BCREA Blog

The April 2013 Bank of Canada monetary policy report (MPR) included a significant lowering of the Bank's growth and inflation forecast from their previous projection in January:




Lower economic growth means that the Bank does not expect the economy to return to its potential (or full-employment) level until sometime in 2015. It's worth noting that the Bank has been consistently optimistic about when the economy's output gap (the difference between economic output produced with fully utilized resources and what the output is currently being produced) will close and indeed, given a lower growth forecast, the output gap is actually widening rather than shrinking. With an expanding output gap and inflation trending well below its two per cent target, it is natural to ask if the next move by the Bank of Canada is a rate cut rather than the rate hike that almost all economists have penciled into their forecasts. Economists tend to evaluate the ‘rightness’ of monetary policy using estimated policy rules. That is, a formula for setting interest rates in a way that is consistent with the goals of the central bank. In the Bank of Canada’s case, that means stabilizing inflation around a target rate of two per cent. Using an interest rate rule that closely matches past Bank of Canada rate-setting behaviour, along with the most recent Bank of Canada forecast, we can see that the interest rate path that gets inflation back to two per cent is still consistent with the next rate move being up.



Besides that, the Bank is also unlikely to lower interest rates since doing so would run counter to a year of loudly exhorting households to cut back on debt. Instead, the Bank will likely continue to use forward guidance about the need, or lack thereof, for future rate hikes in order to influence long-term rates and the Canadian dollar lower. The combined effect of which should provide continued stimulus to the Canadian economy over the following year.

BCREA is pleased to announce its three-year investment in the new National Real Estate Virtual College that will launch this fall.

The Virtual College is a collaborative venture of real estate boards and associations from across Canada who envision a national virtual college for on-line education to members of organized real estate organizations.

BCREA joins the provincial associations from Alberta, Saskatchewan and Manitoba as the first signatories on a three-year joint venture agreement. Commitments are currently under consideration by the Maritime provinces, as well.

For BCREA, the investment in this national platform is timely and strategic. As BCREA works to enhance the Professional Development Program (PDP) for REALTORS®, it needs access to an online platform for some of its upcoming, new offerings. BCREA also needs a more effective mechanism to support the sharing of and collaboration on REALTOR® education products and services, in an aim to make better use of Association resources.

As one of the principle investors in the Feasibility and Design phases of the college project, BCREA is proud to see the innovative ideals and values that launched the project become fully realized in this exciting new educational entity.

In a recent blog post, economists at the Canadian Conference Board wrote about the strong impact that the Chinese economy has on the Vancouver housing market. The analysis done by the Conference Board suggests that while Chinese GDP is uncorrelated with Vancouver employment, it is correlated with Vancouver housing variables. This would suggest that economic growth in China is not a significant driver of local economic growth, but is a direct driver of the housing market.

While we agree that the Chinese economy has an impact on the Vancouver market, we would argue that the impact is far less direct than implied by the Conference Board. The British Columbia economy has the greatest exposure to China of any Canadian province, both directly since China is BC's second most important export market, and indirectly via China's impact on commodity prices relevant to BC. Faster growth in China is good for BC and good for Vancouver as higher exports, manufacturing output, and commodity prices drive gains in capital investment, incomes and employment - all of which will in turn spur the housing market.

What is missing from the Conference Board's post is how large an impact Chinese economic growth might have on Vancouver home prices and sales. One way to discern this impact is to simply let the data speak for itself though a simple Vector Autoregression (VAR) of Chinese GDP growth and real Vancouver home prices and home sales. A VAR allows us to trace the dynamic impact of a shock to the Chinese economy (meaning a positive or negative unexpected change in the rate of GDP growth) without forcing a lot of structure onto the underlying relationship. Running this simple VAR, we can see that the direct quantitative impact appears much smaller than hinted at in the Conference Board's analysis.  

The above analysis is hardly definitive, but it does suggest that while Chinese growth is certainly a factor to watch given the importance of China to the BC economy, it is far from being the primary driving force behind the Vancouver housing market.

With 12 full months of economic data available, it is time to update BCREA's tracking estimate for 2012 economic growth in BC. As background, provincial economic data is available at an annual level only and with a very long lag. Therefore, the BCREA economics team has developed a monthly growth tracker to estimate monthly growth in BC real GDP. As shown below, our growth measure has accurately captured actual BC real GDP growth over the past decade.

Looking at our tracking estimate, the BC economy started the year strong, with momentum carrying over from 2011, before sharply decelerating in the back half of 2012. According to our estimate, annual real GDP growth trended under 2 per cent in the fourth quarter of 2012 and averaged 2.3 per cent for all of 2012. We anticipate that slow growth will continue in 2013, with the provincial economy expanding just 2.2 per cent.

