2016-17, respectively. Finally, the average outstanding balance per mortgage rose by 2.5% last year compared to the previous year’s 3.7%, while the average scheduled payment grew by 4.0% (versus 4.1% in the previous year). For now these figures appear to be sustainable, with continued low rates and moderate economic growth pointing to more of the same through the balance of 2019 and into 2020.
WAKE UP, YOU’RE SNORING: THESE MORTGAGE TRENDS AREN’T BORING
AVERAGE OUTSTANDING BALANCE PER MORTGAGE
OUTSTANDING MORTGAGE DEBT MILLIONS
NUMBER OF ACTIVE MORTGAGES S
AVERAGE SCHEDULED PAYMENTCONSUMER
$1,295,524
5,542
$182,300
$1,156
2015 Q2
$1,377,486
5,734
$190,700
$1,181
2016 Q2
$1,472,231
5,901
$198,690
$1,210
2017 Q2
$1,510,376
5,980
$205,980
$1,260
2018 Q2
$1,566,978
6,101
$211,130
$1,310
2019 Q2
6.3%
3.5%
4.6%
2.2%
2015-16 Q2
6.9%
2.9%
4.2%
2.4%
2016-17 Q2
2.6%
1.3%
3.7%
4.1%
2017-18 Q2
3.7%
2.0%
2.5%
4.0%
2018-19 Q2
SOURCE: MORTGAGE & CONSUMER CREDIT TRENDS, CANADA MORTGAGE & HOUSING CORPORATION DATA: CANADA
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credit and debt
CAR LOAN GROWTH ACCELERATES Most outstanding debt amounts held by Canadians grew more slowly last year, but not all.
As with the mortgage market indicators presented on the preceding pages, other debt indicators seem to be telling a similar story—that debt growth is reasonable and borrowers can largely afford their repayment requirements. In terms of outstanding balances, the 4.6% increase in mortgage debt between Q2 2018 and Q2 2019 was 32% lower than the 6.8% average annual growth seen over the preceding three years. A similar trend can be seen for home equity lines of credit (HELOCs) and in credit card balances.
If there are trends to keep a watchful eye on they would be the growth in auto loan balances and lines of credit (LOCs): the former rose by 7.1% in the past year, up from the previous three-year average annual rate of 6.7%, while the latter rose by 1.7% in the past year— relatively slow growth, but equivalent to almost eight times the annual rate of growth seen in the preceding three years. Debt of this nature will need to be reined in—particularly with auto loan balances rising by an unsustainable 7.1% annually. If not, delinquencies will rise, risking spillover into other debt categories.
GROWTH IN CAR LOAN BALANCES SPEEDS UP
8.0%
7.1%
7.0%
6.8%
6.7%
6.0%
6.0%
5.0%
4.6%
4.5%
4.2%
4.0%
3.6%
3.0%
2.0%
1.7%
1.4%
1.1%
1.0%
0.3%
0.0%
ALL $1,934.6
MORTGAGE $1,288.0
HELOC $205.5
CREDIT CARD $101.7
AUTO $78.2
LOC $60.0
OUTSTANDING BALANCE BILLIONS
Q Q ANNUAL AVERAGE
Q Q
SOURCE: MORTGAGE & CONSUMER CREDIT TRENDS, CANADA MORTGAGE & HOUSING CORPORATION DATA: PAST 12-MONTH CHANGE, CANADA
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credit and debt
TIME TO APPLY THE BRAKES TO AUTO APPEALS
Canadians have become more delinquent in the past year, with the rate of late payments increasing for all types of debt.
In and of itself, debt is not a bad thing and in fact, it can be a very useful tool if properly managed. The operative phrase here is “properly managed”, and it may not apply as much as in recent years when we consider trends in debt delinquencies. For each of mortgages, HELOCs, credit cards, auto loans, and LOCs, the delinquency rate rose between Q2 2018 and Q2 2019, from a low of +5% for LOCs to a high of +13%
for both auto loans and HELOCs. It’s worth noting that delinquency rates remain very low (ranging from 0.17% of HELOC holders to 1.88% of those with car loans), but it’s the direction of change that is most important as we chart our economic course for the next year and beyond. Along with us and others, the Bank of Canada will surely keep an eye on these trends as they set interest rates through 2020.
JIG'S UP? DELINQUENCIES INCH UP
2.0%
1.88%
1.59%
1.5%
1.0%
0.64%
0.5%
0.30% 0.17%
0.0%
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Q Q CHANGE
%
%
%
%
%
MORTGAGE
HELOC
CREDIT CARD
AUTO
LOC
SOURCE: MORTGAGE & CONSUMER CREDIT TRENDS, CANADA MORTGAGE & HOUSING CORPORATION
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credit and debt
BAD DEBT RISING Sustained economic growth will help to support Canadian incomes and stem the increasing tide of delinquencies. ›
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demographics
04. demographics
Canada’s metro areas continue to attract residents at a pace exceeding that of their parent provinces.
