John Alexander
RE/MAX Action Realty (1991)inc

Cell 250-793-4934 | EMAIL


In early 2013, we interviewed Daniel Lacalle, a London-based energy analyst. Lacalle has also been active in the media in the last few years, airing his views about the markets and the economy on his website and for El Confidencial. He has been a regular guest on most of the major financial media outlets. Since our previous interview, Lacalle has published three books in Spanish and one in English (a translation and update of his first work Life in the Financial Markets) and will publish his second book in English, The Energy World Is Flat, in the next couple months.

Given the latest developments in the price of oil and their implications for the broader market, we at Enterprising Investor thought it was time for a second round with Lacalle. We spoke with him last month, in the midst of the plunge in oil prices — a trend that has only continued in recent weeks, rendering some of the figures mentioned out of date.

Gustavo Teruel, CFA: Daniel, you have been quite bearish about the fundamentals driving the oil price in the long term, I guess you must be feeling vindicated these days?

Daniel Lacalle: Evidence was mounting and very few wanted to acknowledge it. While the “peak oil” conspiracy theory continued to be proven wrong, its message remained in the public consciousness, and the oversupply in the oil market grew. I received a lot of criticism, particularly about the resilience and strength of the non-OPEC supply growth as well as the slowdown in Chinese demand. Today, no one questions it — I hope.

The last time you wrote about the moves in the price of oil was 30 November 2014. Do you think there has been a downward overshooting?

It is not overshooting. Oil prices have been rising on the back of a pro-cyclical cost curve. That is, service costs and development costs tend to rise as oil prices go up and investments increase well above the market’s needs. The industry has gone from underspending in the late 1990s to overspending — close to $1 trillion a year — on the back of an elusive growth of demand that has been proven incorrect. Efficiency and a less industrial model have proven that the correlation between real GDP growth and energy demand is broken. We do more with less, and the unit of energy needed to create a unit of GDP is lower today than 30 years ago. Now we find that many of those investments made in the 2004–2013 period have created overcapacity in the system.

What happens is that oil prices, when OPEC refuses to be the balancer of the market, test the marginal cost of production — and costs fall. High-spec sixth-generation rigs, pressure pumping, seismic, completion — all these costs have fallen between 20% and 45% in the space of two months as overcapacity becomes evident and excess capex [capital expenditure] is revised.

OPEC’s decision not to balance the market through cuts makes total sense. It was not OPEC who increased production well above demand in the first place, and they are also the lowest marginal cost of the curve. Why should OPEC countries cut production to let non-OPEC countries grow even further and erode their market share year by year?

Conventional wisdom credits the conspiracy theory that says the decisions made by Saudi Arabia with regard to output have the sole purpose of hindering Russia, for geopolitical reasons, or, at a minimum, the least-efficient producers. Do you believe that is the case or do you think the cartel’s influence goes only so far?

I think those conspiracy theories tend to flood the energy market because they make the analysis look simple. And by accepting the conspiracy, it stops us from really understanding the issues. There is no desire to harm anyone. Saudi Arabia does not need to balance the market for non-OPEC countries to grow their production when the kingdom’s production costs are the lowest. It is like thinking that an efficient and low-cost producer has to reduce output to let the higher-cost producers thrive. Saudi Arabia and the rest of OPEC are simply showing the world and their clients that they are the low-cost, efficient producers and that they can sustain a period of oversupply. It is up to the other producers to see whether they can be more efficient or not. It is not “harming Russia.” Many countries, including Saudi Arabia, lose excess oil revenues, but they will adapt. Saudi Arabia loses $100 billion of revenues from these oil prices, but like many OPEC countries, they have no debt, strong currency reserves, and a low cost base.

Saudi Arabia is defending its market share and proving it is low cost. But more importantly, OPEC knows that cutting would be damaging for them and ineffective. The world has about 2.5 million barrels per day of excess supply. Would OPEC cut almost 10% of its production to keep prices higher and support the rise of non-OPEC production, which is growing around 3% per annum? This makes no sense. A cut would only extend the overcapacity and just erode OPEC’s market share.

Some market strategists, pointing to historical precedent, are now saying that the price of oil is going to remain low for years. Don´t you think we have reached a point in oil prices where market dynamics — the rise in fuel consumption, the shutdown of projects, the cuts in capital expenditures — can only add upward pressures?

