Central1: The sheen is clearly off the housing market

You heard them. Read their report here (PDF). A few excerpts:

The sheen is clearly off the housing market, with this week’s release of the MLS® data. As expected, residential home sales in British Columbia continued to trend lower in May. Sales fell for the seventh consecutive month, dipping 6.5% from April on a seasonally adjusted basis. Since reaching a market peak in October, annualized sales have fallen 30% to 75,500. The markets that led last year’s rise in activity, namely the Lower Mainland and Victoria, are now leading the downtrend.

On the supply side, B.C. recorded an unseasonal decline in the flow of new listings in May -- the first April to May decline since 2002. We expect to see a pattern similar to early 2008 emerge, where potential sellers hold back on listing their homes in response to higher inventory levels and price declines. However, month-end inventory levels will likely rise over the next few months as the new listings remain elevated and sales continue to trend lower.

Note Credit 1 refers to seasonally adjusted (SA) sales. This blog typically refers to non-seasonally-adjusted (NSA) sales as do the real estate boards; both methods have their trade-offs: SA is good for comparing months long trends but NSA is more closely tied to the front-line effects of supply and demand. The seasonal adjusted data seem to indicate a persistent malaise of sales reminiscent of 2008 (though not as extreme). This was relatively obvious, given listings growth since the start of the year. Interestingly they claim an "unseasonal decline" in new listings for BC in May. Certainly in Vancouver and Victoria this did not seem to be true, however it looks like inventory is now not growing as fast, not because of a lack of new listings but because of a lack of sales and a large number of expiries. Remember that a recorded expiry, sale, or (usually) listing does not change the available housing stock.

We now segue into Central1 on rentals:

Results from Canada Mortgage and Housing Corporation’s semi-annual survey of the purpose-built rental market suggest that rental demand softened over the past year as higher unemployment, particularly among young workers, and a weaker economy slowed the rate of household formation. In addition, existing renters may have found alternative housing in the competing investor owned condominium rental stock or were induced into the ownership market by lower mortgage rates.

Among British Columbia’s larger urban areas (populations of 10,000+), 21 of 27 markets reported higher townhome and apartment vacancy rates in April 2010 from a year earlier. The aggregate figure for all urban areas rose from 2.5% in April 2009 to 3.2% this year. Among B.C.’s largest markets, the largest relative increase occurred in the Victoria and Abbotsford Census Metropolitan Areas, while the Chilliwack Census Area was the only major market to report a drop in the vacancy rate. Additional slack in the rental market also impacted the rate of growth in market rents, which rose at a much slower pace in 2010. Average rents of properties in B.C. common to both the 2009 and 2010 survey samples rose by 2.2% this April, compared to 3.4% a year earlier.

A relatively bearish report on both the capital and income portions of the BC housing market.

Seafield Update

This is a quick follow-up post to the post I made on the RTO decision (PDF) last year to raise rents at an apartment complex in the West End. A relatively exhaustive series of blog posts is covering the decision. Start here.

In my analysis I was intrigued the RTO decision interpreted the law that it needn't use any evidence forwarded by tenants in making its decision to markedly increase rents above the annual cap. It turns out, according to the Supreme Court of BC, you can't do that. The law was meant as a way of ensuring that extreme cases of low rents could be fairly addressed. Unfortunately, the law has been difficult to interpret and follow. This case highlighted how much variance there is in rents, even between comparable units. Variance in rents is due to dwelling location, amenities, and quality, and quality of tenant; the law does not address the latter factor in any way.

What will this decision mean? Well, for rents that are significantly below market, there is some argument for ensuring the law is kept in some form. The alternative is a situation where the rental cap is removed and there is a continual push on the Legislature to do just that. On a street level it likely won't have much impact at all. This part of the law that allows above-cap rent increases is rarely used because of the significant amount of research and time required to make a valid case.

Removing the rental cap has its own problems, most notably that landlords can use it as a way of eviction. There are provisions for preventing this but are not universally enforced. The other method BC landlords often resort to is moving in to the property for some months -- the law says it must be at least 6 months -- but it is the prerogative of the evicted tenant to confirm this and complain to the RTO. We heard about this situation for a recent Olympic rental.

The biggest myth around rental caps is that it keeps rents below their fair market value. This is patently untrue according to all the data I have seen. The data we do have on rents come from CMHC (see UBC Sauder School of Business graph (PDF)). Average rent is increasing in line with average income, about 1.8% per year, which is less than the rental cap of around 3-4%.