THE HAVES, THE HAVE NOTS, & THE URBAN HOT SPOTS OF POPULATION GROWTH
Over the past 12 months through November, Canada’s population (to be specific, its population aged 15-plus) has grown by 1.6%. At first blush this might seem to be rather modest growth; however, when placed in an historical context we can see that it is the fastest rate of year-over-year population growth the country has experienced in the past two decades. The vast majority of this growth continues to be driven by immigration, and this is also true for the country’s metropolitan areas, which disproportionately attract immigrants versus their less urban peers, as well as movers between provinces—most of whommove in search of education and/or employment opportunities. Not surprising, then, that the fastest population growth rates that are being
registered across the country are in places like the Toronto Census Metropolitan Area (CMA), at 2.7%, Vancouver (2.1%), Edmonton (2.3%), and Calgary (2.4%). Additionally, robust population growth is being realized in some of Canada’s smaller CMAs, including Abbotsford-Mission (2.8%), Saskatoon (2.4%), and Halifax (2.4%). The east-west pattern of metro area growth has yielded above-the-Canadian-average provincial growth rates in BC (1.8%), Alberta (1.7%), and Ontario (2.0%)...and PEI (2.7%). With the exception of the latter, the robust rates of population growth seen in the west and in Canada’s economic heartland reinforce those provinces’ importance in driving Canada’s economy, with much of the growth serving to buttress provincial and regional labour forces that are facing headwinds from an aging population.
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demographics
PEOPLE GO WHERE THE JOBS GROW
NO DATA AVAILABLE FOR NORTHERN CANADA
1.1-1.5% <0.0% POPULATION CHANGE NOV NOV 0.1-1.0%
1.6-2.0%
2.1-2.5%
2.6%+
SOURCE: LABOUR FORCE SURVEY, STATISTICS CANADA DATA: NOV 2018 - NOV 2019 CHANGE IN POPULATION AGED 15+
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demographics
BC REGISTERS RECORD INTERNATIONAL INFLOWS IN Q3 2019
Immigration is the primary driver to population growth in BC and this won't be changing any time soon.
The most recent quarterly population data shows that British Columbia added 34,240 people in Q3 2019. This was up 32% versus the same period in 2018, up 39% from the previous quarter, and only 3% below the all-time high for growth in a quarter (in Q4 1994). Another way to think of this is that third-quarter growth in 2019 saw 375 net new residents settle in BC every single day. The acceleration of growth in this most recent quarter reflected more robust additions across natural increase, interprovincial migration, and international movers than during the same period in 2018. Natural increase, which reflects the difference between the number of births and deaths during a specified period of time, did rise by 5% as it contributed 2,572 people to the provincial population in Q3. Having said this, the Q3 2019 figure remains part of an established longer-term trend of shrinking contributions from natural increase. This is the result of BC’s below-replacement fertility rate and an ever-aging population into, as demographers say, the “higher mortality stages of the lifecycle”.
In contrast to the loss of 92 people in Q3 2018 through interprovincial migration flows, the most recent quarterly data showed a net gain for BC of 1,970 people from other parts of the country, in part a reflection of this province's relatively strong economic performance this past year. Far and away the largest contributor to BC's growth in Q3 2019 was net international migration, which accounted for 87% of growth in the period as it added 29,698 people to the province. This reflected all-time quarterly net inflows of 15,914 immigrants and 16,413 net non-permanent residents (many of whom are students). In the quarters and years ahead, look for BC's net international migration to contribute even more to overall population growth due to both continuing trends in the natural components of demographic change and the expansion of Canada’s national immigration targets to 350,000 next year—a real boon for this province's labour force.
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demographics
COME ONE, COME ALL: BC'S POPULATION BOOMS
40,000
35,000
34,240
30,000
29,698
25,981
25,000
23,664
20,000
15,000
10,000
5,000
2,572
2,409
1,970
0
-92
-5,000
POPULATION CHANGE
NATURAL INCREASE
NET INTERPROVINCIAL MIGRATION
NET INTL MIGRATION
Q
Q
SOURCE: QUARTERLY DEMOGRAPHIC ESTIMATES, STATISTICS CANADA
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demographics
CANADIANS RIDIN' WEST TIL THEY CAN'T NO MORE
Net interprovincial migration to BC was positive yet again in Q 3 2019, marking a virtually-uninterrupted run of 26 quarters that the rest of Canada has moved westward.