Oil can go lower. Maybe to $50/bbl [barrel] [Editor’s note: this interview was conducted before oil fell below $50/bbl in early January.] Al-Naimi [the Saudi Arabian Minister of Petroleum and Mineral Resources] mentioned it could go to $40 or even $20. It was only eight years ago when it was at $45–$50/bbl in real terms (we always speak of oil in nominal terms, which infuriates me). Oil is at 1978 prices in real terms today — that is, counting the impact of inflation. Neither demand nor supply dynamics have tightened the market dramatically. Excess capacity has only grown from 1–1.5 mbpd [million barrels per day] to about 2.5–3 mbpd. I do not know if there will be spikes due to one-off events, but I know that oil is at $60/bbl today, despite the fact that Libya’s exports have been slashed [in December] by 400,000 bpd and that non-OPEC growth estimates have been revised down by around 700,000 bpd. This tells you how well supplied the market is. Despite ISIL [Islamic State of Iraq and the Levant] and Iraq, Libya, the Russian crisis, and Brazil’s scandal — all of which could affect production — the supply-demand balance remains ample. One thing is for sure: the period of disinflation in oil prices can last longer than what many predict.

It seems that the smart money is entering the industry. They claim that the rationale of this move is that there has been indiscriminate selling of asset classes and sectors of the market due to the way exchange-traded funds (ETFs) work, which has left the market rife with opportunity. I guess the second point of the rationale is that they believe the stickiness of capex in the industry, hedging, and the upward trend of prices from this point will keep the companies they are investing in afloat. Do you share that view?

[Laughing] If the market moves against your thesis, blame the speculators, not the wrong thesis. I love it. Again, it is simplistic — and wrong. The poor speculators — they are to blame when prices go up and when they go down as well [laughs]. According to data from the CFTC [US Commodity Futures Trading Commission], net length in oil increased [in] December and oil fell. ETFs and speculators do not make the price. They buy financial products referenced to the physical price, not the opposite. CFTC data show that speculators are still net long oil futures by 300,000 contracts, a very large margin compared to a few years ago.

Anyway, we have some investors in the market who want to believe this is a temporary glitch and want oil to go higher to justify investments in stocks and debt. That is fine, but is nothing more than a desire. I remember when natural gas prices collapsed from $12/mmbtu [million British thermal units] to $6/mmbtu, many said the same — and they fell further, to $3.6/mmbtu [Henry Hub]. This is because their view of the fundamentals is flawed due to a number of misconceptions about the industry:

  • Forgetting that spare capacity becomes a sunk cost and many producers just run for cash, not for 10% or 20% IRRs. Remember refining — a business that has been delivering below the cost of capital returns for many years, or seismic, or shipping.
  • Ignoring efficiency and substitution. Just by improving light-duty vehicle motors in the United States from 24 to 34 miles per gallon reduces oil demand by 4 mbpd, almost four years of growth. Just a 6% penetration of hybrids in the United Kingdom and United States would reduce demand by 3.5 mbpd.
  • The industry is not self-adjusting, as many want to believe, but pro-cyclical. As such, megacap major oil companies tend to acquire low-hanging fruit not to tighten the market, but to grow and expand. The large acquisitions in shale gas in 2009–2013 did not reduce oversupply in the United States — they prolonged it. The industry becomes more efficient and adapts to lower prices, it doesn’t shrink to tighten.

To summarize, be careful about buying ex-growth sectors on the promise of internal adjustment. As in utilities, coal, gold, or refining, it can be a deadly mistake.

How do you see the situation with the vast amounts of high-yield debt used to fund shale oil ventures? Do you think, as some pundits argue, that there will be a wave of defaults that could trigger a severe downturn in the United States, as happened with the burst of the housing bubble?

This is ridiculous. They talk about the shale bubble when energy is less than 5% of the commercial loan book of banks, and less than 14% of the entire high-yield spectrum. And, they compare that to housing, which was multiple times those figures!

These people see shale, with the high end at 2.5-times net debt to EBITDA, as a bubble but do not see renewables, which have 4.5-times to 6-times EBITDA debt, as a bubble?

Just think of the following figure: if there were 13% NPLs [non-performing loans] in energy (to use the NPLs of housing from the Spanish banks, for example) in the entire United States, the total figure would be around 0.1% of the banks’ loan book and less than the NPLs in solar of peripheral Europe today!

These fearmongers forget that the oil industry is less indebted today than it was years ago, that 90% of shale production is profitable at $60/bbl, and that out of the hundreds of companies, very few breach their covenants at $60/bbl. They forget the example of shale companies, which successfully navigated the collapse in US gas prices. They forget that the equity market and M&A [merger and acquisition] ramp up with these opportunities. More importantly, they forget that more than 80% of shale production comes from monster-large companies like Exxon, Shell, Statoil, Continental, Anadarko, Occidental, Hess, Devon, Apache — with some of the strongest balance sheets in the world — who have successfully survived low and high prices and many geopolitical crises and events. Will there be some bankruptcies in the small names? Maybe, but those companies and licenses will be acquired by larger, more efficient players.

