Economic & Housing Market Outlook (Vancouver Island)
Economic & Housing Market Outlook
Real Estate Institute of BC (Nanaimo Chapter) December 8, 2010 Brendon Ogmundson Economist
Global Economy: Two-Speed Recovery Per % cent Real GDP Growth 10
Emerging
8 6
World
4 2 0 -2 -4 -6
Advanced
This Time is Different? Characteristics of Synchronized Financial Crises
Normal Recession
Synchronized Financial Crisis
US
Canada
Duration of Recession (quarters)
3.4
7.3
7
3
Peak-toTrough Decline (%)
-2.6
-4.8
-4.1
-3.3
3
6.8
5 (ongoing)
3
4.3
2.8
2.9 (F)
2.9 (F)
Recovery Duration (quarters) Growth in First Year of Recovery (%)
Based on Past Business Cycles in an Industrialized Countries Source: IMF
US Job Market – Worst since Great Depression
US Employment Recovery a Long Way Off Employment (millions of workers) 170
Strong Recovery: 2 years to regain lost jobs
160 150 140 130
Weak Recovery: 9 years to regain lost jobs
120 110 100
Trend Employment Growth
1988 1988 1989 1990 1991 1992 1993 1993 1994 1995 1996 1997 1998 1998 1999 2000 2001 2002 2003 2003 2004 2005 2006 2007 2008 2008 2009 2010 2011 2012 2013 2013 2014 2015 2016 2017 2018 2018 2019 2020
90
Source: US Federal Reserve, BCREA Calculations
Turning Japanese? 2004 4
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
United States – Core Inflation
3.5
Japan – Core Inflation
3 2.5 2 1.5
Oct 2010
1 0.5 0 -0.5 -1 1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Canadian Employment Rebound Peak Employment = 100 101
100
2008
99 98
1990
97 96 95
1981
94 93 92 91 -6
-4
-2
0
2
4
6
8
10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 Months
Economic Growth Per Cent Canada – Real GDP
8.0
United States – Real GDP
6.0 4.0
2.0 0.0 -2.0 -4.0 -6.0 -8.0 2006
2007
2008
2009
Real GDP (chained 2002 dollars) growth at annualized rates, quarterly.
Source: Stats Canada, BCREA forecast
2010
2011
Excess Capacity in The Canadian Economy Canadian Ouput Gap Per cent of Potential Output 2
1
0
Forecast
-1
-2
-3
-4 2006
2007
2008
2009
Latest Data Point: 2010Q3
Source: Statistics Canada, BC Real Estate Association
2010
2011
2012
Core Inflation muted through 2011 Per Cent
CPI Inflation
Core Inflation
Inflation Target
4.0 Forecast
3.0 2.0 1.0 0.0 -1.0 -2.0 2004
2005
2006
2007
2008
Source: Bank of Canada, Stats Canada, BCREA Economics
2009
2010
2011
Bank of Canada on Hold until Q2 Per cent 6
Canada United States
5
Forecast
4
3
2
1
0
Q1
Q2
Q3
2007
Q4
Q1
Q2
Q3
2008
Q4
Q1
Q2
Q3
2009
Q4
Q1
Q2
Q3
2010
Q4
Q1
Q2
Q3
2011
Q4
Quantitative “Un”-Easing 3.00
Bernanke hints at QE2
Official QE2 Announcement
3.00
2.75
2.75
2.50
2.50
2.25
2.25
2.00
2.00
1.75
Canadian 5-Year Yield
1.75
1.50 1.25 1.00 Jul/2010
1.50 1.25
US 5-Year Yield
1.00 Aug/2010
Sep/2010
Oct/2010
Nov/2010
Mortgage Rates Per Cent
1-Year Fixed Mortgage
5-Year Fixed Mortgage Rate
8.00
Forecast
7.00 6.00 5.00 4.00 3.00 2006
2007
2008
2009
Source: Bank of Canada, Stats Canada, BCREA Economics
2010
2011
Canadian Dollar Bank of Canada Commodity Price Index, 2002 = 100 950 850 750 650
US per CDN 1.1
Commodity Prices (LHS)
1.05
Canadian Dollar (RHS)
1 0.95 0.9
550