In collaboration with The Canadian Home Builders Association of British Columbia and BC Housing, BCREA is proud to once again sponsor this year's Housing Affordability Symposium.

The 2013 Housing Affordability Symposium will take place on March 14 and 15 at the Delta Vancouver Airport Hotel in Richmond. Marking a collaborative effort between all three levels of government and the residential construction industry, the event will provide the opportunity to openly discuss barriers and solutions to market housing affordability in BC. Commencing in 2010 the symposium has produced many practical and action-oriented strategies for participants across the province to utilize in their own communities in an effort to create housing within the means of all British Columbians.

An opening keynote by Chris Turner, a best-selling author and renowned speaker on global sustainability movement, will focus on the need for wholesale changes and solutions for livable communities in the long-term. The event will also highlight speakers from the industry, local and provincial government, community groups and academics, and is designed to have participants leave with practical tools and solutions to implement strategies and programs and move towards successful housing.

BCREA recognizes that affordable housing solutions are an extremely important priority, as housing affordability continues to be one the biggest challenges facing British Columbians today and encourages REALTORS® to attend this valuable event.

For more information about the 2013 Housing Affordability Symposium and to take advantage of the early bird rate by registering now, click here.

As part of BCREA’s recent governance changes, the BCREA Board will now include two public Board members in addition to nine REALTOR® directors. As such, the Board is presently seeking candidates for the two volunteer public Board member positions and welcomes interest from qualified individuals.

The Board’s governance role involves a wide range of responsibilities, including collaborating on, and approving, BCREA’s strategic goals and objectives, ensuring qualified management, overseeing BCREA’s business and activities, reviewing its material risks, and overseeing a succession planning process to ensure continued leadership.  The BCREA Board meets approximately six time per year, with attendance at additional BCREA events (e.g. Annual General Meeting) required as well.

As a member of the Board, you have the ability to provide wise, thoughtful counsel on a broad range of governance issues, a preference for team performance over individual performance, high performance standards and respect for others. Board members are expected to serve on board committees according to organizational requirements and are remunerated for their time and travel expenses. 

Preferred candidates will bring experience interacting with government and elected officials at the municipal, provincial or federal level; experience developing and overseeing adult education programs; experience around leadership performance management and succession planning; significant experience in understanding financial statements of an organization similar in size and complexity as BCREA; experience serving on a board in a leadership capacity; familiarity with IT trends in the workplace; significant experience in the area of real estate law; experience leading or participating in significant organizational change; and/or significant experience in effective communications with stakeholders in a member-based environment.  

For more information on BCREA, please visit http://www.bcrea.bc.ca/about.

NOTE: Applications are now closed for the two volunteer public Board member positions.

Over the past four years, policymakers in Ottawa have deemed it necessary to restrain mortgage credit with the most impactful change coming from a shortening of amortizations on high-ratio mortgages from 40 to 25 years. While some tightening of lending standards was prudent in the wake of the US sub-prime fiasco, the rationale provided by the federal government has not always been air-tight, particularly when it comes to Vancouver. When explaining the need for tighter mortgage lending standards, it is common to hear the Finance Minister cite the “overheated” or “red-hot” Toronto and Vancouver condo markets. For those of us that pay attention to the Vancouver condo market, these thermogenic metaphors can be puzzling. Pictured below are condo prices in Vancouver from 2008 to the present, adjusted for consumer price inflation.



As is clear from the chart, since recovering from the panic of the global financial crisis, inflation adjusted condo prices in Vancouver have actually been trending lower since 2009. The same story holds for condo sales, which cratered during the financial crisis, posted a strong recovery, and have fallen well below pre-crisis levels since.

An objective look at data clearly shows that the Vancouver condo market has not been “hot” for quite some time. Perhaps it is time for federal policymakers to update their talking points.

Flooding poses catastrophic risks to BC’s economic vitality, safety, environment, property owners and communities. While this is a complex issue with many aspects, the British Columbia Real Estate Association (BCREA) is concerned that existing floodplain maps are outdated, and this limits the ability of decision makers to effectively manage flood risks.

On March 8, with generous funding from the Real Estate Foundation of British Columbia, BCREA will host a workshop for stakeholders to explore concrete steps that can be taken to update existing floodplain maps and keep them current.

Facilitated by David Marshall, Executive Director of the Fraser Basin Council, this event will provide lots of opportunity for discussion.

For more information, including times, location and an opportunity to provide feedback to help shape the workshop, click here.