I find it ironic that the doomsayers focus on shale, when in 2014, with high subsidies and low interest rates, we saw a record number of solar bankruptcies — the list of carcasses between 2009 and 2014 is staggering. But hey, shale is a bubble [laughs].

One final question about the oil industry: Do you foresee consolidation of the industry? Is there a lot of money to be made betting on which companies will be acquired?

There will be consolidation, but before that happens we have to see excess-capex adjusting, dividend cuts, and really cheap opportunities. We are easily one or two years away from M&A. Remember not to buy based on the greater fool theory, and that M&A does not happen on a mass scale. Learn from the shale gas example or the West Africa upstream example. Those who bet on acquisitions found that valuations went much lower before it actually happened. M&A might be at rock-bottom prices, asset driven, or not happen at all at the levels or premiums that investors desire. Buyers will look for scale, quality, and opportunity to improve efficiency.

A quick question about utilities: How do you think all this is going to affect green energy? Is it easy to pick winners and losers among utilities, given a scenario of cheap oil? What characteristics do winners and losers have?

The impact is already evident. Virtually none of the solar and wind projects are competitive at the $100/bbl equivalent, let alone at $60/bbl. Solar PV [photovoltaic] system installation estimates in China have been reduced for 2014, 2015, and 2016 by 2 GW [gigawatts], 2.5 GW, and 3 GW, respectively. Germany will also install 2 GW less than last year. Wind installations are expected to stall globally by 2016. In essence, lower oil prices mean subsidized energy suffers, so it will have to adapt.

Losers bet on cheap debt and on the promise of rising prices or subsidies. Those will inevitably be the low-hanging fruit, as in oil, and will be absorbed.

Winners adapt, become more efficient, learn from the mistakes of the past, and focus on cash-flow generation, a diversified mix, and a good portfolio. The winners will be the diversified, low-leveraged players.

Finally, I would like to ask you about your books. In our previous interview, I asked you whether you thought it was feasible to publish your first book — Nostros, los mercados — in English. You have finally done that, and you have another book in English in the pipeline. I read the Spanish version of Life in the Financial Markets when it was released. Are there many changes in the English version?

Life in the Financial Markets has been updated to reflect the end of QE [quantitative easing], the new era of rising market exuberance after the crisis, the European recovery, the role of the ECB [European Central Bank], and Abenomics. It also covers new elements like bitcoin and high-frequency trading, as well as being more focused on international markets. A reader told me it is almost like a new book — revised, more international, and focused on the issues that matter today.

Your next book, The Energy World Is Flat, is solely about energy. Tell us about the insights this book can offer readers of Enterprising Investor.

I believe it is a detailed guide to the new era of competition between technologies, the battle for market share, the end of oil as transport king, and the war driven by efficiency. The book has been a great success in Spain — it sold two editions in less than two months — and shows, in layman’s terms, the 10 forces that are flattening the energy world and that will generate opportunities in energy globally. It is not a book about oil. It covers natural gas, LNG [liquefied natural gas], biofuels, coal, hybrid and electric vehicles, and renewables at a detailed level, but is oriented to all readers, both experts and non-experts. It also gives advice about investing, avoiding value traps and risks, and opportunities in commodities in the new era after the end of peak oil. I hope you like it.

If you liked this post, don’t forget to subscribe to the Enterprising Investor.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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Fort St. John, BC Housing vs the ebbs and flows of Oil Prices.



With oil dipping back down again it made me want to pull stats for the past decade… I found this very interesting.  We are the only market in BC that increased 2008/2009 for average price of a single family home.


Check this out, through good times and bad our market has sustained better than any ;)


In 2004 There were 128 transactions of attached dwellings selling for an average price of $96,945 in 49 days with a 96% LP/SP ratio

In 2004 there were 1118 Transactions of detached dwellings selling for an average price of $154,631 in 51 days with a 96% LP/SP ratio


In 2005 There were 130 transactions of attached dwellings selling for an average price of $120,722 in 48 days with a 97% LP/SP ratio

In 2005 there were 1060 Transactions of detached dwellings selling for an average price of $187,376 in 48 days with a 96% LP/SP ratio


In 2006 There were 136 transactions of attached dwellings selling for an average price of $138,451 in 34 days with a 97% LP/SP ratio

In 2006 there were 1206 transactions of detached dwellings selling for an average price of $233,871 in 42 days with a 97% LP/SP ratio


In 2007 There were 126 transactions of attached dwellings selling for an average price of $207,844 in 37 days with a 98% LP/SP ratio

In 2007 there were 1056 transactions of detached dwellings selling for an average price of $278,878 in 48 days with a 96% LP/SP ratio


In 2008 There were 206 transactions of attached dwellings selling for an average price of $220,174 in 93 days with a 96% LP/SP ratio