0.85 450 0.8 350
0.75
250
0.7
150
0.65
50
0.6
BC Economy
BC Employment Recovery 102
Peak Employment = 100
100 98 96 94
1982 Recession
92
2009 Recession
90
2001 Slowdown
88
-12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48 52 56
86 Months
BC Exports Oriented Towards Advanced Economies BC Export Markets
GDP Growth 7.6%
8.0%
6.9%
7.0%
Emerging, 29%
6.0% 5.0%
Advanced, 71%
4.0% 3.0%
2.7%
2.3%
2.0%
1.0% 0.0% 2010
Advanced
Source: IMF World Economic Outlook, Industry Canada
2011
Emerging
BC Economic Forecast BC Real GDP Growth Per cent 5 4
3.4% 2.6%
3 2 1 0 -1
Forecast -2 -3 2002
2003
2004
2005
2006
2007
Source: Statistics Canada, BC Real Estate Association
2008
2009
2010
2011
Vancouver Island Employment Peak Employment = 100 102 100 BC 98 96
Island/Coast 94 92 90 88 -12 -10 -8
-6
-4
-2
0
2
4
6
8
Months
10 12 14 16 18 20 22 24 26
Island Tourism still lagging $32,000,000 $30,000,000 $28,000,000
$26,000,000 $24,000,000
$22,000,000 $20,000,000
Room Revenues
Trend
12 per. Mov. Avg. (Room Revenues)
US Housing Starts vs. Sawn Lumber Production BC Sawn Lumber Production (cubic metres)
US Housing Starts (SAAR)
4,500
2,500
4,000
BC Sawn Lumber Production (LHS)
3,500
2,000
3,000 1,500 2,500 2,000 1,000
1,500
US Housing Starts (RHS)
1,000
500
500 0 2001M01 2001M04 2001M07 2001M10 2002M01 2002M04 2002M07 2002M10 2003M01 2003M04 2003M07 2003M10 2004M01 2004M04 2004M07 2004M10 2005M01 2005M04 2005M07 2005M10 2006M01 2006M04 2006M07 2006M10 2007M01 2007M04 2007M07 2007M10 2008M01 2008M04 2008M07 2008M10 2009M01 2009M04 2009M07 2009M10 2010M01 2010M04
0
Source: US Federal Reserve; Statistics Canada
Greater Exposure for Island Agriculture, Forestry, Fishing and Hunting Firm Share of Employment (2008)
Per Cent
10 8 6 4 2
0 BC
Vancouver Island/Coast
Comox Strathcona
Cowichan Valley
Sources: BC Stats Quarterly Regional Statistics, BC Real Estate Association
Nanaimo
Alberni Clayoquet
Post-Recession Employment in Key Island Industries Manufacturing Healthcare & Social Assistance Finance, Insurance & Real Estate Education Construction Accomodation & Food Services Transport & Warehousing Retail and Wholesale Trade
Professional, Science, & Technical Services
Public Administration -10
-8
-6
-4
Net Jobs Lost (000s)
-2
0
2
4
6
Net Jobs Gained (000s)
8
10
Housing Market
Provincial MLS® Residential Sales Residential MLS® Unit Sales (SAAR) 120,000 100,000
Record Low Mortgage Rates; Pent-up Demand; Lower Prices
Economic Expansion; Declining Mortgage Rates; Pent-Up Demand
80,000 Affordability Concerns; End of 40-Year Amortizations; Declining Prices
60,000
Financial Crisis; Global Recession; Low Confidence
40,000 20,000 1999
2001
Sources: Local Real Estate Boards, CREA, BCREA Seasonally Adjusted at Annual Rates
2003
2005
2007
2009
MLS® Sales Monthly Units Sold (Seasonally Adjusted) 900 Vancouver Island 800 700 600 500 400 Victoria 300 200 2003
2004
Source: VIREB,VREB
2005
2006
2007
2008
2009
2010
MLS® Residential Listings Seasonally Adjusted Units
Active Listings (LHS)
New Listings (RHS)
Units
60,000
18,000
50,000
16,000
40,000
14,000
30,000
12,000
20,000 2005
10,000