While there were a number of ups and downs in the Canadian mortgage market in 2012, there was very little movement in mortgage rates. In fact, the volatility of mortgage rates, as measured by a rolling 52-week standard deviation of the 5-year fixed rate, reached at least a 32 year low in 2012.

 

With growth and inflation remaining relatively subdued and the Bank of Canada on the sidelines for much of 2013, the unprecedented low volatility in Canadian mortgage rates is likely to continue for much of the new year.

Statistics Canada’s annual publication of Provincial Economic Accounts was released earlier this week. This publication includes the final estimate of GDP by province for 2011 and so provides a final estimate of economic growth in the provinces. BC real GDP expanded 2.8 per cent in 2011, close to BCREA’s estimate of 2.7 per cent, and a slight deceleration from 2010’s rate of 3.2 per cent.  Household consumption spending accounted for 1.5 per cent of overall growth while business investment accounted for 1.3 per cent. In spite of a strong year for BC exports, the province still had a net trade deficit which subtracted over 1 per cent from real GDP growth.

BC ranked fourth among the ten Canadian provinces, with resource rich provinces Alberta and Saskatchewan leading the way, posting fairly remarkable growth of 5.1 and 4.9 per cent respectively.  The rankings continue to show a westward shift in the economic engine of Canada, with the four of the top five fastest growing province located in Western Canada.

BCREA is thrilled to report that the Real Estate Council of British Columbia (Council) recently approved the Association’s recommendations for Phase II of the redesign of the Residential and Commercial Trading Services Applied Practice Courses. Recognizing the importance of strong foundational learning, the Council is collaborating with BCREA on the redesign of these courses which will focus on competency-based education to help produce qualified and confident new licensees. BCREA will be looking to launch the course in early 2014.

How was this new model designed? 

After conducting several focus groups with managing brokers, licensees, learners and the general public who had recently sold and/or bought real estate, BCREA along with the expertise of Open School BC, considered all of the information and sought out best practice research to fix the disconnects between the current program and one that offers the real estate community competent emerging professionals.

Feedback gathered from managing brokers and licensees about the current applied practice courses included that attendees: took too much time away from the office to complete the course; had to be re-trained after the course; did not have a complete understanding of agency, disclosure and how to draft a contract; and were not prepared for the real challenges of the real estate profession.

When listening to learners, BCREA heard that: the amount of information to learn in one week was overwhelming; that more time and more practical hands-on learning was required; that attendees did not feel ready to practice real estate after completing the course; and that assessment needed to be part of the course.

What does the new model look like?

What has changed?

What remains?

• Emphasis on core competencies in the course content (agency, disclosure and drafting enforceable contracts)
• Required course work during post-licensing phase
• Instructor presence will be seen throughout the course 
• Continuous upgrade to course content will be made to reflect current laws, requirements, etc.

For more information about the course, contact BCREA’s education team at education@bcrea.bc.ca.

Join us in welcoming Faizal Valli as a new instructor for the cpe course Tax Tips for Selling Real Estate.

Family ties and a position with Facet Advisors LLP Chartered Accountants recently brought Faizal to the lower mainland from Calgary.  Faizal brings to the position of instructor a wealth of information and experience speaking to large audiences. One of his most exciting public speaking engagements was hosted on Shaw TV.

Faizal has risen to the challenge of being an excellent BCREA instructor, so much so that the learners are asking for a Part II to this already well-received cpe course.

When we asked Faizal what he likes to do his spare time, he elaborated on his enjoyment of hiking, mountain biking and motorcycle excursions. In addition to these local activities, he also likes to return to Kenya, where he grew up. It is the memory of his childhood safari experiences that draws him back.

In response to our question, “why would you like to teach with BCREA?” he replied, “to provide relevant tax advice to real estate professionals, and to help them add value to their clients.” Does he do this? Absolutely! The level of engagement in his class is evident as he is knowledgeable, provides relevant information in an easy-to-understand manner, handles questions seamlessly and implements the use of the iClickers throughout his entire class. The value of this course is the knowledge that the learners glean from Faizal – an experienced, knowledgeable and personable instructor!

Welcome, Faizal!

The Federal government has tightened mortgage regulations four times since 2008, with each intervention followed by a sharp decline in home sales. The most recent intervention was implemented in July 2012 and primarily involved a reduction of the maximum Canada Mortgage and Housing Corporation (CMHC) insurable mortgage amortization period from 30 years to 25 years. As with prior interventions, BC home sales have sharply declined in the immediate months following the change in policy.