In 2008 there were 1000 Transactions of detached dwellings selling for an average price of $281,528 in 63 days with a 96% LP/SP ratio


In 2009 there were 120 transactions of attached dwellings selling for an average sale price $215,393 in 80 days with a 97% LP/SP ratio

In 2009 there were 882 transactions of detached dwellings selling for an average sale price of $286,085 in 74 days with a 96% LP/SP ratio


In 2010 there were 150 transaction of attached dwellings selling for an average sale price of $214,022 in 45 days with a 97% LP/SP ratio

In 2010 there were 912 transaction of detached dwellings selling for an average sale price of $290,255 in 78 days with a 96% LP/SP ratio


In 2011 there were 170 transactions of attached dwellings selling for an average sale price of $239,794 in 63 days with a 97% LP/SP ratio

In 2011 there were 1122 transactions of detached dwellings selling for an average sale price of 303,117 in 77 days with a 96% LP/SP ratio


In 2012 there were 198 transactions of attached dwellings selling for an average sale price of $262,935 in 55 days with a 98% LP/SP ratio

In 2012 there were 1112 transaction of detached dwellings selling for an average sale price of $335,559 in 56 days with a 97% LP/SP ratio


In 2013 there were 278 transaction of attached dwellings selling for an average sale price of $299,504 in 44 days with a 98% LP/SP ratio

In 2013 there were 1146 transaction of detached dwellings selling for an average sale price of $359,349 in 49 days and 97% LP/SP ratio


In 2014 there have been 252 transactions of attached dwellings selling for an average sale price of $326,604 in 41 days with a 99% LP/SP ratio

In 2014 there have been 1172 transactions of detached dwellings selling for an average sale price of $394,698 in 47 days with a 97% LP/SP ratio


From this information, you can see the stablility in the market thanks to the NG and other diversified economic drivers of Fort St. John, BC



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This information has been compiled from various CMHC News Feeds:


On an annual basis, housing starts are expected to range between 186,300 and 191,700 units in 2014, with a point forecast of 189,000 units. In 2015, housing starts are expected to range from 172,800 to 204,000 units, with a point forecast of 189,500 units. For 2016, housing starts are forecast to range from 168,000 units to 205,800 units, with a point forecast of 187,100 units.

Multiple Listing Service® (MLS®2) sales are expected to range between 467,400 and 482,000 units in 2014, with a point forecast of 476,100 units. In 2015, sales are expected to range from 457,300 to 507,300 units, with a point forecast to 482,500 units. For 2016, resales are forecast to range from 448,000 units to 508,000 units, with a point forecast of 477,200 units.

The average MLS® price is forecast to be between $401,600 and $405,400 in 2014, with a point forecast of $404,800. In 2015, the average MLS® is expected to be between $403,600 and $417,800, with a point forecast of $410,600. For 2016, the average MLS® is forecast to be between $407,300 and $424,500, with a point forecast of $417,300.

As Canada’s national housing agency, CMHC draws on more than 65 years of experience to help Canadians access a variety of quality, environmentally sustainable and affordable housing solutions. CMHC also provides reliable, impartial and up-to-date housing market reports, analysis and knowledge to support and assist consumers and the housing industry in making informed decisions.

For more information, call 1-800-668-2642. CMHC Market Analysis standard reports are also available free for download at


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Growing demand for agricultural land in
Peace River North has resulted in a 10
per cent increase in price
Many transactions involve sellers retiring
from farming
Boundary expansion in Fort St. John
could cause values to skyrocket
Demand for land in British Columbia’s Peace
River North has increased from previous
years, but operational farm demand is in
decline as more people are purchasing land
for hobby and horse farms. This demand,
met with a dip in supply, has resulted in an
estimated 10 per cent increase in the price
of farmland from previous years. Prices
have steadily increased since spring, but the
number of sales has dipped due to a lack of
Fort St. John, in particular, is in the midst
of a boundary expansion plan. This could
result in as many as nine quarters (or 1,440
acres) of land becoming part of the city
for both residential and commercial uses. If
recognized as part of the city, this land will
exponentially increase in value, benefiting
many retiring farmers who have held land in
the region for many years. Buyers looking for
larger plots of land should look farther from
the city, as the price drops significantly on
properties beyond the city border.
Prospective buyers looking for land with
good soil quality and a house can pay up to
$650,000 per quarter (or 160 acres). Prices
range up to $250,000 for a quarter section
of bare land, while a quarter section of
predominantly bush ranges up to $120,000.
Average days on the market for these
properties have decreased minimally in the
past year. This has been accompanied by a
closer list-to-sale price ratio.
Buyers in this region are typically new
operations moving in. In many cases, retiring
veterans are selling their land and relocating
closer to the city. Farm prices are expected
to continue increasing in this region due to
an increase in demand and a shortage of


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Improved home inspector standards better protect consumers

Economy, Families Friday, September 19, 2014 9:00 AM

VICTORIA - Today, Minister Responsible for Housing Rich Coleman announced that the Province will improve home inspector licensing requirements by creating a common professional standard for home inspectors.