No matter what the laws and protections awarded to both tenants and landlords, we do know that the vast majority of tenants are not subjected to looming eviction or massive rental increases (or even rental increases at the cap for that matter...). When a business relationship -- which the tenant-landlord relationship is in its essence -- goes sour and trust is lost, the boundaries of law, fairness, and morality are tested on both sides. I know of both tenants and landlords who seem to be perpetually in some sort of conflict with the other. I wonder if it's worth the time and cost.

Landcor Quarterly Report

I suggest everyone interested in the BC real estate market read the Landcor Quarterly report. It is available here.

I will have some thoughts and highlights later.

Raising Rents

An interesting case study of the provincial government’s law allowing landlords to raise rents above rent control to market rates was recently put to use with the residents of a West End apartment unit. You can read the news coverage here and here and, if you are truly interested in what is required under the Residential Tenancy Act's provision for Rental Increases, read the entire decision (pdf).

This is a bit of a long post but if you have interest in this case, you may also be interested in reading on.

In order to apply for a rent increase above the rent control limit, a landlord must show specific and comparable units whose rents are above what would be possible under normal allowed rental increases. The ruling went partially in favour of the landlords, who recently bought the units, and are looking to increase their profits.

Whether you agree or disagree with this provision in the Residential Tenancy Act is one thing. I would like to offer some commentary on how this particular case went and some observations I see ignored by the news coverage, the landlords, and the tenants.

Be Specific

It is immediately obvious the Dispute Resolution Officer (DRO) was required to use specific and comparable rents in deciding the outcome. For the most part the decision provided little in the way of specific rents from comparable units from tenants. The DRO used only a handful of comparable properties in making the final decision, all from the landlord.

In the decision the DRO has stated:

The landlords do not have to prove that the rent is significantly lower than all comparable rental units, but merely have to prove that there is evidence that in the current market, there exist similar rental units which attract a higher rent than what is currently being paid for the subject unit

An interesting interpretation of the Act; it effectively cuts the tenants from having their data used as balancing evidence. Scary perhaps. But if it's any solace most landlords don't resort to such rent increases, and not because they are bad businesspeople.

It is probably fair to say the landlords filtered units for rents that were purposefully higher than those in the units they own. It would be silly of them to present units that do not maximise the rents they can charge. But, yes, they are allowed to do this.

The tenants have learned the hard way that, while they needed to find specific and comparable examples to their units, when it came time to make the decision, it didn't seem to matter. Given all tenants in that neighbourhood have an incentive to keep their rents down, the tenants should have had no problem finding comparable rents that were not cherry-picked to be high. What I am not sure of is what burden of proof tenants are required to show to have their evidence considered and accepted. This is certainly a valuable lesson to be learned by others who may find themselves in a similar situation.

Subprime Tenants

What is often missed by looking at listing rents is that renters, like mortgage applicants, have different credit ratings. I am sure landlords will agree that there are tenants that are duds. If a landlord were to rent to such a tenant, to compensate for the added risk of taking on a deadbeat tenant, he should charge a premium.

Why this is important is that, while the Act looks at comparable rents to make a decision, no weight is given to the quality of the current tenants. It could be these tenants are “golden”; maybe they always pay their rents on time, perhaps even taking on repairs themselves since the rent is so good. The previous owner may have accepted lower rents because the risk was exceptionally low.

With new landlords, these unfortunate tenants have effectively lost their built-up credit and business relationship with the previous landlord. To be fair, the new landlords don’t know these tenants from a hole in the ground so are, perhaps a bit naively, treating them as any generic off the street renter. By raising rents to market rate, they are effectively raising rents to what they would charge a tenant with no “credit” history.

What are the current tenants to do? Perhaps they will accept the rent increase, act in good faith, and try to build up their past good favour again with the new boss. This will manifest itself by below inflation rent increases as the landlords realise the tenants are actually “prime” tenants. This assumes the landlord places value on low maintenance tenants. Not all landlords think this way, in which case I would strongly advise the tenants to find a landlord who does. There is no easy way to win a war with a slum lord, or even a landlord looking to offer a premium service for a premium price.

The problem now for the landlords, unfortunately, is that by taking an adversarial approach, they will most likely be paying more than they would should the rents have been raised at a smaller rate. The tenants who decide to stay will undoubtedly “work to rule”. Perhaps the little repairs and renovations they did to save their previous landlord money are now left to the landlord to handle. Perhaps heats are turned up a little too high.

