BC Economic Snapshot August 17, 2013

VANCOUVER, BC, Aug 17, 2013/ Troy Media/ – Riding high on the shoulders of stronger activity in the Metro Vancouver, B.C. home sales jumped again in July to mark a sixth consecutive month of increased momentum. Total MLS sales rose to a seasonally-adjusted 6,420 units in July, up 3.7 per cent from June, with actual sales 18 per cent higher than the same month in 2012.

Monthly gains were led by a nearly 10 per cent gain in Metro Vancouver, while activity in most other regions dipped. After a feeble start to 2013, higher sales in most areas of the province pushed the provincial pace up 30 per cent, narrowing the year-to-date deficit to 4 per cent.
While generally a poor metric of price trends, the provincial average price rose 3 per cent from June to a seasonally-adjusted $547,440 to extend the uptrend observed since the beginning of the year. B.C. sales growth has outpaced the national performance, suggesting some catch up in activity following the sharp downturn in 2012.

The initial shocks from of last year’s mortgage insurance rule tightening, which hit higher-priced markets harder, have tapered. Meanwhile, expectations of interest rate hikes may have temporarily lifted sales as some prospective buyers jumped off the fence to take advantage of lower pre-approved rates.

However, strong momentum should not be misconstrued as a strong market. Sales remain lower than pre-recession norms and are returning to barely respectable levels while most regional markets remain oversupplied.

Average provincial price gains reflect a shift in Metro Vancouver sales mix towards higher-priced product rather than underlying price appreciation. Constant-quality housing price indices for the Lower Mainland suggest an easing of prices over the past year.

Expect sales momentum to decelerate as the interest rate- related bump evaporates. A weak economy, low employment growth, higher interest rates and federal government policies designed to constrain household leverage will curtail further demand growth.

Nonetheless, the transition towards a stable but low-volume environment will move markets into a more balanced state, providing support for prices. We forecast MLS sales to rise 5 per cent to about 71,000 units this year, with a further gain of 6 per cent in 2014. Annual sales will remain below the post-2000 average of about 80,000 units.

Manufacturing
Monthly manufacturing sales in B.C. tumbled to the lowest level since mid-2011 in June on lower wood product, petroleum and coal industry shipments. Estimated sales volume fell to a seasonally-adjusted $3.22 billion, marking a 4.5 per cent decline from May.

While subject to future revisions, this was the largest month-to-month decline since December 2008 and well exceeded the national decline of 0.5 per cent.

Manufacturing shipments were down by a more modest 1 per cent from June 2012. Wood product sales fell 10 per cent from May to lead the decline and accounted for nearly half of the absolute monthly dollar-volume drop. Following a surge in activity that extended from late-2012 into early-2013, dollar-volume sales have fallen 18 per cent from April’s due in most part to a lumber price correction. After reaching $437 in April, lumber prices fell to $329 in June with a slight uptick in July.

Manufacturing sales have been range-bound since early this year as slow growth global economies, soft commodity pricing, and an elevated exchange rate have hampered growth. Nonetheless, mid-year manufacturing sales were 1.5 per cent higher than same period 2012 with wood products providing most of the heavy lifting despite a two-month retrenchment.
Sales of wood products were up 34 per cent through mid-year.

We expect flat manufacturing trends to pick up later in the year with U.S. growth driving improvements in both prices and shipments. Annual sales are forecast to rise 2 per cent this year, with a further gain of 4 per cent in 2014.

Automotive
New vehicle sales in B.C. moved higher in June to extend the uptrend observed since late 2012. Total seasonally-adjusted sales reached an estimated 15,600 units, up about 4 per cent from May. Year-to-date vehicle sales were about 3.5 per cent higher.

Dollar-volume rose 8.5 per cent higher through the first seven months of the year as consumer tastes have shifted towards the higher-priced truck/SUV segment of the market over passenger cars.

Vehicle sales are a secondary economic indicator for B.C.’s economy, acting as a gauge of consumer confidence and the willingness to make large-scale purchases. Annual vehicle sales are projected to rise by a modest 4 per cent this year to about 183,300 units, the highest level since 2007.

However, with ongoing weakness in employment and population growth and elevated household debt, gains will largely be driven by replacement demand, low interest rates and pent-up activity following a number of years of low sales.

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