BC Economic Snapshot Sept. 14, 2013

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VANCOUVER, BC, Sept 14, 2013/ Troy Media/ – A spate of new construction data was released this past week and signs are pointing to an easing in the new home sector, despite resale market momentum.

B.C. housing starts slipped a rung in August following two months of elevated activity as fewer apartment and townhome projects broke ground. Urban starts fell to a seasonally-adjusted annualized pace of 25,000 units – down 20 per cent from the June and July pace.
Despite the sizeable drop, August’s pullback was not a surprise since prior months were boosted by a higher number of Metro Vancouver apartment starts. The infrequency of and large number of units associated with multi-family project starts typically lead to volatile monthly housing starts.

Metro Vancouver housing starts were down 26 per cent from July, compared to a 4 per cent gain observed in the rest of the province. Looking through the volatility, provincial housing starts have crept slightly higher since a weak first quarter but remain low relative to mid-decade levels and within the range observed since 2010. Through August, starts were still down nearly 7 per cent from same-period 2012 at 16,280 units.

There are however regional differences. Housing starts outside Metro Vancouver remain at recessionary levels as builders stay on the sidelines amidst weak demand and excess supply. In contrast, Metro Vancouver starts have reverted to near pre-recession trends despite subdued current demand and high new home inventories.

Although current conditions are sluggish, evident in modest declines in the new home price index, construction has been buoyed by the commencement of successfully pre-sold projects launched in the short post-recession frenzy of activity in late 2009 and into 2010. Despite recent resale momentum, housing starts will remain subdued over the remainder of the year given sluggishness in the economy, high inventories, higher mortgage rates, and a slower uptake of pre-sale units.

In line with our view, building intentions slowed in July with a third successive decline in residential permit volume to a seasonally-adjusted $520.6 million. Fewer permits in the multi-family space indicate lower apartment and townhome starts in the fourth quarter. Through July, total year-to-date residential permit volume was down about 3.8 per cent
Provincial housing starts, which include both urban and rural markets, are forecast to dip about 7 per cent this year to about 25,500 units, with only a modest increase to 26,600 units in 2014.

Construction
B.C.’s non-residential sector further detracted from overall building intentions in July. Volume fell 6 per cent from June to $295.6 million as a pullback in commercial permits offset gains in the industrial and government sectors.

Non-residential intentions have dropped sharply this year and were down 28 per cent through the first seven months of the year.

While subdued economic conditions have curtailed some investment spending on the part of business and government this year, the decline largely reflects a base-year effect. In 2012 activity was boosted by a number of major project commencements, including the Rio Tinto upgrade in the North Coast region and hospital expansions in the Lower Mainland.

Annual non-residential permit volume is forecast to settle at 20 per cent from 2012, but remain above levels observed from 2009-2011.

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