It is hard to really know the motives of the landlords. It could be they are hardnosed businesspeople who will run this rental complex like a generic high turnover unit. This is their prerogative of course but this comes at a much higher operations cost than would a stable lot of tenants, either through higher turnover or greater wear and tear. To be fair, some landlords charge high rents but offer a high quality service to compensate. Perhaps they paid a high price for the units and the only way to stay cash flow positive is to jack up the rents. I don't know anything specific about the actual owners in this case.

All’s Fair

The third thing to note about this sad affair is that, while the Act’s arbitrator has decided for a marked rent increase, the court of public opinion is much more divided and angry. Rent control and the treatment of seniors (of which some of the tenants happen to be) seem to trigger an emotional response. I am sure the landlords have faced added stress and complications by having these tenants go to the local press. Tenants certainly played the sympathy card well, given the high level of media coverage.

I am sure readers here have an opinion on this case. It is a complex issue and I have sympathies for both sides of which I will not expand upon much. But I will say that it’s completely fair game for the tenants to have brought in the media who effectively sensationalised this story. Like it or not, a free press is, well, free to report on these stories as they see fit.

Actually, it was a decent strategic and tactical move on the part of the tenants, worthy of careful study in business schools. The landlords, while likely pissed off, should not be too surprised they are receiving such attention, as should any businessperson trying to make money through uncomfortable situations such as this one. Par for the course, guys. I doubt, though, these landlords really thought media coverage likely before they bought.

In the end, the landlords received a partial increase in rents for some of the units, to be phased in over a course of several months. But with them having an entire building of pissed off (and possibly high quality) tenants who can make the landlord's life miserable or move out and be replaced with what could well be higher maintenance and riskier tenants, I wonder if their investment is really going to be a good one in the end. It could also be that these rents were just too low.

Landcor 2008 Report - Highlights

These highlights are taken from the Landcor report on the BC real estate market in 2008. See here.

Provincial Overview - 2008 in review

2008’s residential sales count is similar to the total sales generated in 2002, dropping to 113,654 sales in 2008, compared to 115,314 in 2002. This is a 28% drop from 2007’s total sales of 158,272, and 31% down from the peak year of 164,315 sales in 2005.

Detached home and vacant land sales saw the greatest decreases in total sales this year when
compared to 2007, dropping 35% to 46,164 units and 33% to 11,749 units. Condos experienced the smallest decline in total number of units sold in 2008, down 24% to 35,097 from 2007’s total of 46,099 (the highest annual sales count on record for this property type).

Regionally, the Kootenays, Okanagan and BC North/Northwest markets dropped 38%, 36%
and 34% from their respective previous year sales counts to 4,950, 16,710 and 9,067 sales.
Greater Vancouver saw the smallest decline in total number of units sold, down 24% to 48,644 from 2007’s total of 63,827.

The total sales values in BC Residential real estate fell 22.5% from 2007’s total value to $48.186 billion. This puts 2008’s real estate transaction value in third place, behind 2007 and 2006, which were record breaking years for the province of BC. Despite the drastic declines experienced in the end of the third quarter and through Q4 08, average sales prices in the province are up 10% over last year, averaging $323,968, up from $294,180 in 2007. When looking at the median sales price a similar statistic emerges with 2008 up 9% over 2007, at $349,900 from $320,000 in the previous year.

Out-of-province buyers sit tight in 2008.

Down 37% from levels enjoyed in 2007, out-of-province purchases fell from 9,375 to 5,891 in 2008. The most significant decrease came from Canadian buyers in provinces other than BC, Alberta and Ontario. This buyer group had 60% less sales than in 2007, down from 1,111 to only 444. Albertans remain the most significant market of BC property purchasers from outside our borders, representing 69% of all out-of-province purchases, totalling 4,061 sales.

Alberta buyers continue to shop close to home with 33% and 30% of purchases in the Okanagan and Kootenay region in 2008. The preferred property type for Albertans remains the condominium, representing 37% of purchases (1,496 sales), followed by vacant land at 27% (1,077 sales) and detached homes at 22% (881 sales).

New housing prices drop most in Western Canada: StatsCan

From CBC News.

Contractors' selling prices for new homes decreased 0.6 per cent between December and January, Statistics Canada reported Wednesday.

The agency said the largest decreases were recorded in cities in Western Canada, and the pace of decrease in January was slightly faster than the 0.1 per cent decline observed the previous month.

Prices declined 2.8 per cent in Edmonton, 2.1 per cent in Calgary, 1.1 per cent in Victoria and 0.7 per cent in Vancouver in that period. Builders in those four cities reported unfavourable market conditions.