The move fulfils government’s commitment to streamline the process for home inspectors who are currently governed by four different associations, each with its own requirements.

A common professional standard will ensure homebuyers benefit from a more standardized approach to home inspections. The Province will enhance Consumer Protection BC’s role in licensing home inspectors by:

  • setting new education and training requirements;
  • establishing standard testing and evaluation;
  • implementing provincial inspection standards and a common code of ethics; and
  • taking on an expanded compliance and enforcement role.

This new approach follows consultations with both consumers and industry stakeholders. The Province will work to have the new standards in place by the end of 2015.


Rich Coleman, Minister of Natural Gas Development and Minister Responsible for Housing -

“Consumers deserve a rigorous, reliable home inspection industry. We want to ensure homebuyers have every possible confidence that their home inspector is qualified to help them with what is often the largest investment they will make.”

Rob Gialloreto, president and CEO of Consumer Protection BC -

“Buying a home is one of the biggest purchases a person will make. We fully support the provincial government’s commitment to enhancing protection for consumers when it comes to home inspections and we applaud their continued leadership in this area.” 

Quick Facts:

  • In June 2013, Premier Christy Clark’s mandate letter to Minister Responsible for Housing Rich Coleman  directed him to strengthen home inspector accreditation to better protect homebuyers.
  • In 2009, British Columbia became the first jurisdiction in Canada to require licensing of home inspectors.
  • B.C. and Alberta are the only two provinces that regulate home inspectors in Canada.
  • There are approximately 440 licensed home inspectors in B.C.
  • People thinking about buying a home often hire a home inspector to do a visual inspection first to help identify signs and symptoms of any major structural issues.

Learn More:

Find a licensed home inspector:

Results of Public Consultation:

Consumer Protection BC:

Media Contacts:

Sandra Steilo
Ministry of Natural Gas Development
and Responsible for Housing
250 952-0617

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The Following articile was published by the BCREA today reguarding Mortgage Rates in relation to Real Estate first and second mortgages:


Mortgage Rate Outlook

In stark contrast to the consensus of economists’
expectations at the end of last year, bond yields
have spent most of 2014 trending downward. Indeed,
perhaps weary of previous false starts, bond markets
have even shrugged off recent signs of a strengthening
economy, an acceleration of inflation and the unwinding
of stimulus from the US Federal Reserve. Lenders have
responded in kind, offering homebuyers record low
mortgage rates.

• Mortgage rates remain at historic lows
• Canadian economy roars back in second quarter
• Poor job growth keeps Bank of Canada in neutral

Mortgage Rate Forecast
2014 2015
Term Q1 Q2 Q3F Q4F Q1F Q2F Q3F Q4F
1-Year 3.14 3.14 3.14 3.24 3.24 3.44 3.60 3.60
5-Year 5.19 4.81 4.79 4.99 5.14 5.24 5.65 5.65

Given well anchored inflation expectations and
near consensus that short-term rates will be higher
next year, the continued downtrend in bond yields
this year is difficult to explain. One factor could
be that investors are acclimating to the idea that
the neutral rate, or the Bank of Canada’s preferred
destination for interest rates once it tightens,
is likely much lower than in the past and that
realization is being priced into expectations and
therefore long-term interest rates.

Additionally, the performance of Canada’s financial
and banking system post-financial crisis has won
it a reputation among foreign investors as a safe
harbor. Foreign holdings of Canadian government
bonds and treasury bills have jumped from
15 per cent to over a quarter of outstanding debt
since the global financial crisis. As uncertainty
mounts in other areas of the world due to weak
economic growth or unresolved conflicts, assets
have crowded into both US and Canadian debt
securities, forcing yields lower. Given these factors,
rates could remain below historical average levels
even as the Bank of Canada begins tightening.
While we do not expect the Bank to act on interest
rates until late in 2015, bond yields could rise
modestly before then in anticipation of higher
rates, particularly if economic growth is stronger
than expected. If so, we expect to see a slight
increase in five-year and one-year fixed mortgage
rates by the end of 2014.

