Canadian housing starts decreased by 3.4% in December to 197,329 units at a seasonally adjusted annual rate (SAAR). The trend in national housing starts fell, averaging about 212,000 units SAAR over the past six months. 

In BC, housing starts fell by 10% on a monthly basis to 42,791 units SAAR, largely due to contractions in the volatile multi-unit segment in regions outside of Vancouver. Compared to the same time last year, provincial starts were down by 16%. The province ended 2019 with the highest level of housing starts since 1955, the year when data collection began. 

Looking at census metropolitan areas in BC: 

Housing starts in Vancouver were flat in December, following last month's 78% increase. Compared to last year in December, housing starts were up by 12%. In 2019, Vancouver reported record-level housing starts. 

In Victoria, housing starts were down by 23% on a monthly basis to 3,263 units SAAR. Compared to a year ago in December, housing starts were down by 66%. Overall, housing starts in Victoria slowed by 18% in 2019 when compared to last year. 

In Kelowna, housing starts decreased by 74% in December to 908 units SAAR. Year-over-year starts were down by 73% in the region. In 2019, housing starts were 12% lower than in 2018.

Monthly housing starts in Abbotsford-Mission were up by 54% at 2,517 units SAAR. Compared to the same time last year, new home construction was down by 28%. Abbotsford-Mission ended 2019 on a strong note with housing starts up by 61% compared to 2018. 

A good news report. Canadian employment increased by 35,200 jobs in December, partially offsetting the previous month's decline of 71,200 jobs. This brought the national unemployment rate down from 5.9% in the previous month to 5.6% in December. Regionally, the increase was led by Ontario (25,000) and Quebec (21,000). December's increase was largely driven by full time work in the private-sector, which finally broke its losing streak. Most of the increase was in accommodation and food services (25,000) and in construction (17,000), while other industries saw little change. Compared to the same month last year, Canadian employment is up 1.7%.   

Not a great report. Employment in BC fell by 7,700 jobs in December, following last month's decline of 18,200. The decline was primarily driven by part-time employment (-6,500). By Industry, employment losses were generally broad-based, with the exception of construction, health care/social assistance, and accommodation and food services. The provincial unemployment rate fell by 0.2 percentage points to 4.8%. Compared to one year ago, employment in BC is up by 0.3% (7,100) jobs.   

Canadian inflation, as measured by the Consumer Price Index (CPI) rose by 2.2 per cent in November year-over-year, following a 1.9 per cent increase in the previous month. Excluding the impact of higher gasoline prices, national CPI rose by 2.3 per cent year-over-year. The Bank of Canada's three measures of trend inflation rose to average 2.2 per cent in November, which means the increase in prices have been relatively broad-based.

In B.C., CPI grew to 2.2 per cent year-over-year, matching growth in October. The rise was led by food, and clothing and footwear prices, while notable declines were reported in gasoline and recreation prices. 

Although the Bank of Canada has noted that inflation has been close to its target, the Bank will likely continue its cautious approach, as it continues to monitor other key economic indicators before deciding on a course of action in 2020.

Highlights

• Wild year for interest rates
• Canadian economy: slow and steady
• Why is the Bank of Canada holding back?

Mortgage Rate Outlook
As the year ends, it's worth reflecting on how significantly the Canadian interest rate environment has changed in just twelve months. One year ago, the Canadian yield curve was its usual upward sloping shape, with markets expecting gradual rate increases by the Bank of Canada. Based partly on those expectations, Canadian mortgage rates were climbing. However, within 8 months the yield curve in Canada had inverted, bond yields tumbled, and Canadian mortgage rates were once again heading lower.

So, what happened? Most prominently, two of the worlds' largest economies entered a mutually destructive trade war, which has in turn slowed global economic growth and caused a sharp retracing of interest rate expectations. At its most fervent point, and informed by the yield curve's impressive recession forecasting record, the bond market panic pushed 5-year bond yields to just 1.13 per cent, and pulled the average 5-year mortgage contract rate well below 3 per cent and about 100 basis points below where rates ended 2018. However, by the end of summer the panic had subsided, aided by three rate cuts by the US Federal Reserve, and an otherwise occupied White House taking a step back from sabre-rattling on trade tariffs. As a result, 5-year Canadian bond yields bounced back to around 1.5 per cent and Canadian mortgage rates are now experiencing a small amount of upward pressure.