Contractors' selling prices for new homes in New Brunswick, however, increased between December and January.

In Saint John, Fredericton and Moncton, new housing prices increased 1.4 per cent from a month earlier.

Statistics Canada said builders in New Brunswick increased their list prices or returned to their list prices, after reporting lower negotiated prices in previous months.

Meanwhile, in St. John's and Saskatoon, prices for new homes increased 0.8 per cent from a month earlier, while in Quebec City prices increased 0.6 per cent.

Statistics Canada said the new housing price index decreased by 0.8 per cent in January compared with the same month in 2008. The drop was the first year-over-year decrease in Canada since January 1997.

Year-over-year declines were recorded on the Prairies, with a 10.4 per cent decrease in Edmonton, a 6.5 per cent decrease in Calgary and a 2.7 per cent decrease in Saskatoon.
In B.C., Victoria reported a year-over year decline of 4.2 per cent, while Vancouver posted a 3.2 per cent decline.

Is now a good time to invest in real estate? - NO, NO, NO!

With home sales — and prices — dropping in B.C., is now a good time to invest in real estate?

The B.C. Real Estate Association says it just might be, pointing to a large drop in carrying costs for an investment property today compared to a year ago.

“It doesn’t matter what the market is doing, I don’t say whether or not it’s a good time to buy,” association chief economist Cameron Muir said in an interview Monday. “That being said, I would suspect investors are actively looking in the marketplace for bargains. If you compare today vs. a year ago, investing in real estate is more attractive than it was then.”

Muir made the comment after the release of an association housing survey Monday that concluded the residential sales dollar volume on B.C.’s Multiple Listing Service declined 61 per cent to $873 million in January, compared to the same month in 2008 when sales totalled $2.25 billion. In the Metro Vancouver region, the sales volume was down 62 per cent over the same period, to $413 million from $1.09 billion in January 2008.

Muir — who said he also believes sales activity in the province will pick up in the spring because of improving affordability resulting from lower mortgage rates and home prices — cited a typical mortgage payment for a property in January 2009 compared to January 2008.

He said the benchmark price for a two-bedroom condo in Metro Vancouver was $334,602 in January, 11.5 per cent less than the $378,336 the same condo would have sold for 12 months earlier. A typical posted five-year fixed-term mortgage stood at 5.79 per cent in January, much lower than a similar mortgage rate of 7.39 per cent the previous January.

Therefore, he said, a condo with a 10-per-cent down payment (on a 25-year amortization) would have resulted in a monthly mortgage payment of $1,890 this January, nearly $600 less than the January 2008 mortgage payment of $2,468 (property taxes, maintenance fees and mortgage insurance fees not included).

Condos are still insanely expensive compared to rent.

On top of that, he said, there’s upward pressure on rents with the same two-bedroom condo renting in October 2008 for about $1,507 a month — a five-per-cent increase from October 2007.

“For both investors and home buyers, your mortgage payment would be several hundred dollars less than a year ago,” said Muir, who noted that investors have so far not been very active since the economic downturn started last year. “As an investor, the cash flow from the rent will more closely match your mortgage payment on the property.”

The BCREA survey also showed that residential unit sales fell 57 per cent to 2,115 units during the same period.

The average price on the MLS in B.C. was $412,934 in January, down nine per cent from the same month last year, the survey noted.

Muir said that home sales were sluggish in January, reflecting an overall malaise in consumer confidence and a weaker provincial economy.

Muir said that first-time buyers are especially affected by the economic news and are holding back because of a lack of confidence. “Demand from first-time buyers has been off significantly. First-time home buyers tend to be younger and not have years of experience in their occupations. Therefore, they have more concerns around job security. They’re more vulnerable to layoffs.”

Yes, those first time buyers would have to earn in excess of $100,000 per year to afford to buy very basic accomadations and I just don't see a lot of those people around right now.

Despite that, he said, the BCREA expects sales to rise this spring because of greater affordability and lower interest rates.

Muir noted that realtors are reporting increased activity from buyers over the past three weeks, but that it hasn’t yet materialized in sales statistics. “By all accounts, there’s increased interest. There’s more showings and more buyers kicking tires.”

Meanwhile, an Ipsos Reid poll released last week showed that a growing number of British Columbians think this is a good time to buy a home, though most say it isn’t a good time to sell.
The poll found that some 71 per cent of respondents said it is a somewhat good or very good time to buy real estate. In November, only 60 per cent of respondents told Ipsos Reid it was a good time to buy.