Economic Outlook

As was widely expected, the Canadian economy’s
weak start to the year proved to be temporary as
growth roared back in the second quarter. Canadian
real GDP expanded 3.1 per cent at an annual rate
last quarter, the highest rate of growth in close
to three years. That growth was largely spurred by
exports to a similarly resurgent US economy, which
grew at a robust 4.2 per cent annual rate in the
second quarter. If momentum in the US economy
can be sustained, the long awaited rotation of
Canadian economic growth towards exports and
business investment could be realized. Indeed,
in past business cycles, a recovery in business
investment tends to lag behind a recovery in export
Note: Data is average of weekly rates
Source: Bank of Canada; BCREA Economics
Foreign Investment Boosted by Canada’s Financial Credibility
Mortgage Rate Forecast is published quarterly by the British Columbia Real Estate Association. Real estate boards, real estate associations and REALTORS® may reprint this
content, provided that credit is given to BCREA by including the following statement: “Copyright British Columbia Real Estate Association. Reprinted with permission.”
BCREA makes no guarantees as to the accuracy or completeness of this information.
1420 - 701 Georgia Street West, PO Box 10123, Pacific Centre, Vancouver, BC V7Y 1C6 | Phone: 604.683.7702 | Fax: 604.683.8601 | Email:
BCREA Mortgage Rate Forecast September 2014
Send questions and comments about Mortgage Rate Forecast to:
Cameron Muir, Chief Economist,; Brendon Ogmundson, Economist,
Additional economics information is available on BCREA’s website at:
To sign up for BCREA news releases by email visit:
While we expect that economic growth will
slow moderately from the robust pace of the
second quarter, it will remain relatively strong
at 2.3 per cent for 2014 before accelerating next
year to 2.7 per cent.
CPI inflation, which has been above the Bank’s
2 per cent target for several months, is showing
some signs of softening due to a sharp decline
in the price of energy products and other
commodities. Core inflation, which the Bank
uses as its operational guide for monetary policy,
has drifted higher but remains relatively muted.
Though some wage inflation has occurred of
late, slack in the labour market and continued
competitive pressure in retail sectors will likely
keep core inflation from breaching the Bank’s
2 per cent target in the short-term.


“Copyright British Columbia Real Estate Association. Reprinted with permission.”

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BCREA Economics Now provides timely information on economic news relevant to REALTORS®. Subscribers receive brief emails highlighting the latest economic and housing market news as it happens. Be informed. Stay on top of the market. If you have not already subscribed to continue to receive BCREA Economics Now, subscribe by clicking here.

Bank of Canada Interest Rate Announcement - September 3, 2014

The Bank of Canada once again opted to leave its target for the overnight rate unchanged at 1 per cent. In the statement accompanying today's announcement, the Bank noted that though inflation is close to its 2 per cent target, the recent pick-up in inflation was largely due to temporary factors as the Bank anticipated. In spite of stronger global and domestic economic growth last quarter, the Bank still expects excess capacity in the economy to be absorbed over the next 2 years and judges risks to its outlook to be balanced between higher inflation and still elevated household debt. Therefore, the Bank remains neutral with respect to timing and direction of its next change to the policy rate.

As the Bank noted, economic growth exceeded expectations in the second quarter. However, the economy looks far more pedestrian if averaged over the entire first half of 2014.  Employment growth has been uneven and the Canadian unemployment rate remains stubbornly high. Therefore, the Bank is unlikely to be moved from its current stance after just one strong quarter of economic growth. We expect that the Bank will continue to take a cautious approach to monetary policy until it sees concrete signs that the economy is growing above trend. That means at least one more quarter of solid GDP growth paired with more steady employment gains, as well as similarly strong data in the United States. While the Bank left the door open to lower interest rates given its "neutral" stance, we still anticipate that the next move for interest rates will be upward, though not until 2015. 

For more information, please contact: 

Cameron Muir

Brendon Ogmundson

Chief Economist


Direct: 604.742.2780

Direct: 604.742.2796

Mobile: 778.229.1884

Mobile: 604.505.6793



BCREA represents 11 member real estate boards and their approximately 18,000 REALTORS® on all provincial issues, providing an extensive communications network, standard forms, economic research and analysis, government relations, applied practice courses and continuing professional education (cpe).

Real estate boards, real estate associations and REALTORS® may reprint this content, provided that credit is given to BCREA by including the following statement: “Copyright British Columbia Real Estate Association. Reprinted with permission.” BCREA makes no guarantees as to the accuracy or completeness of this information.

To subscribe to receive BCREA publications such as this one, or to update your email address or current subscriptions, click here.

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Hey everyone,


As the title says there is a new change for the exemption limit for first time home buyers when it comes to the transfer tax. First time home buyers got full exception on the purchase price if it was under $425,000.0 and partial exception between $425,000.00 and 450,000.00


As of today full exception on purchase price $475,000.00 and partial between $475,000.00 and $500,000.00 – of course they have to meet the other requirements of living in the home and property size.

Young families and new homeowners were the main beneficiaries of the tightly confined wiggle room in B.C.’s latest budget, one touted by Finance Minister Mike de Jong as boring but balanced.