The outlook for where mortgage rates go from here is fairly clouded. While bond markets are no longer as shaken as they were six months ago, growth in the Canadian economy is still slightly below trend. Canadian monetary policy may also be tighter than necessary, given that the Bank's US counterparts have been lowering rates and global economic risk is elevated. However, those risks seem to be already priced into bond yields and absent a change in the stance of Canadian monetary policy, mortgage rates may be in for a dull year with rates remaining low and stable. Perhaps a welcome relief from the volatility of the past two years.

Economic Outlook 
The Canadian economy grew just 1.3 per cent in the fourth quarter of 2019, an expected slowdown after an abnormally strong second quarter saw real GDP growth of 3.7 per cent. The impact of elevated trade tensions is apparent in the data, with Canadian export and investment both negatively effected. Canadian exports have slowed in recent months and nonresidential investment contracted in the first half of the year.However, business sentiment outside of the energy sector has improved slightly and we have yet to see the impact on the trade sector leak into the wider economy through declining job growth or consumer spending. Household consumption spending should get a further boost as the housing market recovers and firmer price growth and lower interest rates spur increased borrowing against home equity.

Overall, we expect growth in the Canadian economy will finish 2019 at 1.6 per cent and will post trend growth of about 1.8 per cent in 2020.

Interest Rate Outlook 
With many central banks around the world lowering their policy rates, a key question is why is the Bank of Canada holding firm? The answer is simply that the Bank judges the potential of lower rates igniting a further accumulation of household debt as a greater risk to the Canadian economy than deteriorating global economic conditions. Canadian policymakers have committed to bending the curve on the Canadian household debt-to-income ratio, through a combination of higher interest rates and stricter mortgage policy.

Balanced against the goal of restraining debt, the Bank sees the risk of a further disruption in global trade as manageable. The outlook for Canadian economic growth is roughly in line with trend growth for the economy and inflation is expected to be tethered to its 2 per cent target. As long as that outlook holds, we expect the Bank will remain on the sidelines in 2020.

Canadian housing starts decreased by 0.3% in November to 201,318 units at a seasonally adjusted annual rate (SAAR). The trend in national housing starts continues to be healthy, averaging about 219,000 units SAAR over the past six months. 

In BC, housing starts rose by 41% on a monthly basis to 48,840 units SAAR, largely due to a 59% increase in construction in the multi-unit segment in Vancouver, while single detached home construction was down by 13%. Compared to the same time last year, provincial starts were up by 22%.

Looking at census metropolitan areas in BC: 

Housing starts in Vancouver were up by 78% in November at 27,688 units SAAR, following last month's lowest reported level of starts in 2019. The increase was driven entirely by the multi-unit segment. Compared to last year in November, housing starts in Vancouver were up by 26%. 

In Victoria, housing starts were up by 9% on a monthly basis to 4,224 units SAAR. Compared to a year ago, housing starts were up by 44%.

In Kelowna, housing starts decreased by 9% in November to 3,504 units SAAR. Year-over-year starts were down by 18% in the region. 

Monthly housing starts in Abbotsford-Mission were down by 30% at 1,636 units SAAR. Compared to this time last year, new home construction was up by 154%.

Canadian employment decreased by 71,000 jobs in November, led by Quebec (-45,000), BC (-18,200) and Alberta (-18,000). This brought the national unemployment rate up from 5.5% in the previous month to 5.9% in November. November's decline was largely driven by private-sector employment, while self-employment and public-sector employment was little changed. Most of the decrease was reported in manufacturing (-28,000), natural resources (-6,500) and in public administration (-25,000). Compared to the same month last year, Canadian employment is up 1.6%.   

