BC Economic Snapshot April 13, 2013

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 Weak Demand & High Inventory
Expected To Slow Construction Cycle

VANCOUVER, BC, Apr. 13, 2013/ Troy Media/ – B.C. housing starts shifted higher in March as builders began work on more Metro Vancouver multi-family projects following a four-month lull.
While starts fell sharply outside Metro Vancouver, total starts in the province’s urban areas still rose to a seasonally-adjusted annualized pace of nearly 24,400 units, marking a 13 per cent gain from February and 17 per cent gain from same-month 2012. March starts were within the range observed since early-2010, but significantly higher than the underlying trend of about 21,000 units observed in recent months.

The upshift in housing starts is expected to pull back over the coming months.

Multi-family housing starts, which fluctuate substantially on a month-to-month basis given the number of units associated with individual projects, drove all of the March gains. The persistence of weak demand and the high levels of existing and new home inventory are expected to slow the construction cycle as developers adapt to market conditions. We forecast annual housing starts, in both urban and rural areas, to reach 24,800 units this year which will mark a 10 per cent drop from 2012.

Construction

A decline in February residential building permits suggests that the March gain in housing starts was temporary and portends an easing of construction activity going forward.

Residential permit volume fell to a seasonally-adjusted $481.2 million, marking a 17 per cent decline from January and the lowest level since October. Declines were led by a pull-back in apartment and row building intentions. Current trends suggest developers are taking heed of market signals and are slowing construction.

Meanwhile, non-residential permit volume edged up in February following sharp declines since early in the fourth quarter. Led by a gain in commercial building intentions, non-residential permit volume rose nearly 12 per cent from January to reach $209.4 million. Industrial and public-sector intentions pulled back from the previous month.

While non-residential activity is down sharply from last year, particularly in the private sector, much of the decline reflects the impact of large project starts in northern B.C. and hospital expansions in the Lower Mainland that boosted 2012 volume. Non-residential permit volume is expected to pull back by about 15 per cent this year following a near 30 per cent surge in 2012.

However, last year’s activity will generate ongoing investment activity this year, contributing to a 4 per cent increase in building construction investment. Total permit volume reached a seasonally-adjusted $690.6 million in February, down 10 per cent from January. Through the first two months of the year, total permit volume is down 20 per cent from same period 2012.

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