In an effort to keep to his “razor-thin” estimated surplus, Mr. de Jong offered little in the way of new spending beyond what was previously announced before last year’s provincial election. New money will go toward child care, with $17.7-million set aside to help create 1,000 new licensed child-care spaces. Part of the money will also support the creation of a provincial child-care registry.

Tax framework for B.C. LNG industry

Over the next year, British Columbians with young children will begin to receive extra money from the province. As of April, 2015, monthly cheques of up to $55 per child – under the age of six – will be sent to families, while the government will deposit $1,200 into new education savings accounts. Both programs were previously announced.

“Since announcing this a year ago, the registration rate for RESPs in British Columbia has raised 10 per cent,” Mr. de Jong said.

Kyle Richings subsists on a single income and he perked up at the mention of more money being devoted to child care. His family lives in Victoria, with Mr. Richings’s wife staying home to look after their two-year-old son.

“If we just had to live on only my income, without any savings, it’d be pretty nasty,” Mr. Richings said. “The biggest benefit is just money in your pocket, that child benefit, no strings attached.”

For first-time home buyers, the threshold for the provincial transfer tax will be increased from $425,000 to $475,000. “The tax and thresholds were set when property values were very different. No one can argue with that,” Mr. de Jong said. Effective Wednesday, the measure could save home buyers up to $7,500, according to budget documents.

The targeted measures do not benefit everyone. “Houses will cost less and children will cost less, which makes little impact for people without children or those not buying houses,” said Steven Masuch, a 28-year-old who lives in downtown Vancouver. Like many his age, he can’t afford to buy a house. He and his partner aren’t interested in having children.

There will be no changes to provincial income taxes for most earners, though a previously announced tax hike for people with incomes above $150,000 will start this year. The temporary measure will expire in 2015.

Disappointed by the few changes to the province’s tax regime, Chartered Professional Accountants of British Columbia warned that higher corporate and sales taxes were causing investors to hesitate before moving jobs to the province.

“It’s not about high taxes, but about uncompetitive taxes,” said Richard Rees, speaking for the province’s CPAs. While B.C.’s taxes are higher than neighbouring Alberta’s, they are among the lowest in the country.

“I’m a bit worried about how low corporate taxes are in B.C.,” said Mr. Masuch, a software developer and small business owner. “It just seems like a bit of corporate favouritism.”

The province’s medical premiums are also set to increase by 4 per cent, an extra $60 annually for a two-person family.

Following the federal government’s announcement last week adding 40 cents per pack of cigarettes, smokers in British Columbia will now face an additional 32 cents per pack in provincial tax. Calling the health costs of smoking “incredible,” Mr. de Jong said that part of the $50-million raised by the higher taxes will be earmarked for cancer research.

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By the numbers;

“We continue to balance on a razor’s edge.” – Mike de Jong

The province projects a budget surplus of $175-million for the fiscal year ending this March, fulfilling the Liberals’ election pledge. The surplus is somewhat more than what Mr. de Jong predicted at the end of the third quarter – $165-million – but it is smaller than the $197-million surplus projected in last February’s budget.

The budget surplus for the upcoming year is forecast to be $184-million. Economic growth is expected to be two per cent.

The provincial debt for 2014-2015 is projected to be $64.7-billion.

Chad Hipolito for The Globe and Mail

LNG development

“I don’t want to suggest a cascade of dollars flowing into the Prosperity Fund in the next five years.” – Mike de Jong, referring to the fund established last year to use profits from liquefied natural gas for, among other things, paying down provincial debt

Last year, British Columbia had promised to outline how it planned to levy taxes to realize the government’s much-touted dream of LNG riches, leading to a debt-free province. But Mr. de Jong was forced to admit the complexities of coming up with the regime mean the details will not be available until fall.

The government does not expect the first plant to begin production until 2018, and revenues are not expected to begin until after that.

Tuesday’s budget included the structure of how that tax regime will work: a two-tier system with a 1.5-per-cent tax applying for the first three years, transitioning to a tax of up to seven per cent by the sixth year and beyond.

The exact tax rate for the second phase will be introduced in the fall after an assessment of global and provincial conditions.


Measures for individuals

“Admittedly, the tax relief in this budget is pretty thin.” – Mike de Jong

In an effort to get into the black and to bolster an election campaign based on a balanced budget, the Liberal government introduced several new taxes on individuals last year.

The 2014-2015 plan has fewer of those. Medical Services Premiums, boosted last year, continue the pre-arranged climb. Effective Jan. 1, 2015, the premiums will rise by about four per cent, amounting to about $5.50 a month for a family of three or more.

Tobacco taxes will rise as of April 1 by 32 cents per pack. That is over and above the increase announced last week in the federal budget.

