Just as British Columbians began shifting gears toward the August long weekend, global financial markets were gearing up for a few days of wild volatility. Equity markets, commodity prices, and bond yields all fell precipitously on Friday August 2nd, prompted primarily by a less than favourable US labour market report. The S&P 500 declined 1.8%, followed by another 3.0% drop on Monday August 5th.
The US added 114,000 jobs in July (versus an estimated 185,000), the second-lowest gain in the past three and a half years and a continuation of downward hiring activity through 2024. Most notably, the US unemployment rate rose to 4.3%, which triggered the infamous Sahm Rule. The rule has been a steadfast indicator of economic recessions in the US and is triggered when the three-month moving average of the unemployment rate climbs more than 0.5 percentage points above its minimum over the prior 12 months.
The negative job report came just two days after the US Federal Reserve’s latest interest rate decision. Though it held the Fed funds rate at 5.25-5.50%, Chair Jerome Powell signaled that progress on reducing inflation made a September rate cut more likely. He also indicated that the Fed was paying more attention to the labour market and that further deterioration there could warrant interest rate cuts (unlike the Bank of Canada, the US Fed has a dual mandate of maximum employment and price stability).
North of the border, the Bank of Canada followed through with its second 25-basis-point interest rate cut on July 24th, bringing the policy rate to 4.5%. All measures of inflation have continued to progress toward the 2.0% target. The country actually saw deflation from May to June (prices were down 0.1%) and headline inflation fell to 2.7% year-over-year, with further easing in both headline and core measures of inflation expected in the back half of 2024. The Bank of Canada signaled that further interest rate cuts would be appropriate this fall should inflation continue to ease in line with expectations.
Though declining interest rates have yet to meaningfully stimulate real estate demand, activity in the Vancouver Region fell less than typical from June to July. MLS sales of 3,495 were down 4% month-over-month versus a typical decline of 12%. Still, this was 6% below July 2023 sales (of 3,732) and 21% below the prior 10-year July average (of 4,419).
On the inventory front, new listings activity remained robust with 8,876 homes coming to market, 19% above the prior 10-year July average of 7,470. This helped buoy active MLS listings by 3% month-over-month to 21,362, which was up 45% versus last July (14,697) and 24% above the prior 10-year July average of 17,244. The region has not seen inventory levels this high since June 2019 (21,654). Overall, the market remained balanced with 6.1 months of inventory in July.
Looking ahead, economic conditions in Canada and the US have contributed to significant declines in Government of Canada bond yields in recent months—a key input to fixed mortgage rates in Canada. From the beginning of July to early August, five-year bond yields declined roughly 60 basis points to around the 3.0% mark, their lowest level since May 2023. Should yields remain near current levels, further declines in fixed mortgage rates can be expected (currently, uninsured five-year fixed rates are in the low 5% range). Lower bond yields, along with further monetary policy easing at the Bank of Canada and US Federal Reserve, should help improve purchasing power and demand for real estate in the latter half of 2024 and into 2025.
The rennie review is a monthly publication that includes our take on the latest MLS data for the Vancouver Region. In addition to presenting neighbourhood-level stats, it includes information on current rennie projects, a selection of featured listings, and insightful commentary on how and why the market is changing.
Our rennie intelligence team comprises our senior economist, market analysts, and business intelligence analysts. Together, they empower individuals, organizations, and institutions with data-driven market insight and analysis. Experts in real estate dynamics, urban land economics, the macroeconomy, shifting demographics, and data science, their industry-leading data acquisition, analytical systems, and strategic research supports a comprehensive advisory service and forms the basis of frequent reports and public presentations, covering the Vancouver, Kelowna, Victoria, and Seattle marketplaces. Their thoughtful and objective approach embodies the core values of rennie.