With virtually no barriers to movement within Canada, interprovincial migration flows are highly correlated to relative levels of provincial (or more appropriately, regional) economic performance. As such, BC has experienced net outflows of people when economic growth paled in comparison to its nearest neighbours Alberta and Saskatchewan, as well as Ontario—1998 to 2002 being one such period. Lower net inflows were also seen when high and rising commodity prices boosted the prairie economies above the rate of growth achieved in BC.
Economic growth in BC has been comparatively robust over the recent past, so it’s no surprise that the province has been a magnet for the rest of Canada. In Q3 2019, BC experienced net inflows of population from almost all provinces and territories, including Saskatchewan and Manitoba, which together accounted for 71% of the net inflow to BC in this most recent quarter. Given sluggish productivity gains and an aging population, British Columbia will to some extent depend on a continuation of this trend if it hopes to extend its recent run of economic expansion.
INTERPROVINCIAL MIGRATION: IS WEST THE BEST?
1,000
BC’S TOTAL Q NET INTERPROVINCIAL MIGRATION: , 3rd-Highest in Canada
800
708
684
600
455
400
200
190
164
34
19
13
0
-6
-86
-200
-205
-400
NS
NB
YK
QC
NL
NWT/NVT
PEI
AB
ON
MB
SK
PREV Q AVG
Q
SOURCE: QUARTERLY DEMOGRAPHIC ESTIMATES, STATISTICS CANADA
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demographics
LOTUSLAND, HERE WE COME British Columbia’s tight labour market creates favourable conditions for domestic migrants. ›
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housing
05. housing
Metro Vancouver’s rate of housing completions has been robust in recent years, and it must be maintained to support a growing population.
IS VANCOUVER ADDING ENOUGH HOMES TO GROW?
Since 2002, the ratio of housing completions to population in Metro Vancouver has risen steeply, going from 440.9 in January 2002 to 839.8 in October 2019. This 90% gain over the period compares to declines of 7% in Edmonton, 36% in Calgary, and 45% in Toronto. From the perspective of housing supply, this is a positive trend for Vancouver. But is it enough? Without answering this directly, it’s worth noting that Metro Vancouver is on pace to achieve its second-most completions in any year since 1972. This is good news to be sure- -however, while the number of homes we’re completing is of the utmost importance in the context of discussions of housing supply, the type of homes we’re completing matters almost as much. Why? Quite simply, because single-family completions are not adding to our dwelling stock. Here in Metro Vancouver we have actually been losing single-family housing (between the most recent two Census enumerations
of 2011 and 2016), for example, the region’s detached stock fell by 18,780 homes on a net basis), so any single-family start or completion that shows up in the data typically is offset by a demolition. In such cases, single- family completions cannot be seen to be accommodating net growth in population on their own as they simply fulfill replacement demand. Additionally, the greater the share of multi-family homes is for a given number of completions, the less capacity that stock has to accommodate population growth, with these homes tending to be smaller than their detached counterparts. On these points it’s worth noting that in 2019 to-date, single-family homes have accounted for 18% of Metro Vancouver’s completions- -the region’s lowest share on record. This means that the homes we are seeing complete represent net additions to our stock (arguably) more than anytime in the recent past, which is positive. The trick will now be to keep up the pace.
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housing
PUTTING MORE STOCK IN MULTI-FAMILY FORMATS
1,600
1,400
1,200
1,000
758.9 736.2 839.8
800
600
400
442.2
200
0
OCT OCT CHANGE
%
. %
%
%
EDMONTON
CALGARY
TORONTO
VANCOUVER
SOURCE: CANADA MORTGAGE & HOUSING CORPORATION DATA: HOUSING COMPLETIONS PER 1,000 RESIDENTS AGED 15+
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housing
THERE ARE HUNDREDS, ALL TOLD: THEY’RE BUILT, BUT NOT SOLD
New but unsold inventory remains elevated in comparison to the beginning of 2018, but a longer look at history puts its potential downside risk to the presale market in perspective.
For those tracking real estate trends in Metro Vancouver, it’s old news that the region’s resale market bounced back in the second half of 2019, as we have now registered six consecutive months of year-over-year sales increases through the latter half of the year after 17 straight months of declines. But while buyer (and seller) confidence has reenergized resale activity, the region’s presale segment is still looking to find its footing. Part of this is due to the fact that buyers have been snapping up available resale inventory (which until recently had been relatively plentiful) and part of this relates to would-be buyer confidence in the trajectory of prices two, three, and four years down the road. In short, a presale purchaser needs to believe that the market value of the home she will receive when it completes in the future will be at least what she has paid for it today or else she won’t make the purchase. On the latter point, a surplus of completed but unsold new homes can create de facto competition for new presale product.