The B.C. Training and Education Savings Grant – a one-time payment for children born in B.C. in 2007 or later and whose parents have contributed to a registered education savings plan – kicks in with payments of $1,200 per child by the end of the coming fiscal year.

As well, starting in April 2014, the B.C. Early Childhood Tax Benefit of $55 per month per child under the age of six will begin to be paid out. The benefit is income-tested.

John Lehmann/The Globe and Mail


“We’re not going to ask taxpayers to shoulder this burden on their own. We see the potential for partnerships with the industrial sector.” – Mike de Jong on skills training

Funding for advanced education actually drops by just over $16-million, which the government says is a result of finding efficiencies and not cutting student services. Critics, however, question whether the number can reflect the government’s stated priority on skills development.

Provincial funding for Kindergarten to Grade 12 nudges up barely, with a $22-million increase over last year.

The spending estimates make no provision for higher expenses due to a judge’s ruling last month ordering the province to reinstate contract language for teachers that was in place prior to 2002. The language, wiped out by the Liberals, dictated class sizes and composition, and Education Minister Peter Fassbender has said following the ruling would cost $1-billion.

The province has filed its intention to appeal. If it loses, the money to pay for it this year would wipe out the $300-million contingency fund intended for unforeseen disasters such as forest fires and floods.

Murray Mitchell/The Canadian Press

Economic development

“We have more work to do.” – Mike de Jong on job creation

The government is devoting $29-million over three years to push the LNG strategy forward.

Another $9-million has been pledged for environmental assessments of resource development of proposed LNG facilities, as well as pipelines, mining and other major projects.

The province has also underlined a commitment of $5-million over five years to the Aerospace Association of Canada Pacific Division.

Still, Mr. de Jong acknowledged jobs growth isn’t where the province would like it to be, noting that though employment has been stable, job growth has been flat.

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Let’s Talk Site C - Mayor Encourages Attendance at
Presentation to Site C Joint Panel Public Hearings
January 16, 2014
“We have committed to work fervently to ensure, if Site C is
approved, the City of Fort St. John’s interests will be protected and
promoted and our City is better off in the long-term as a result of the
project,” says Mayor Ackerman.
On Saturday January 18th at 1:30 pm the Mayor will personally be
speaking to the Joint Review Panel on the need to continue to
maintain and build a high quality of life for residents in Fort St John
and ensure the commitments requested in its Position Paper,
delivered to BC Hydro last December, are included in the project.
The public is encouraged to attend the presentation.
“We have a mandate from the community. We heard the community
during our Let’s Talk Site C consultations and protecting the
community is of paramount importance to the residents,” states
Mayor Ackerman. “During our consultation process the community
said that there are aspects of the project that will impact us as
residents; we recognize the importance of this project to BC but it
should not be built on the backs of the local taxpayers."
During the Let’s Talk Site C process the community brought forward
concerns regarding impacts to health services, para-medical services,
social services, safety (including policing), quality of life, optimizing
economic opportunities, housing, transportation, city boundaries and
energy stewardship. Council also heard loud and clear through
community discussions that the consultations that BC Hydro has
hosted had not permeated the community and that even residents
that had participated in discussions felt that they were not heard.
Those in support of the project also expressed concerns that
consultations with BC Hydro regarding the project had not been
Let’s Talk Site C was an initiative of City Council. They felt it very
important the community be consulted and involved prior to
finalization of the interests. Working with Urban Systems, an award
winning stakeholder engagement strategy was developed. This
strategy recognized and considered the interests of various
stakeholders/audiences and their past involvement/reaction to the
proposed Site C project and other related initiatives.
The City is presenting on a number of topics. Staff and technical
experts will deliver additional evidence on many of the 11
commitments requested of BC Hydro in the City’s Position Paper. The
schedule for these presentations is as follows:
Saturday, January 18, 2014 1:30 pm to 5:30 pm
Opening Presentation
Mayor Lori Ackerman, Councillor Trevor Bolin and Councillor Byron
Stewart, City of Fort St. John
Economic Development Presentation
Mayor Lori Ackerman, City of Fort St. John
85th Avenue Lands Presentation
Ken Rogers, City of Fort St. John
Monday, January 20, 2014 1:30 pm to 5:30 pm
Population Presentation
John Dumbrell, City of Fort St. John
Financial Impacts Presentation
Dianne Hunter and Gerhard Tonn, City of Fort St. John
Housing Presentation
Councillor Trevor Bolin, City of Fort St. John
Transportation Presentation
James Donnelly, City of Fort St. John
RCMP Presentation
Dianne Hunter, City of Fort St. John
Tuesday, January 21, 2014 9:00 am to noon
Water System Presentation
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