BC Economic Snapshot March 16, 2013

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VANCOUVER, BC, Mar. 16, 2013/ Troy Media/ – It was another month but the same story for B.C.’s beleaguered housing market in February. MLS home sales fell to the lowest levels since early-2009, declining 3.4 per cent from January to a seasonally-adjusted 4,875 units. On an unadjusted basis, home sales were nearly 24 per cent lower than same-month last year, but declines were magnified by more sale days in leap year 2012.

Technicalities aside, the fact remains that housing sales remain exceptionally low and, excluding the recessionary nadir of late-2008/early-2009, are at the lowest level in more than a decade.

Stagnant labour markets, tighter mortgage insurance rules and weak population growth have impeded demand. Sales fell in most areas of the province, led by fewer sales in the Lower Mainland-Southwest and the central and southern interior, but northern B.C. provided one of the few bright spots for the market.

Home sales rebounded for a second straight month in the area that spans the Cariboo, North Coast and Nechako, and Northeast. An increase in sales was also observed in the Kamloops area. Stronger activity levels in these regions reflect local economic conditions related to recent capital investment in resource-related activities and a recovering forestry economy.

The average provincial MLS price scaled back 2.3 per cent from January to a seasonally-adjusted $502,100, which is within the range observed since May. While more than 10 per cent below 2011 highs, average prices are highly volatile, and changes can reflect shifts in the geographic distribution of provincial sales as well as the impact of price outliers.

February’s MLS report suggests little momentum heading into the vaunted spring market. There are few indications that sales activity will accelerate over the next few months. Triggers of materially lower mortgage rates or rapid improvements in the economy are unlikely, and mortgage insurance policy will continue to temper entry-level demand.

Markets are generally mired in excess inventory which should precede price declines. However, further declines are expected to be modest. Sellers are generally in a position to be patient, given the persistence of low interest rates and steady employment, rather than sharply cut prices – which should limit supply growth. Sales are expected turn modestly higher over the next couple of months, but annual sales are forecast to remain essentially unchanged from 2012 at 68,000 units.

Construction
The value of major projects under construction in B.C. continued to edge higher in the fourth quarter of 2012. According to the Major Project Inventory (MPI) compiled by the province’s Ministry of Jobs, Tourism and Innovation, the combined capital costs of major projects under construction rose to $80.6 billion, 2 per cent higher than the third quarter and up 10 per cent from same-quarter 2011.

The total volume of major projects under construction has risen since early 2011. Major projects are defined as those with a capital cost of at least $15 million ($20 million in the Lower Mainland).

Major projects starting construction during the quarter included the Cape Scott Wind Farm in Port Hardy ($300 million), the TELUS Data Centre in Kamloops ($100 million), and Vancouver Shipyard improvements ($200 million).

While the volume of projects under construction crept up at a measured pace, new project proposals surged during the quarter. The total value of new proposals in the fourth quarter reached $20.9 billion and boosted accumulated proposals to $156.2 billion – a 19 per cent gain from third quarter and a 34 per cent advance over same-quarter 2011.

Not surprisingly, the north accounted for almost all of the proposed new expenditures. The most significant new proposals included the Kitimat Clean Oil Refinery ($13 billion), Prince Rupert Gas Transmission Project ($5 billion) and the Taylor Wind Project ($900 million).

Outside the north, the Bingay Main Coal Project in the Kootenay was also proposed. Although project proposals do not necessarily result in construction, and may end up being pipe dreams, the underlying up trend is a positive indicator for future capital spending and growth for the province. In particular, the province’s northern regions, with a combined share of more than 60 per cent of the dollar volume of proposed capital projects, look to be a growth leader over the next decade, reflecting activity in energy extraction and transport, mining, and trade. Construction will likely see a ramp up beginning in 2014/15.

Statistics Canada’s survey on capital spending intentions suggests private sector investment growth could slow in B.C. to about 2 per cent this year as energy and mining activity decelerates.

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