In the latest poll, though, 82 per cent said this is not a good time to sell a home. The poll also found that British Columbians’ expectations for falling prices are changing, with just 42 per cent of respondents saying they expected prices to be lower 12 months from now compared to 57 per cent in November.

The association represents 12 member real estate boards and about 18,000 realtors.

The last sentence is really all you need to read! The number of realtors declines each and every month right now.

New Home Prices Falling

From the Financial Post:

New home prices fell in November for the second consecutive month-to-month decrease, Statistics Canada said Monday.

The average price on a new house declined 0.3%, the federal agency said, as demand continued to cool across the national real estate market in the fall.

The dip continues the first reverse in home prices in more than a decade, following the 0.4% decline experienced in October.

Yet the results varied from region to region, with some markets still witnessing considerable price increases.

St. John's recorded the largest annualized gain, with the value of a new home up more than 25% from 2007, a clip that narrowly outpaced Regina. The monthly increase in St. John's was 3.4%.
In a sign that Saskatchewan is beginning to feel the bite of a recession it has largely avoided so far, home prices were flat in Regina in November while in Saskatoon prices continued to come down.

New home prices were down 0.5% in Saskatoon "confirming a trend of deceleration in this city," Statscan said. "Builders continued to report difficult market conditions."

The drops continued further west. New home prices in Edmonton recorded a 12-month plunge of 7.9% - largest monthly decline since May 1985. Prices dipped 2.5% in Calgary. On a monthly basis, prices fell 0.3% in Edmonton and 1.1% in Calgary between October and November.

On the West Coast, builders cut new home prices in Vancouver by 1.7% in November, a trend continued in Victoria, Statscan said.

Markets in Eastern Canada, which have shown more stable supply-demand conditions, continued to rise, Statscan said. Compared with November 2007, contractors' selling prices were 4.3% higher in Ottawa and 2.0% higher in Toronto. In Québec, the 12-month growth rate was 5.4%, while in Montréal, prices increased 4.6%, the agency said.

No market east of Saskatchewan experienced a month-to-month decline in new home prices.

Quarterly Migration - VHB Guest Post

The quarterly demographic statistics are out from Statcan here. (PDF) We can expect to see the regular MSM stories about 'everyone' moving to BC. We've covered this to death before.

Population growth is fairly mediocre, either in percentage or absolute terms. This is fascinating because the 1980s and 1990s booms featured huge population growth. Not this time.

Anyway, here is one chart I picked out. This is interprovincial migration. Note that in previous booms we were over +10K a quarter. This 'boom' we haven't even hit 5K. In fact, that big negative outflow from 97Q4 to 03Q3 was really unprecedented. BC lost 58,086 people to other provinces over that period. Between 2003Q3 and 2008Q1, the total interprovincial inflow has been only 44,823. So, we STILL haven't dug our way back to zero from the interprovincial hole we got ourselves in through the late 90s. Sure, there have been international immigrants, but no boom there. We've just been building condos for each other. No problem.

So, next time the water cooler chatter turns to all of those people who are moving to BC from other provinces, you can say, "No actually, I saw the real deal on Langley Financial Planning!"

VHB

Q108 BC Real Estate Market - according to Landcor

I just received the Landcor Data Corporation's quarterly synopsis of the BC Real Estate market and here is what they have to say:

Residential sales have mixed results, again

As many would expect, the first quarter of 2008 (Q108) has seen residential property sales in British Columbia drop in number of sales but increase in total sales value, much like the first quarter of 2007 (Q107).

This continued market trend is the result of a cooling off period in the BC residential property market.

2008 First Quarter Residential Property Sales Results - Introduction

Three regions up, three regions down

Currently, the market is seeing an increase in inventory, with properties sitting for longer periods of time; but as the analysis in this report will show, three of the six regional markets in BC are seeing values continue to increase despite the decrease in number of properties sold.
Looking at the 2008 first quarter results at a regional level, Greater Vancouver and the Okanagan, followed by the Kootenay region as a distant third, continue to see an increase in the total sales value of residential properties compared to the first quarter of 2007. What is interesting is that in the Vancouver Island, Fraser Valley and BC North/Northwest regions, the total sales value has declined in the first quarter of 2008, compared to Q107. This is the first Q1 sales value decrease for all three regions in the past 4 years (please note, this finding is based on examining Q1 sales statistics from Q1 2004 - Q1 2008 only).