Source: BCREA
2006
2007
2008
2009
2010
Housing Market Conditions British Columbia Per Cent
Sales-to-Active Listings Ratio*
40 35
Seller’s
30 25 20
Balanced
15
10
Buyer’s
5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 *Seasonally Adjusted
Victoria diverging from rest of Island Per Cent
Sales-to-Active Listings (seasonally adjusted)
35 Seller’s
30 25 20
Balanced
15
Victoria Van Island
10 5
Buyer’s
0 2007
2008
Source: BCREA Economics
2009
2010
Average MLS® Residential Price $550,000 Victoria
$500,000 $450,000
BC
$400,000
$350,000 $300,000
Vancouver Island
$250,000 $200,000 2006
2007
2008
2009
2010
Carrying Cost: Victoria and Vancouver Island Per Cent
Inflation Adjusted Dollars
16
2,900 2,600
Victoria
Mortgage Rate
14
2,300
12
V. Island
2,000
10
1,700 8 1,400 6
1,100 800 1988
4 1992
Sources: Statistics Canada, CREA, BCREA
1996
2000
2004
2008
BCREA Forecast BC
Victoria
Vancouver Island
2010
2011
2010
2011
2010
2011
MLS Sales
74,950
79,700
6,200
6,500
6,700
6,900
% Change
(11.8%)
6.3%
(19.0%)
4.8%
(8.0%)
3.0%
Average Price
$498,500
$495,600
$501,000
$495,000
$328,000
$326,000
% Change
7.0%
(0.6%)
5.2%
(1.2%)
3.8%
(0.6%)
Source: BCREA
New Home Market
Multi-Family Inventory May Mitigate New Construction in 2011 Units 1,000
800 Multi-Family 600
400
200
Single
0 1990 Sources: CMHC, BCREA
1992
1994
1996
1998
2000
2002
2004
2006
2008
Nanaimo New Home Supply Swells Units
350
Under Construction(RHS)
Multiples Singles
300
1200 1000
Inventory
250
800
200 600 150 400
100
200
50 0 1995
0 1997
1999
2001
Sources: CMHC, BCREA Figures reflect activity in 9 large BC markets
2003
2005
2007
2009
Vancouver Island Housing Starts Units 4,000
Multiples Singles
3,500 3,000
2,500 2,000 1,500 1,000 500
0 1995
1997
Sources: CMHC, BCREA
1999
2001
2003
2005
2007
2009
2011F
Long-term Fundamentals – Outside Buyers Nearly Half of Buyers Come From Outside Board Region 10%
Within Same Area
6%
Elsewhere on Island 39%
7%
Alberta
Other BC/Gulf Islands 12%
Vancouver Victoria Rest of Canada/World
11% 15%
Sources: VIREB 2009Buyer Profile, BCREA
Long-term Fundamentals - Retirees High Proportion of Retirees = Stable Incomes Per Cent
50 40 30 20 10
0
Board
Campbell River
Comox Valley
Sources: VIREB 2009Buyer Profile, BCREA
Cowichan Nanaimo ParksvilleValley Qualicum
Port Alberni/ West Coast
Islands
Long-term Fundamentals – Principal Residences People Buy In the Region to Live – Key for Economy 2%
1%
1%
Principal Residence
Investment/Rental
Other
Recreation/Vacation 96% Sources: VIREB 2008 Buyer Profile, BCREA
Household Growth by Region 2010 - 2020 BC Total +320,000 +3,400
+2,700 +5,500
+50,000
Source: BC Stats PEOPLE 33
+38,000
+5,700 +212,000
New Housing in the Long-Run
Final Thoughts: • Slow recovery in the US will limit growth in Canada and BC • Mortgage rates trending upwards – but not expected to rise to quickly • Vancouver Island employment lagging BC and Canada but still improving – problems mostly cyclical • Housing markets firming up but will be soft to start
2011
• Weak construction market forecasted for 2011 but
long-run fundamentals are strong • Happy Holidays!
