Sunday, September 22, 2013

BC Economic Snapshot Sept. 21, 2013



VANCOUVER, BC, Sep 21, 2013/ Troy Media/ – B.C. home sales propelled higher for a sixth successive month in August, extending what has already been a substantial rally this year. Total MLS sales rose 3.4 per cent from July to a seasonally-adjusted 6,660 units in August, marking a gain of more than 30 per cent from earlier in the year and the highest level since early-2011.
Nearly all real estate boards have reported a sharp climb in sales since the beginning of the year, with August gains led by the Okanagan, Victoria and Fraser Valley regions. The sharp uptrend in sales narrowed the year-to-date sales deficit to below one per cent, compared to a four per cent differential in July.

New listings have predictably increased with sales growth, but gains have been modest, leading to lower inventories in most areas. Sales-to-active listings ratios have been stable or moved higher, pointing to some tightening in housing markets.

The Lower Mainland and Victoria markets have scooted into balanced market territory over the past two months, but most areas continue to trend in buyers’ market territory, particularly in the central and southern interior and Vancouver Island regions outside Victoria.

Sales momentum has induced higher price levels. The average MLS price rose for a fourth consecutive month to a seasonally-adjusted $548,190. While the provincial average price has likely been inflated by relatively stronger sales momentum in the higher-priced Lower Mainland this year, a scan of regional performance and constant-quality indicator where available suggest a recent firming of price levels in a number of areas.

The housing sale rebound has been remarkable but momentum is expected to peter out in the coming months. Higher borrowing costs have pulled buyers into the market. A shrinking of mortgage rate discounts, reflecting higher bond yields and cost of capital for some lenders, led more households with lower pre-approved rates to bite the bullet and jump into the market before their offers expired. This effect will dissipate in short order. Meanwhile, the initial shock of last year’s mortgage insurance rule tightening has eased but first-time buyers still face constrained affordability due to the policy change.

In contrast, factors supportive of a weak sales environment remain ever present. The economy and labour markets remain sluggish, debt levels are high, and population growth has been persistently weak. Despite some retrenchment, MLS sales are forecast to rise about 5 per cent to about 71,000 units on recent gains and a poor performance during the back-end of 2012. A gain of 6 per cent is pegged for 2014 on a strengthening economy, but will remain below the post-2000 average of about 80,000 units.

Automotive
Sales of new vehicles in B.C. edged back in July, suggesting some slowdown in household appetite for major purchases and debt despite the recent uptrend in home sales. Total seasonally-adjusted vehicle sales fell by an estimated 2 per cent to 15,200 units from June.
While actual July sales were 5 per cent higher than same-month 2012, the underlying sales trend has flattened in recent months albeit at the highest levels since 2008. The dip in August activity points to a potential decline in next week’s retail sales data release.

On a year-to-date basis, unit sales were 3.7 per cent higher than same period in 2012, while dollar-volume sales were 8.3 per cent higher. The differential largely reflects a shift 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. Gains are largely driven by replacement demand and pent-up activity following low sales in recent year given labour market weakness and elevated debt.

CPI
Following July’s acceleration, consumer prices in B.C. held steady in August. The consumer price index (CPI) declined marginally from year ago levels by 0.1 per cent and was unchanged from July on a seasonally-adjusted basis.

B.C.’s top line year-over-year inflation reading of -0.1 per cent remained well below the national gain of 1.1 per cent, but does not signal a deflationary environment. The lower reading largely reflects the shift back to a PST system, which lowered after-tax prices for a number of goods and services, notably restaurant meals. Since the one-time decline, prices have climbed about 0.7 per cent. Annual inflation readings will be tempered by the effects of the policy change until April of next year.

On a year-over-year basis, food prices were down 0.3 per cent on a 4 per cent decline in restaurant meals, while groceries were higher. Personal care and health products were down 3.3 per cent from year ago levels, while costs associated with homeowner accommodation were down 2 per cent, reflecting lower prices.

In contrast, consumer wallets remained pinched by energy prices, with natural gas up 6.4 per cent and gasoline prices up 5.5 per cent. Energy price growth aside, B.C. continues to operate in a low inflationary environment reflecting the sluggish economy and tempered wage growth. CPI inflation of just 0.2 per cent is forecast for this year, while the gain in 2014 will be a modest 1.2 per cent.
| Central 1 Credit Union

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