There are a myriad of factors influencing the decision to buy or sell a home and the mortgage policy changes the government instituted differed in scope and impact. However, the pattern in the chart above does seem to indicate that the weakness in home sales that followed each tightening of mortgage regulations was not a coincidence. In fact, if we try to extricate the impact of mortgage tightening via multiple regression analysis (controlling for mortgage rates and provincial economic variables), we find a statistically significant and negative immediate impact on homes sales in the order of seven per cent. That is, on average, monthly home sales were seven per cent lower in the month following the change than they would have been absent the implementation of tighter mortgage regulations. Moreover, the effects of tighter mortgage credit tend to persist for many months following the change, deepening in the first few months before fading over time.

Much of the BC housing market was already softening before the new amortization rules were implemented, but the change clearly gave the market an extra nudge downward. Given decent economic fundamentals, we expect sales to come off current lows as the effects of the policy change fades in coming months. Until then, sales in some parts of the province will likely remain well below seasonal averages.  

From its development in 2006, the Professional Development Program (PDP) was designed to provide REALTORS® with meaningful education that would protect both themselves and their clients and would promote REALTOR® professionalism across the province.

To meet the evolving needs of the real estate profession, BCREA is working on an exciting new learning path structure of recommended learning opportunities to support provincial education.  Through improved continuity between course offerings, licensees will be able to foster better accessibility of information as well as improve the applicability of competency-based learning toward their daily practice.

To help guide these professional learning opportunities for REALTORS®, BCREA has created recommended, designation-neutral learning paths for both residential and commercial practices. These learning paths are designed to cater to three distinct professional profiles within the real estate profession:

• Emerging professionals: new licensees who require basic knowledge to kick off their first few years in trading services. These licensees need both timely and resourceful information.
• Career builders: established REALTORS® looking to broaden their knowledge of trading services in other specialized areas such as: product knowledge, REALTOR® service information, professional conduct, as well as having the opportunity to review core areas of agency, disclosure, contracts, standard forms and ethics in a best practices refresher course.
• Seasoned professionals: well-experienced REALTORS® requiring updated information, training and opportunities to share knowledge and experience through mentorship. These licensees are thinking about the future of real estate and their place in it.

All learning paths will have a mandatory course component, which is currently Legal Update, as well as special topics. These topics include: webinars and panel discussions to provide timely education on topics of relevance to real estate professionals across the province. An example of one special topic was the introduction of designated agency across BC. Additionally, other learning opportunities featured in the learning paths will involve real estate board-sponsored education events.

BCREA looks forward to revealing and expanding on these learning paths in the coming years to celebrate the value of professional development within the real estate profession, as well as to cater to the learning needs of BC REALTORS®.

The Bank of Canada remains caught in a delicate balance. The trajectory of the output gap and the stickiness of consumer prices would under normal conditions, and under conventional monetary economics (see chart below), have pushed the Bank towards tightening interest rates. However, potential interest rate increases have been deferred by a near crisis environment in Europe, a stop-and-go US economy, and perhaps most importantly, the highly indebted position of Canadian households. 

A slowing global economy and a high dollar continue to exert pressure on Canadian exporters. Furthermore, while the Bank has carefully communicated that US monetary policy will not determine Bank of Canada rate actions, the explicit stance of the US Federal Reserve to keep interest rates low past 2014 does somewhat constrain the Bank’s ability to raise interest rates without putting further upward pressure on the loonie and harming much needed export growth.

In terms of the domestic economy, the Bank has been consistently exhorting Canadian businesses to spend and households to save. In a best-case scenario, consumers would be de-leveraging while businesses invested in productivity enhancing capital. This would facilitate a necessary shifting of the burden of growth from consumers to Canadian firms.

A scenario of consumer de-leveraging paired with ramped-up business investment and export growth will require interest rates to remain low. That said, the Bank is also serious about maintaining its mandate of price stability and is increasingly indicating a desire to move rates off of historically low levels. Balancing these objectives will require a delicate fine-tuning of monetary policy which we expect to proceed cautiously, perhaps with a rate-tightening of 25 to 50 basis points beginning in early to mid-2013. A slight increase in interest rates would allow the Bank to signal to households that higher interest rates are on the horizon while still maintaining a substantial degree of monetary stimulus to encourage business investment.

BCREA is working hard to ensure that our applied practice course and Professional Development Program (PDP) instructors are well supported and prepared to realise BCREA’s vision of a twenty first century education program for licensees and REALTORS® throughout the province.

August 20 marked a new beginning for 11 courageous BCREA instructors – they returned to school! In an effort to expand their instructional skills and increase their understanding of best practices within teaching and learning, these eleven pioneers heralding from both the applied practice course and continuing professional education (cpe) programs, started the Instructional Skills Workshop Online Course, offered through Royal Roads University.