Employment in BC fell by 18,200 jobs in November, completely wiping out the previous month's gain. The decline was driven by full-time employment (-20,500), which more than offset gains in part-time employment (2,300). By Industry, employment losses were generally broad-based. In contrast, employment was up in finance/insurance/real estate/leasing. The provincial unemployment rate rose by 0.3 percentage points to 5%. Compared to one year ago, employment in BC is up by 0.7% (18,100) jobs.   

Canadian inflation, as measured by the Consumer Price Index (CPI) rose by 1.9 per cent in October year-over-year, matching the increase in September. This marks 7-months of consecutive year-over-year growth in the CPI. Excluding the impact of higher gasoline prices, the CPI rose by 2.3 per cent year-over-year. The Bank of Canada's three measures of trend inflation remain unchanged to average 2 per cent in October.

In B.C., CPI slowed to 2.2 per cent year-over-year, down from 2.4 per cent in September. The decline was largely driven by recreation, education and reading, while notable increases were reported in gasoline, transportation and clothing and footwear prices. 

With Canadian inflation hovering at 2 per cent, the Bank of Canada will likely continue its dovish-to-neutral tone. The Bank will need to see a deterioration in the economic indicators before taking action.

Seasonally-adjusted Canadian retail sales fell by 0.1% in September to $51.6 billion (after an upwardly revised 0.1% in August), driven by lower sales at motor vehicle and parts dealers and at gasoline stations. Retail sales were down in 6 of 11 sub-sectors. Regionally, 7 of 10 provinces reported declines in September with notable declines in Alberta (-1.6%) and New Brunswick (-3.7%).

In B.C., seasonally-adjusted retail sales fell by 0.2% to $7.2 billion in September, driven by a decline in sales at motor vehicle and parts dealers and in food and beverage stores. Vancouver also reported a monthly decrease of 0.9% in sales. Declining provincial sales were reported in all sub-sectors except for building material and garden equipment. Compared to the same time last year, B.C. retail sales were down by 0.8% in September.

Canadian retail sales decreased by 0.1% in August to $51.5 billion, driven largely by lower sales at food and beverage stores and at gasoline stations. Retail sales were down in 6 of 11 sub-sectors, representing 51% of sales. Regionally, 4 of 10 provinces reported a decrease in August with notable declines reported in Ontario (-0.8%) and Manitoba (-1.6%).

In B.C., retail sales rose by 0.8% to $7.2 billion in August, ending four consecutive months of declines. Vancouver also reported a monthly increase of 1.7% in sales. Provincial sales were up in 7 of 11 sub-sectors, largely driven by sales at food and beverage stores and to a lesser extent, in furniture and home furnishings. On a year-over-year basis, B.C. retail sales were down by 0.4% in August.

Canadian housing starts decreased by 8.7% in October to 201,973 units at a seasonally adjusted annual rate (SAAR). The decline was due to a pullback in the multi-unit segment. The trend in national housing starts continues to be healthy, averaging 218,598 units SAAR over the past six months. 

In BC, housing starts declined by 16% on a monthly basis to 33,174 units SAAR, largely due to falling construction in the multi-unit segment. The decline is an unwinding of developers pushing forward activity in the previous months to get ahead of a new development charge in Vancouver. Compared to the same time last year, provincial starts were up by 9%. On a monthly basis, multi-unit starts were down by 22%, while singles were up by 10%.

Looking at census metropolitan areas in BC: 

Housing starts in Vancouver were down by 37% in October at 15,657 units SAAR, driven entirely by the multi-unit segment. Compared to last year in October, housing starts in Vancouver were down by 11%. 

In Victoria, housing starts were down by 36% on a monthly basis to 3,880 units SAAR, following last month's highest recording of starts since December 2018. Compared to a year ago, housing starts were up by 43%.

In Kelowna, housing starts increased by 155% in October to 3,870 units SAAR. Year-over-year starts were up by 423% in the region. 

Monthly housing starts in Abbotsford-Mission were up by 13% at 2,335 units SAAR. Compared to this time last year, new home construction was up by 34%.