For access to BCREA Economics Publications and Forecasts, Please Go to: http://www.bcrea.bc.ca/economics/economics.htm
Real Estate Institute of BC (Nanaimo Chapter) December 8, 2010 Brendon Ogmundson Economist
Global Economy: Two-Speed Recovery Per % cent Real GDP Growth 10
Emerging
8 6
World
4 2 0 -2 -4 -6
Advanced
This Time is Different? Characteristics of Synchronized Financial Crises
Normal Recession
Synchronized Financial Crisis
US
Canada
Duration of Recession (quarters)
3.4
7.3
7
3
Peak-toTrough Decline (%)
-2.6
-4.8
-4.1
-3.3
3
6.8
5 (ongoing)
3
4.3
2.8
2.9 (F)
2.9 (F)
Recovery Duration (quarters) Growth in First Year of Recovery (%)
Based on Past Business Cycles in an Industrialized Countries Source: IMF
US Job Market – Worst since Great Depression
US Employment Recovery a Long Way Off Employment (millions of workers) 170
Strong Recovery: 2 years to regain lost jobs
160 150 140 130
Weak Recovery: 9 years to regain lost jobs
120 110 100
Trend Employment Growth
1988 1988 1989 1990 1991 1992 1993 1993 1994 1995 1996 1997 1998 1998 1999 2000 2001 2002 2003 2003 2004 2005 2006 2007 2008 2008 2009 2010 2011 2012 2013 2013 2014 2015 2016 2017 2018 2018 2019 2020
90
Source: US Federal Reserve, BCREA Calculations
Turning Japanese? 2004 4
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
United States – Core Inflation
3.5
Japan – Core Inflation
3 2.5 2 1.5
Oct 2010
1 0.5 0 -0.5 -1 1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Canadian Employment Rebound Peak Employment = 100 101
100
2008
99 98
1990
97 96 95
1981
94 93 92 91 -6
-4
-2
0
2
4
6
8
10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 Months
Economic Growth Per Cent Canada – Real GDP
8.0
United States – Real GDP
6.0 4.0
2.0 0.0 -2.0 -4.0 -6.0 -8.0 2006
2007
2008
2009
Real GDP (chained 2002 dollars) growth at annualized rates, quarterly.
Source: Stats Canada, BCREA forecast
2010
2011
Excess Capacity in The Canadian Economy Canadian Ouput Gap Per cent of Potential Output 2
1
0
Forecast
-1
-2
-3
-4 2006
2007
2008
2009
Latest Data Point: 2010Q3
Source: Statistics Canada, BC Real Estate Association
2010
2011
2012
Core Inflation muted through 2011 Per Cent
CPI Inflation
Core Inflation
Inflation Target
4.0 Forecast
3.0 2.0 1.0 0.0 -1.0 -2.0 2004
2005
2006
2007
2008
Source: Bank of Canada, Stats Canada, BCREA Economics
2009
2010
2011
Bank of Canada on Hold until Q2 Per cent 6
Canada United States
5
Forecast
4
3
2
1
0
Q1
Q2
Q3
2007
Q4
Q1
Q2
Q3
2008
Q4
Q1
Q2
Q3
2009
Q4
Q1
Q2
Q3
2010
Q4
Q1
Q2
Q3
2011
Q4
Quantitative “Un”-Easing 3.00
Bernanke hints at QE2
Official QE2 Announcement
3.00
2.75
2.75
2.50
2.50
2.25
2.25
2.00
2.00
1.75
Canadian 5-Year Yield
1.75
1.50 1.25 1.00 Jul/2010
1.50 1.25
US 5-Year Yield
1.00 Aug/2010
Sep/2010
Oct/2010
Nov/2010
Mortgage Rates Per Cent
1-Year Fixed Mortgage
5-Year Fixed Mortgage Rate
8.00
Forecast
7.00 6.00 5.00 4.00 3.00 2006
2007
2008
2009
Source: Bank of Canada, Stats Canada, BCREA Economics
2010
2011
Canadian Dollar Bank of Canada Commodity Price Index, 2002 = 100 950 850 750 650
US per CDN 1.1
Commodity Prices (LHS)
1.05
Canadian Dollar (RHS)
1 0.95 0.9
550
0.85 450 0.8 350
0.75
250
