VANCOUVER, BC, Dec. 22, 2012/ Troy Media/ – Provincial home sales held steady in November but languished at recessionary levels as soft economic conditions and tighter federal mortgage insurance rules continued to squeeze home purchasing activity.
Total MLS sales in November were virtually unchanged from October at a seasonally-adjusted 5,130 units but down 17 per cent from same-month 2011.
Despite relative provincial stability, there were significant deviations among regional areas as declines in the Lower Mainland and the North were offset by higher sales in Vancouver Island and the Okanagan markets.
The ongoing slump pushed year-to-date activity to 64,625 units in November, down 11 per cent from 2011, and the lowest same-period pace since 2008. Activity since July confirms that tighter federal mortgage insurance rules have materially impacted on home sales – roughly by about 7 per cent to 9 per cent.
While sales in the Lower Mainland were already in decline prior to the shift, downward momentum accelerated as some buyers were priced out of the market for their desired properties and availability of government-backed mortgage insurance was limited to homes with a purchase price of less than $1 million.
Sales in the rest of the province, including areas still struggling to recover, also pulled lower following a period of relatively stable activity. Sales-to-active listings ratios in most regions of the province are low, pointing to an excess of inventory relative to the current sales pace.
The persistence of stringent credit market conditions and slow-growth economy will impede a sales recovery into 2013 and lead to a modest downward price adjustment. B.C.’s average MLS price fell 4 per cent from October to a seasonally-adjusted $492,500 in November, marking a drop of 9 per cent from same-month 2011.
However, the sharp price declines largely reflected geographic and compositional shifts in the market, rather than pure price deflation. A relatively steeper decline in Lower Mainland sales means the average price is more heavily weighted to lower-priced markets.
Meanwhile, constant-quality price indices such as the MLS Home Price Index and Teranet Home Price Index for the Lower Mainland suggest underlying prices have slipped from recent highs by about 3 per cent, but generally level from same-period 2011. This contrasts with a 7 per cent year-over-year drop in the average price, and points to a shift in sales composition to lower-priced multi-family product.
Demographics
British Columbia population growth slightly outpaced national gains in the third quarter but maintained the sluggish pace dating back to late-2010.
According to Statistics Canada estimates, B.C’s population grew to 4,638,825 persons as of October 1, 2012, marking a gain of about 0.4 per cent (16,252 persons) from July and a 0.9 per cent gain from same-period 2011. Net international migration of 15,104 persons and net natural increases positively contributed to growth in the third quarter. In contrast, B.C. continued to lose more residents than it gained from other provinces, particularly to Alberta and Saskatchewan.
Although B.C.’s third quarter gain was in line with the national performance, the low-growth trend persisted. Adjusted for seasonal factors, growth eased to an annualized rate of 0.8 per cent in the third quarter, down from 1 per cent in the second quarter as net international migration slowed. Population growth has fluctuated within a range of 0.7 per cent to 1.1 per cent since early-2011, compared with a growth rate of about 1.5 per cent from 2007 through mid-2010.
Tempered population growth of about 0.9 per cent is expected to prevail through 2013. Negative interprovincial migration, which has been the norm since early-2011 is expected to persist as the higher growth economies of Alberta and Saskatchewan attract B.C. workers at a fast pace than can be replaced from other parts of the country.
Meanwhile, international migration is forecast to remain stable but below highs observed in 2008 and 2009. Recent trends suggest a rebound in non-permanent residents which include students and temporary workers, but a declining number of landed immigrants. This could reflect federal policy as well as entry delays on the part of new immigrants in light of global economic uncertainty.
Relatively low population growth has a direct impact on economic growth through dampened spending, mainly consumer and residential, as well as on labour market conditions.
Tourism
International tourist visits to B.C. picked up in October as gains in both U.S. and overseas visitors pushed total visits to a seasonally-adjusted 360,600 persons.
October’s gain of 2 per cent from September extended the mild uptrend observed since mid-year, but overall tourist entries remained consistent with the weak post-recession range.
In comparison, mid-decade international tourist entries fluctuated near 410,000 monthly visits – a difference of more than 10 per cent – largely reflecting a greater number of U.S. visitors prior to the recession.
Tourist entries are expected to show modest growth going forward, reflecting the ongoing recovery in the U.S. economy and labour market and robust demand from Asian markets, particularly China. In contrast, weak economic conditions will constrain demand from European markets.
While gains should provide some relief to B.C.’s battered tourism industry, which has seen hotel occupancy rates fall to some 60 per cent from nearly 66 per cent before the recession, and declines associated with general tourism spending, headwinds persist. The elevated Canadian dollar, higher prices, and sentiment to “Travel America” could keep Americans vacationing near home. Meanwhile, relatively favourable exchange rates and prices may also steer international travellers to European destinations at the expense of Canada.
Retail
In a sign that consumer spending may be stabilizing, retail sales activity in B.C. rose for a second straight month in October following a six-month downtrend. Total retail sales volume gained 0.2 per cent from September to reach $5.1 billion in October as a dip in Metro Vancouver sales was offset by a 0.6 per cent gain elsewhere in the province.
Nonetheless, retail sales continued to trend below early-year highs as sluggish home sales, a tempered labour market and elevated household debt constrained spending.
Weaker retail sales were driven primarily by electronics and appliances, building materials, and sporting goods/recreation retailers. More recently, clothing sales volume and home-furnishing sales also declined.
Retailers in B.C. have faced a difficult sales environment since the recession as households have seemingly reined in discretionary spending. While current-dollar sales levels trend near historical highs, much of the gain reflect higher prices rather than an increase in the amount of product sold.
Estimated constant-dollar retail sales have fallen about 2 per cent from the beginning of this year. This suggests retailers are moving only slightly more product than they did in early 2010 despite a larger population base, and about the same as in late-2007.
Year-to-date, retail sales activity was up 3 per cent from the first 10 months of 2011. While annual growth is forecast to be similar to last year’s performance of 3.1 per cent, this will still mark a weak year of gains relative to the past decade.
CPI
Subdued conditions in both the local and broader economy have contributed to a deceleration of inflationary pressure this year. Consumer price inflation fell for a fifth consecutive month in November as prices for fresh vegetables, vehicles, natural gas, gasoline and housing pulled lower from 12-months prior.
B.C.’s consumer price index (CPI) was up only 0.1 per cent on a year-over-year basis, marking a sharp decline from October’s growth rate of 0.5 per cent. Decelerating annual inflation has generally reflected a downtrend in prices since April.
Adjusted for seasonal factors, the B.C.’s CPI fell 0.2 per cent from October, primarily reflecting a pull-back in gasoline prices, and pushed the cumulative decline since April to 0.3 per cent. Annual consumer price inflation expected to cool to about 1.2 per cent this year reflecting lower energy costs and to the end of HST base effect.
The switch back to the PST plays a role in the CPI for 2013 by causing a one-time drop of about 0.3 per cent, but higher food prices offsets the tax system gain contributing to inflation of about 1.7 per cent.
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