This is why the recent uptick in the size of the inventory of completed and unabsorbed condos across Metro Vancouver has caused some concern. As noted in the previous rennie landscape (Q3 2019), we do not see this phenomenon as a significant downside risk for the presale market, despite the number of completed and unabsorbed condos averaging 688 units over the past 16 months—a 160% jump over their average level over the preceding two-years. Why? Well, for two reasons. One, we were enjoying abnormally low levels of unsold inventory in the two-years ending in June 2018, and two, our current inventory remains dimished in the context of previous market cycles. Between January 2010 and June 2016, for example, there was at any given point in time an average of 1,672 condos built but unsold. This is not to say things can’t, and won’t, change; as such, we’ll be watching closely to see how this metric evolves over the coming months.
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housing
A REALITY CHECK ON THE RECENT INCREASE IN UNABSORBED INVENTORY
JUL OCT AVG 688
JUL JUL AVG
2,188 DEC AUG AVG
SEP DEC AVG
JAN JUN AVG
290
1,672
265
3,000
2,500
2,000
1,500
1,000
500
0
SOURCE: CANADA MORTGAGE & HOUSING CORPORATION DATA: INVENTORY (STOCK) OF COMPLETED BUT UNSOLD CONDOS
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housing
It may prove to be fleeting, but regional housing starts are on pace to reach an all-time high in 2019.
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housing
ECONOMIC GILDING? A RISE IN NEW HOME BUILDING
It’s no panacea, but a continued strong showing in housing starts activity is having a number of positive impacts on the region.
With the available data in for October 2019 is shaping up to be a bumper year for housing starts in Metro Vancouver. Through the first ten months of the year, the region has seen more total housing starts year-to-date (23,548) than in any year in the past three decades. Furthermore, given the current pace, 2019 is expected to see a total of 28,599 starts once all is said and done, which would be 2.5% higher than the previous high seen in 2016 (27,914). Broadly-speaking, this elevated level of residential construction activity seen recently
has had two benefits. First, it has supported local economic growth through positive direct and indirect impacts on employment and government tax revenue (and, in addition, through the "induced" impacts associated with a portion of the wages being paid to workers then being spent throughout other sectors of the economy). Second, more housing starts will translate to more homes completed in the coming years— two related and essential ingredients needed to grow our economy and address issues of housing availability and affordability.
IN A FEW YEARS WE’LL FINISH WHAT WE STARTED
EXPECTED TOTAL: , Previous 3-Decade High: 27,914 (2016)
30,000
25,000
20,000
15,000
10,000
5,000
0
JAN OCT
NOV DEC
NOV DEC ESTIMATE
SOURCE: CANADA MORTGAGE & HOUSING CORPORATION DATA: METRO VANCOUVER HOUSING STARTS
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housing
IF YOU BUILD IT, THEY WILL CO—SCRATCH THAT, THEY’RE COMING—BUILD RENTAL
Metro Vancouver’s well-functioning labour market relies on an adequate supply of rental housing—good thing there’s more coming.
With a near-minimal level of unemployment, new migrants to the region needed to fill jobs, and so many employers looking to move or expand their operations in Metro Vancouver (Amazon being one of many), no one can accuse us of not continually banging the rental drum. But why rental specifically and not all housing more generally? That’s a good question, and one rennie gets asked a lot, so here are the data to answer that. First off, migration plays a crucial role in shaping the growth of this region’s population and economy. In fact, it will account for 100% of the growth inMetro Vancouver's labour force as early as 2022.
Second, the latest Census data show that in comparison to only 22% of non-mover households renting their home, 73% of interprovincial migrants to Metro Vancouver, and 66% of those coming from other countries, choose rental. It’s a good thing, then, that in this region purpose-built rental construction has sharply increased in recent years, with the number of starts over the past 6 years (30,518) almost matching that of the previous 26 years (31,308). It is imperative that we keep it up.
THE RENTERS ARE COMING
100%
90%
22%
36%
80%
48%
51%
54%
70%
66%
73%
60%
50%
40%
78%
64%
30%
52%
49%
46%
20%
34%
27%
10%
0%
ALL HOUSEHOLDS NON MOVERS MOVERS NON MIGRANTS INTRAPROV. MIGRANTS
INTERPROV. MIGRANTS
EXTERNAL MIGRANTS
OWNED
RENTED
SOURCE: 2016 CENSUS CUSTOM DATA TABULATION, STATISTICS CANADA DATA: HOUSEHOLDS BY 5-YR MOBILITY STATUS AND TENURE (PROPENSITY TO OCCUPY OWNED VS RENTED HOMES).
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