0.7
150
0.65
50
0.6
BC Economy
BC Employment Recovery 102
Peak Employment = 100
100 98 96 94
1982 Recession
92
2009 Recession
90
2001 Slowdown
88
-12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48 52 56
86 Months
BC Exports Oriented Towards Advanced Economies BC Export Markets
GDP Growth 7.6%
8.0%
6.9%
7.0%
Emerging, 29%
6.0% 5.0%
Advanced, 71%
4.0% 3.0%
2.7%
2.3%
2.0%
1.0% 0.0% 2010
Advanced
Source: IMF World Economic Outlook, Industry Canada
2011
Emerging
BC Economic Forecast BC Real GDP Growth Per cent 5 4
3.4% 2.6%
3 2 1 0 -1
Forecast -2 -3 2002
2003
2004
2005
2006
2007
Source: Statistics Canada, BC Real Estate Association
2008
2009
2010
2011
Vancouver Island Employment Peak Employment = 100 102 100 BC 98 96
Island/Coast 94 92 90 88 -12 -10 -8
-6
-4
-2
0
2
4
6
8
Months
10 12 14 16 18 20 22 24 26
Island Tourism still lagging $32,000,000 $30,000,000 $28,000,000
$26,000,000 $24,000,000
$22,000,000 $20,000,000
Room Revenues
Trend
12 per. Mov. Avg. (Room Revenues)
US Housing Starts vs. Sawn Lumber Production BC Sawn Lumber Production (cubic metres)
US Housing Starts (SAAR)
4,500
2,500
4,000
BC Sawn Lumber Production (LHS)
3,500
2,000
3,000 1,500 2,500 2,000 1,000
1,500
US Housing Starts (RHS)
1,000
500
500 0 2001M01 2001M04 2001M07 2001M10 2002M01 2002M04 2002M07 2002M10 2003M01 2003M04 2003M07 2003M10 2004M01 2004M04 2004M07 2004M10 2005M01 2005M04 2005M07 2005M10 2006M01 2006M04 2006M07 2006M10 2007M01 2007M04 2007M07 2007M10 2008M01 2008M04 2008M07 2008M10 2009M01 2009M04 2009M07 2009M10 2010M01 2010M04
0
Source: US Federal Reserve; Statistics Canada
Greater Exposure for Island Agriculture, Forestry, Fishing and Hunting Firm Share of Employment (2008)
Per Cent
10 8 6 4 2
0 BC
Vancouver Island/Coast
Comox Strathcona
Cowichan Valley
Sources: BC Stats Quarterly Regional Statistics, BC Real Estate Association
Nanaimo
Alberni Clayoquet
Post-Recession Employment in Key Island Industries Manufacturing Healthcare & Social Assistance Finance, Insurance & Real Estate Education Construction Accomodation & Food Services Transport & Warehousing Retail and Wholesale Trade
Professional, Science, & Technical Services
Public Administration -10
-8
-6
-4
Net Jobs Lost (000s)
-2
0
2
4
6
Net Jobs Gained (000s)
8
10
Housing Market
Provincial MLS® Residential Sales Residential MLS® Unit Sales (SAAR) 120,000 100,000
Record Low Mortgage Rates; Pent-up Demand; Lower Prices
Economic Expansion; Declining Mortgage Rates; Pent-Up Demand
80,000 Affordability Concerns; End of 40-Year Amortizations; Declining Prices
60,000
Financial Crisis; Global Recession; Low Confidence
40,000 20,000 1999
2001
Sources: Local Real Estate Boards, CREA, BCREA Seasonally Adjusted at Annual Rates
2003
2005
2007
2009
MLS® Sales Monthly Units Sold (Seasonally Adjusted) 900 Vancouver Island 800 700 600 500 400 Victoria 300 200 2003
2004
Source: VIREB,VREB
2005
2006
2007
2008
2009
2010
MLS® Residential Listings Seasonally Adjusted Units
Active Listings (LHS)
New Listings (RHS)
Units
60,000
18,000
50,000
16,000
40,000
14,000
30,000
12,000
20,000 2005
10,000
Source: BCREA
2006
2007
2008
2009
2010
Housing Market Conditions British Columbia Per Cent
