BC Economic Snapshot Sept. 22

VANCOUVER, BC, Sep 22, 2012/ Troy Media/ – Softening international and provincial economic growth has tamed inflationary pressure for the time being, providing some breathing room for consumers.

August’s inflation reading was muted on lower home and natural gas prices, along with stable gasoline prices, as annual growth in the consumer price index (CPI) decelerated to just 1 per cent during the month. This was down from 1.1 per cent in July and 2.1 per cent in August of last year.

While annual growth remained positive, gains masked a recent decline in the general CPI. On a month-to-month basis, the seasonally-adjusted CPI edged slightly lower in August, and was down 0.4 per cent from April.

On an annual basis, shelter costs fell from August 2011 by 0.7 per cent, driven by lower homeowners’ replacement costs (-3.5 per cent) and natural gas (-7.6 per cent). Although gas prices were still up 2.9 per cent from a year ago, prices have fallen from 4 per cent March peaks and are not exerting as much upward pressure on CPI as in 2011 when annual gains were 10 per cent to 20 per cent for much of the year.

Stronger inflationary pressure was observed in clothing and footwear (3.3 per cent) and groceries (2.4 per cent).

Housing
MLS® home sales in B.C. sank to the lowest level since mid-2010 in August as the federal government’s July tightening of mortgage insurance rules provided a further chill to already cool housing market conditions. Home sales fell in most regions, dragging provincial sales down 10 per cent from July to a seasonally-adjusted 5,100 units.


July’s changes to government-backed mortgage insurance, which included a drop in the maximum amortization period to 25 years, and limited re-financing activity among others, likely pushed some buyers out of the market, while delaying the purchase decision of others. The reduction in maximum amortization period from 30-years is equivalent to a 0.9 per cent increase in the interest rate, which may have been the tipping point for some marginal purchasers (particularly first-timers).

Meanwhile, some buyers may have had to re-evaluate their housing options to seek something more price-appropriate, in a different product type (i.e. detached vs. duplex), or delay purchasing.

The sharper decline in B.C. home sales compared to the rest of Canada suggests the marginal impact of the policy change was greater on the west coast – a reflection of higher prices.
Regionally, provincial sales declines were driven by the Lower Mainland (-10 per cent) and Vancouver Island excluding Victoria (-23 per cent). Sharp drops were also observed in Chilliwack and Kamloops regions, but these declines marked reversal of stronger gains in July.
Weak sales activity in August pushed year-to-date activity to just over 50,100 units, which was down 9 per cent from same period 2011. Declining sales trends are expected to stabilize in the coming months, but tighter mortgage insurance rules will continue to weigh on activity, particularly in the Lower Mainland.

There are some bright spots however, as rising/stable sales in the interior are a sign that housing conditions are steadying in markets hard hit by the recession and subsequent slump in recreational/retiree demand. Nonetheless, low sales-to-active listings ratios outside the northern regions point to a persistent and significant excess of inventory relative demand and generally point to downside price pressure in most market areas.

B.C.’s average MLS price rose to a seasonally-adjusted $506,100 in August, up nearly 4 per cent from July, but down 9 per cent from same-month 2011. Annual declines have reflected a combination of home price deflation and a shift in the composition of sales at both the geographic and product level.

Monthly average price levels rose in most real estate board areas, which seem contrary to the sharp drop in sales and weak market conditions. However, this may reflect a compression in the sales of entry-level (lower priced) product due to more restrictive mortgage insurance rules, skewing activity to higher-priced homes.

Tourism
International tourist visits to B.C. took a hit in July, as the persistent haze of global economy uncertainty and the higher Canadian dollar likely eased travel demand. Total visits fell 3.1 per cent from June to a seasonally-adjusted 337,400 visits, marking the slowest pace since December and extending downtrend exhibited in the first half of the year.

July’s decline was led by a 4 per cent drop in U.S. visits while the number of overseas visitors fell by a more modest 1.3 per cent. Through July, total international tourist visits to the province reached just over 2.46 million persons. While entries were essentially unchanged from last year, levels were about 9 per cent below the 10-year average, and more than 13 per cent below mid-decade levels.

Tourism is unlikely to see much upside into 2013 as the ongoing global economic malaise weighs on travel. For American visitors, the Canadian experience is no longer the value-proposition it once was given higher prices and high-flying loonie which reflects the relatively strength of Canadian economy. These factors, along with domestic labour market struggles and a significant marketing push to “travel America”, will likely keep more Americans south of the border.

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