the rennie review - August 2019

July’s demand bump supported by strong economic news . It may be only one month of data, but the July increase in residential MLS sales in the Vancouver region serves notice that the contractionary phase of the market cycle may be ending, with an expansion--when it comes--being guided by local economic conditions.

To the degree that the Bank of Canada follows suit, variable-rate mortgages would become cheaper. Furthermore, 5-year Government of Canada bond yields have halved since November (falling to 1.23%), bringing with them lower fixed-rates mortgages. While key local economic and broader financial market indicators are almost unambiguously positive at the moment, we would be remiss to not mention that despite the recent bounce-back in demand, month-over-month prices continued to sag, with the overall benchmark price in July falling by 0.3% compared to June. As price changes are a function of the fluid dynamics of supply and demand--therefore lagging adjustments in underlying market conditions--we shouldn’t expect much upwards pressure to be put on prices in the-short-term, even if previously-sidelined buyers continue to re-enter the fray. Insofar as market balance is concerned, this is certainly good news.

The biggest housing market news story from July--at least for the combined Greater Vancouver and Fraser Valley real estate board areas --was the 19% jump in MLS sales compared to the same month a year ago. Those following housing trends know that this is the first year-over-year increase in sales in 18 months and the largest increase since November 2017. Of course, one data point does not a trend make and, as summer tends to be less of a bellwether for housing directions than the spring or fall, a more lucid judgment of the market can be made once we avail ourselves of the autumn data. Having said this, it is perhaps more than simply noteworthy that the labour and financial market conditions underpinning our regional housing market remain strong. To put a finer point on it, these

conditions are creating an increasingly sound foundation for the housing market as it transitions from its contractionary phase into an expansionary one (at least in terms of sales counts). For one, Metro Vancouver currently has an unemployment rate of 4.0%, the lowest among all large metros in Canada. This reflects stability in the region’s economic environment, with the local economic outlook remaining positive over the medium-term. In addition to this, the landscape of borrowing costs continues to evolve in a way that supports existing mortgage- holders and would-be buyers. While the Bank of Canada continues to maintain its trend-setting rate at 1.75%, the US Federal Reserve recently cut its target rate by 25 basis points--its first reduction in a decade.

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