BC Economic Snapshot January 19, 2013

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VANCOUVER, BC, Jan. 19, 2013/ Troy Media/ – B.C.’s cooling housing market ended the year in a deep freeze as MLS sales fell to the weakest pace since early-2009 when the market was just emerging from recessionary lows.

Fewer sales in most regional areas contributed to a 5 per cent decline in provincial sales from November with only 4,870 homes (seasonally adjusted) changing hands. Unadjusted sales were down 26 per cent from December 2011.

2012’s year-long downtrend in sales constrained annual provincial activity to 67,640 units, a 12 per cent drop from the previous year and the lowest annual tally since 2000. This was led by a 19 per cent drop in the combined Abbotsford/Mission and Metro Vancouver region and a 5 per cent decline on Vancouver Island, which offset modest gains in a number of interior B.C. markets.

B.C.’s average MLS price fell 8 per cent from 2011 to about $514,830. December’s MLS sales decline was surprisingly sharp but highlighted the weakening pattern of housing market activity observed over the past year – a reflection of a subdued job growth and more restrictive credit policies.

July’s tightening of regulations related to federally-backed mortgage insurance took a bite out of demand. A swath of first-time buyers have been priced out of the market while others have seen product availability limited by a $1 million purchase price restriction on mortgage insurance.

The impact has been greater in the Metro Vancouver region, but sales in the rest of the province also pulled lower following a period of relatively stable activity. Weak sales have contributed to elevated inventories and buyers’ markets across the province and suggest erosion in prices going forward.

However, declines are expected to be modest as sellers are showing signs that they are prepared to be patient rather than sharply cut prices. The persistence of low and stable interest rates and steady employment levels point to a lack of distressed sellers.

The pace of new listings fell for a third straight month in December while seasonally-adjusted inventory also eased.

Last year’s annual price drop and 11 per cent decline from early 2011-highs also provided more shock-value than market information.

About half of the annual decline reflected a lower share of sales in the Metro Vancouver region, meaning greater weight to lower priced areas in the province and a magnified decline. Constant-quality price indices such as the MLS Home Price Index and Teranet Home Price Index for the Lower Mainland suggest underlying prices slipped about 4 per cent from mid-year highs – and about 1.5 per cent off December 2011. We expect a peak-to-trough decline of about 7 per cent in the MLS HPI.

Construction


While housing market activity tempered through 2012, non-residential building construction activity picked up from early year lows and contributed positively to economic growth as the year progressed.

In the fourth quarter, non-residential investment in B.C., which excludes engineering construction such as roads, bridges, and pipelines, rose for a third consecutive quarter. Current-dollar investment rose 5.4 per cent from the third quarter to reach a seasonally-adjusted $1.37 billion as industrial projects in the province’s north coast and commercial projects in the Vancouver CMA regions ramped up construction activity.

Investment related to industrial structures was up 10 per cent from the third quarter, while commercial activity gained 8 per cent. Public-sector construction investment fell 2 per cent. Slightly higher constant-dollar investment growth pointed to tame construction costs over the period.

Despite the uptrend over the course of 2012, annual current-dollar investment fell nearly 5 per cent from 2011. The completion of fiscal-stimulus related projects contributed to a decline in public-sector investment of 23 per cent, which more than offset a near 50 per cent gain in industrial activity.

Positive momentum in non-residential investment should continue over the next two quarters before cresting at elevated levels, reflecting building permit trends in recent quarters and support gains in the economy and construction employment.

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