Sales-to-Active Listings Ratio*
40 35
Seller’s
30 25 20
Balanced
15
10
Buyer’s
5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 *Seasonally Adjusted
Victoria diverging from rest of Island Per Cent
Sales-to-Active Listings (seasonally adjusted)
35 Seller’s
30 25 20
Balanced
15
Victoria Van Island
10 5
Buyer’s
0 2007
2008
Source: BCREA Economics
2009
2010
Average MLS® Residential Price $550,000 Victoria
$500,000 $450,000
BC
$400,000
$350,000 $300,000
Vancouver Island
$250,000 $200,000 2006
2007
2008
2009
2010
Carrying Cost: Victoria and Vancouver Island Per Cent
Inflation Adjusted Dollars
16
2,900 2,600
Victoria
Mortgage Rate
14
2,300
12
V. Island
2,000
10
1,700 8 1,400 6
1,100 800 1988
4 1992
Sources: Statistics Canada, CREA, BCREA
1996
2000
2004
2008
BCREA Forecast BC
Victoria
Vancouver Island
2010
2011
2010
2011
2010
2011
MLS Sales
74,950
79,700
6,200
6,500
6,700
6,900
% Change
(11.8%)
6.3%
(19.0%)
4.8%
(8.0%)
3.0%
Average Price
$498,500
$495,600
$501,000
$495,000
$328,000
$326,000
% Change
7.0%
(0.6%)
5.2%
(1.2%)
3.8%
(0.6%)
Source: BCREA
New Home Market
Multi-Family Inventory May Mitigate New Construction in 2011 Units 1,000
800 Multi-Family 600
400
200
Single
0 1990 Sources: CMHC, BCREA
1992
1994
1996
1998
2000
2002
2004
2006
2008
Nanaimo New Home Supply Swells Units
350
Under Construction(RHS)
Multiples Singles
300
1200 1000
Inventory
250
800
200 600 150 400
100
200
50 0 1995
0 1997
1999
2001
Sources: CMHC, BCREA Figures reflect activity in 9 large BC markets
2003
2005
2007
2009
Vancouver Island Housing Starts Units 4,000
Multiples Singles
3,500 3,000
2,500 2,000 1,500 1,000 500
0 1995
1997
Sources: CMHC, BCREA
1999
2001
2003
2005
2007
2009
2011F
Long-term Fundamentals – Outside Buyers Nearly Half of Buyers Come From Outside Board Region 10%
Within Same Area
6%
Elsewhere on Island 39%
7%
Alberta
Other BC/Gulf Islands 12%
Vancouver Victoria Rest of Canada/World
11% 15%
Sources: VIREB 2009Buyer Profile, BCREA
Long-term Fundamentals - Retirees High Proportion of Retirees = Stable Incomes Per Cent
50 40 30 20 10
0
Board
Campbell River
Comox Valley
Sources: VIREB 2009Buyer Profile, BCREA
Cowichan Nanaimo ParksvilleValley Qualicum
Port Alberni/ West Coast
Islands
Long-term Fundamentals – Principal Residences People Buy In the Region to Live – Key for Economy 2%
1%
1%
Principal Residence
Investment/Rental
Other
Recreation/Vacation 96% Sources: VIREB 2008 Buyer Profile, BCREA
Household Growth by Region 2010 - 2020 BC Total +320,000 +3,400
+2,700 +5,500
+50,000
Source: BC Stats PEOPLE 33
+38,000
+5,700 +212,000
New Housing in the Long-Run
Final Thoughts: • Slow recovery in the US will limit growth in Canada and BC • Mortgage rates trending upwards – but not expected to rise to quickly • Vancouver Island employment lagging BC and Canada but still improving – problems mostly cyclical • Housing markets firming up but will be soft to start
2011
• Weak construction market forecasted for 2011 but
long-run fundamentals are strong • Happy Holidays!
For access to BCREA Economics Publications and Forecasts, Please Go to: http://www.bcrea.bc.ca/economics/economics.htm