This program will prepare BCREA instructors for upcoming enhancements in the PDP program.  Instructors will be more prepared to provide engaging and effective learning experiences in the classroom, in real-time distance-based scenarios, and in purely online, instructor-led course frameworks.

BCREA is assessing the experience of our 11 instructors in the course, as an instructor professional development pilot. The month long program, averaging an eight to 10 hour weekly time commitment, has provided the instructors with an opportunity to expand their teaching skills and immerse themselves in a learning community. If the pilot is successful, BCREA aims to have the majority of its instructors take the course in the next one to two years.

In a widely anticipated move, the US Federal Reserve announced yesterday that it will conduct a third round of quantitative easing (QE). The primary difference between QE3 and the Fed’s previous two quantitative easing programs is that QE3 asset purchases are open-ended and, most importantly, will continue until there is a substantial improvement in US labour market conditions. That is, the Fed has tied the duration of its latest program of asset purchases to an explicit macroeconomic objective. The Fed also extended its commitment to keep its target Federal Funds rate at near zero levels through at least mid-2015.

The theory underlying quantitative easing is that asset purchases will stimulate the economy by lowering long-term interest rates, including interest rates on mortgage debt, thus encouraging investment while giving a much needed jolt to the US housing market. While the evidence for the impact on growth and employment from past QE programs is mixed, pairing open-ended asset purchases and a commitment to keep interest rates low for an extended period with a specific objective has much support in academic literature.

The implications of the Fed’s announcement for Canadian interest rates are two-fold. One, the commitment by the Fed to keep interest rates at near zero levels until mid-2015 further constrains the Bank of Canada’s ability to raise interest rates over the same period. Particularly as Canadian exports have already softened under the weight of an appreciating loonie. Second, already low long-term bond yields will likely price-in a continuation of very low short-term rates and will therefore likely remain at historically low levels for an extended period which should keep Canadian mortgage rates well anchored to current historically low levels.

With most of the media attention focused on the Vancouver and Toronto real estate markets, it is easy to miss some of the truly good news stories like the surging real estate markets of Northern BC. So far in 2012, sales through the BC Northern Real Estate Board have risen 14 per cent while average prices are up over 5 per cent.

A big reason for the strength of northern housing markets is of course rising commodity prices and consequential investment in oil and gas and mineral exploration and production. Moreover, BC's long beleaguered forestry industry is starting to find its footing thanks to growing trade partnerships with emerging Asian economies. Increased investment and exploration in the natural resource sector in BC has lead to a strong recovery in employment in Northern BC, which of course stimulates demand for housing.

 

As demand for BC's natural resources from Asian markets continues to expand in the future, employment growth and housing demand in the north should remain strong.

 

Looking for resources to assist you, as a homebuyer, or to assist your clients, as a REALTOR®, in the process of buying a new home? Check out the numerous resources available from the Homeowner Protection Office (HPO).

The HPO, a branch of BC Housing, a provincial Crown agency under the Ministry of Energy and Mines, has a Homeowners section on its website, which includes the following valuable resources:

• New Homes Registry – provides prospective homebuyers with information to help them make informed decisions.
• Public Registry of Licensed Residential Builders and Building Envelope Renovators – a searchable database of licensed residential builders and building envelope renovators by area.
• Buying a Home in British Columbia: A Consumer Protection Guide – practical information to help consumers in BC make informed decisions about their home purchases.
• Guide to Home Warranty Insurance in British Columbia – provides prospective buyers of new homes and owners of new homes with information on home warranty insurance in BC.

To view these and many other resources, visit www.hpo.bc.ca/homebuyers.

When the Bank of Canada announces its interest rate decision tomorrow morning, it will no doubt choose to keep its target overnight interest rate at 1 per cent where it has been held for the past 23 months. 

The main point of interest for Bank watchers will be whether the language accompanying the decision is tempered from previous statements that had the Bank tipping its hand towards a more hawkish stance. Indeed, with recent changes to mortgage lending rules acting as an approximately 1 per cent targeted rate hike on the housing sector and ongoing global economic uncertainty, it is hard to imagine that the Bank has been pushed any closer to tightening policy. 

Our modeling suggests that the Bank will lower its official forecast for Canadian economic growth from 2.4 per cent to 2.1 per cent in 2012 and from 2.4 per cent to 2.3 per cent in 2013. This implies that the output gap, a key indicator for the future tightening of monetary policy, will not close in the first half of 2013 as the Bank had forecast in its April Monetary Policy Report. Therefore, while we still expect that the next move on interest rates will be up, we do not expect rates to rise until near the end of the first quarter of 2013.