Deterioration in Lower Mainland housing market
B.C. employment levels inched higher in June to extend the uptrend observed since 2011. Estimated employment in the province edged above 2.32 million persons in June (seasonally-adjusted), marking a gain of 0.2 per cent or 3,600 persons from May.
Growth was recorded in both the full-time and part-time sectors during the month and pushed total employment above same-period 2011 by 2.3 per cent. Stable employment counts over the past two months have provided evidence that April’s surge was not an aberration in the data and that provincial employers have continued to generate job growth.
However, tempered business confidence amidst uncertainty in the global economy could put a damper on the pace of hiring in coming months. While employment held steady, the unemployment rate fell 0.8 percentage points to 6.6 per cent.
B.C.’s jobless rate has been highly volatile in recent months. June’s drop was driven in large part by a decline in the youth participation rate and contraction of the labour force, rather than job growth. Youth employment rose 0.4 per cent from May, but the associated labour force fell by an estimated 2.2 per cent.
After driving provincial employment growth since early 2012, the Vancouver Census Metropolitan Area (CMA) lagged the rest of the province in June. Vancouver CMA employment fell for the first time in four months in June, contracting 0.3 per cent from May. However, the region still recorded more than 2 per cent growth since January and was up by a robust 3 per cent from June 2011.
Building intentions in B.C. surged for a second consecutive month in May as municipalities issued $1.09 billion in building permits (seasonally-adjusted). This was up 27 per cent from April, and was the highest monthly tally since late 2010.
Strong gains in building permit volumes were observed in both the residential and non-residential sectors. Residential permit volumes jumped 31 per cent from April to $660 million, following what has been a tempered year of activity, but gains are expected to be short-lived.
Stronger building intentions reflected a 64 per cent increase in the volatile apartment sector. Apartment permits tend to show substantial month-to-month fluctuations due to the influence of large and infrequent large projects.
Housing market activity is weak in most areas of the province, including Metro Vancouver, and does not point to resurgence in new home activity, which should temper the pace of residential permit volumes going forward.
Total non-residential permits rose 21 per cent from May to reach $428 million in June as a more than doubling of institutional and governmental building intentions offset declines in the industrial and commercial sectors. Institutional and governmental permit volume growth was entirely generated by hospital/medical projects in the Lower Mainland-Southwest region of the province.
On a year-to-date basis, non-residential permit volume was up 39 per cent through June, driven by a four-fold increase in industrial permits and a 40 per cent gain in institutional and government activity.
The rapid deterioration in Lower Mainland housing demand extended into June with a 6 per cent month-over-month drop in activity. Total MLS sales in the combined Abbotsford-Mission and Metro Vancouver region fell to a seasonally-adjusted 3,130 units, marking the weakest pace since July 2010.
The regional pace of monthly sales has declined by 17 per cent since February. Total sales in the first half of 2012 reached just 22,750 units, down 16.6 per cent from the same period last year. The intensification of sales weakness since February points to weakening consumer confidence leading to a pull-back in demand.
Employment trends have been positive and mortgage rates steady, meaning affordability was unlikely the cause of such a shift in behaviour. Rather, negative news out of Europe and signifiant equity market declines pushed some buyers to the sidelines as they re-calibrated their outlook on the general economy and personal circumstances.
Going forward, the sales environment will remain a challenge. Tighter mortgage insurance rules effective July 9 will lower the maximum amortization period for government-backed mortgage insurance to 25 year from 30 years. This will have a more signif cant impact on low-equity and first-time buyers and lower sales of condominium and townhomes.
The sharp drop in sales activity has pushed the Lower Mainland into a buyers’ market in recent months after a year of balanced- to sellers’- conditions. While the pace of new listings actually declined in June, weak demand pushed inventories higher. Buyers’ conditions weighed on prices, with the MLS Home Price Index edging down slightly by 0.4 per cent from May.
The benchmark price in the Lower Mainland edged down to $555,800 during the month, but remained 1.9 per cent above the same period in 2011.
With demand expected to remain tepid, buyers’ conditions are expected to yield price declines into the fall months. However, declines are expected to be small. In the absence of a sharp rise in unemployment or another recession, a weaker sales and price environment is expected to push prospective sellers to delay property listings or allow current listings to expire, pushing inventories lower. Price levels are expected to rise in late-2012 and through 2014 as broader economic conditions improve.
Business confidence of small- to medium- sized enterprises in B.C. dipped in June following two consecutive monthly gains, but held above the national level.
The Canadian Federation of Independent Business’ Business Barometer fell to 65.6 points on a scale of 0 to 100, down 2.1 points from May.
While businesses surveyed are on balance still optimistic about a stronger business performance over the next year, reflected in a reading above 50, June’s monthly decline was the sharpest since February.
Confidence was likely dampened by the ongoing effects of the Eurozone crisis as well and signs of softness in the U.S. growth. Greater stability in B.C. confidence levels relative to the national figure could reflect lower exposure to European markets for B.C. companies.
However, confidence was still more than five points below the same period in 2011 and well below pre-recession levels, which suggests a tempered growth environment and modest hiring.
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