BC Economic Snapshot December 28, 2013

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 Any perceived improvements in BC housing should be kept in perspective

VANCOUVER, BC, Dec 28, 2013/ Troy Media/ – B.C. MLS sales held steady at lower levels in November following October’s downshift, affirming a deceleration following a nine-month uptrend. Total seasonally-adjusted residential sales transactions in November were virtually unchanged at 6,500 units although actual sales (unadjusted for seasonality) were significantly higher than the same month in 2012 by 17 per cent.

Locally, activity was mixed with six of 12 real estate board regions reporting monthly sales declines, led by the South Okanagan and Fraser Valley. Despite recent moderation, the provincial housing market is finishing 2013 in much better shape than it started with year-to-date sales up 6 per cent through the first 11 months.

However, improvements should be kept in perspective. Strong year-over-year growth in recent months compared to an exceptionally weak period of sales in the back-end of 2012. Meanwhile, upward sales momentum this year has only pushed the sales trend back to the 10-year average, which is below the pre-recession mid-decade range.

The provincial sales-to-active listings ratio remained stable trending near balance, but significant differences persisted among areas. Balanced conditions continued in the Lower Mainland, Victoria and Northern B.C. areas. However, a number of regions continue to trend in buyers’ market territory, particularly in the central and southern interior and Vancouver Island regions outside Victoria – but conditions are stabilizing.

The average MLS price rose sharply to a seasonally- adjusted $566,770 in November, marking a 4 per cent gain from October and 15 per cent pop from the same month in 2012. However, short-term changes in the average price are typically a poor indicator, as shifting product and geographic composition of sales can generate sharp movements.

November price growth was largely driven by a sharp average price increase in the Lower Mainland board areas. In recent months, year-over- year average price growth has trended at about 6 per cent.

Meanwhile, a scan of available constant-quality price indices – a preferred price metric – suggest little change in pricing relative to year-ago levels, which is consistent with broader market conditions.


Retail
Retail spending in B.C. was virtually unchanged from September but the uptrend observed since mid-year remained intact. Total retail sales volume in October reached a seasonally-adjusted $5.29 billion, up 3.3 per cent from the same month in 2012, with the monthly and yearly comparison in line with the national performance.

Consumer demand has improved after a listless 2012, but the recovery remains mild at best. Year-to-date sales were only 1.5 per cent higher through October, in comparison to a 2.4 per cent national gain.

Meanwhile, gains were inconsistent across sectors. Growth has been led by a 4.2 per cent gain in motor vehicle and parts, a 2.3 per cent gain in food and beverage sales and a gain in furniture/furnishings. In comparison, electronic/appliance and clothing sales volumes are down sharply this year. Excluding motor vehicle and gasoline sales, which strips out volatile gas prices and provides a better indication of general spending, growth was closer to 0.9 per cent.

Once mild retail price in flation and population growth is factored in, it is clear that households have pared spending this year – at least domestically. It is likely that some sales have leaked into the U.S. through cross-border shopping, while online shopping is also taking a bite out of bricks and mortar sales.

Current-dollar sales growth for 2013 is forecast to remain at about 1 per cent. This will mark the slowest gain since 2009 and follows a 1.9 per cent increase in 2012. Growth is forecast to reach about 3.5 per cent in 2014 on labour market improvements and mild inflationary pressure.

Tourism
International tourist visits to B.C. slumped in October as fewer tourists from the U.S. added to a second successive monthly decline in overseas visitors. Total visits, adjusted for normal seasonal factors, reached 363,800 persons in October, marking a 2.4 per cent decline from September. Overseas visits led the drop, with a 5 per cent contraction, while visits from our American cousins fell 1 per cent.

Monthly swings are not uncommon, but the pace of international entries has lost momentum in recent months following a summer upshift, suggesting a recent slowdown in the provincial tourism economy. A spike in summer visits by overseas travellers has retraced, while U.S. visits also eased.

Despite a retrenchment in trend to early-year levels, the province will record a modest gain in international tourist visits this year of about 4 per cent. Through the first 10 months of the year, international visits were up nearly 5 per cent with similar gains from both the U.S. and overseas visitors. Of the latter, growth was led by Asian markets and the Americas (excluding the U.S.), while inflows of European travel to B.C. remained unchanged from a year ago. Although entries will reach the highest level since 2008, inflows will still be 10 per cent below mid-decade levels.

Further improvement is expected for 2014 as improving economic conditions in the U.S., and lower Canadian dollar drive some traffic northward.

CPI
Inflationary pressure in B.C. remained muted in November as consumer prices eased from October, and earlier sales tax-regime changes kept prices below year ago levels. Price levels, as measured by the consumer price index (CPI), were 0.2 per cent below year ago levels and down 0.1 per cent from October on a seasonally-adjusted basis.

While price growth (or lack thereof) was well below the national performance of 0.9 per cent, B.C. is not in 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, the CPI climbed about 0.8 per cent before easing in recent months. Annual inflation readings will be tempered by the effects of the policy change until April of next year.

The lower inflationary reading has been led by food prices. Prices for restaurant meals were 4.4 per cent lower than November 2012, largely reflecting the tax shift, while store-bought food prices 1.1 per cent higher.

Meanwhile, health and personal care prices were down 3 per cent and shelter-related costs were 0.7 per cent lower on declines in homeowner replacement costs. Gasoline prices were up 1.5 per cent, but remained a moderating factor on inflation relative to earlier in the year.
While year-over-year declines can largely be explained by the shift in tax-policy, monthly price trends suggests very little in the way of positive price momentum. Persistence of a weak labour market, tempered consumer demand, and retail price competition has kept a lid on inflationary pressure. Meanwhile, a pull-back in gasoline prices since the summer has also contributed to topline declines.

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