Out-of-province buyers stay home

Residential property purchases have declined in the first quarter of 2008 for many reasons, one of which appears to the decline of interest from buyers from outside of British Columbia, namely those from Alberta and the United States. The number of buyers from Ontario is comparable to levels seen in the first quarter of 2007, however these purchases account for nearly half of the total value attributed to Ontario buyers in Q107.

The suspected downtown has arrived, but there is no need for alarm After years of historical highs, the market is simply correcting. In 2001, there were 90,704 residential sales, totalling just under $19 billion. Last year the market dipped for a second consecutive year to result in approx. 158,000 sales, but broke another record with a total value of approx. $62 billion. The first quarter of 2008 saw 26,860 residential properties trade hands, totaling $11.695 billion. On average, first quarter sales account for approx. 19% of annual total sales. Using this as a guideline we can expect to see 2008 total sales of over 140,000 transactions for a total value of over $61 billion. This would lead us to expect 2008 total sales counts to reflect 2004 levels, and a total value of sales similar to 2007.

Here is what I found interesting:

- A continued denial that the BC Real Estate market could be entering a period of substantial price declines.
- No recognition of the amount of speculative activity in the real estate market.
- No recognition of the ridiculous level of income required to purchase a home.
- Out of province buyers accounted for approximately 5.5% of all real estate transactions in Q108 which is down substaintially from the 6.1% in Q107.

Have a read through and tell us what you find interesting. Cheers.

BC Non-Residential Construction

Good morning,

Well, we've had a couple days to let that partial yet massive list of projects sink in so now let us look at some data and charts to illustrate the point further. The point being that BC not only has a housing bubble but a construction bubble fueled by loose lending and speculation in the residential sector and by government largesse in the non-residential sector. Hat tip to van_coffee for the data - thanks.

First chart illustrates the nominal value of building permits issued. Note: this only includes 'buildings' not infrastructure like highways, bridges, skytrain, etc. See definitions via Statscan.


Build those strip malls. I'm not exactly sure how the statisticians classify projects but we can see from the previous couple of posts where the bulk of the non-residential construction spending is going. Many government projects like the trade and convention centre are likely classified as a commercial project although it is in fact a government project.

This chart illustrates the value of building permits issued when adjusted for inflation and population.

Real per capita spending on non-residential construction has risen dramatically after a long decline period during the nineties. We can also see what a slowing economy and a tightening of lending standards does to non-residential construction by looking at the early eighties contraction as an example.

Please not that these numbers DO NOT include the massive infrastructure projects that are happening and worth upwards of $5 Billion in the Vancouver area alone.

Drop in B.C. business optimism cited as omen for economy

Fiona Anderson, Vancouver Sun, Thursday, March 27, 2008

Business optimism in British Columbia is dropping and it could be a sign of a turn in the economy, according to the Canadian Federation of Independent Business.

B.C.'s business barometer, an indicator developed by the CFIB to measure optimism among small and medium sized businesses, works from a base of 100 set in 1988. It is now at 107.7, above the national average of 104.0, but the lowest B.C. has seen since 2003. It's also the second quarterly drop in a row.

And that's a concern, CFIB's vice-president for Western Canada, Laura Jones, said in an interview.

CFIB's barometer readings are often a leading economic indicator, predicting future trends, Jones said. That's because the survey goes to the source, asking business owners on the ground how they see the future.

"When the B.C. economy turned around in 2003, our quarterly business barometer was one of the first indicators out there," Jones said. "And sure enough, that ended up being the beginning of B.C.'s boom."

"If it's like 2003, this is the prediction of the turn," she said.

So this is not the time for the B.C. government to get complacent about the economy, Jones said.
"In B.C. we're so used to the economic good times it's hard to remember back to when there were bigger challenges," she said. "And there are bigger challenges."

Across the country, business owners in Prince Edward Island had the least positive outlook at 96.9. Even Alberta --which along with B.C. has led the country in business optimism over the past five years -- was below the national average at 102.8. Topping the barometer were Newfoundland and Labrador with a reading of 119.6, followed closely by Saskatchewan at 116.1.

Optimism also varied across industries, with a gloomy outlook in manufacturing, agriculture and transportation, while businesses in the finance, health care and education sectors saw a rosier future.

In B.C, more than half of businesses that responded to the survey said they expected their businesses to improve over the next 12 months, a drop from the 58 per cent that felt that way in December.

At the same time, one-third of provincial businesses surveyed expected to increase their number of full-time employees, down from 41 per cent.

Sixty-nine per cent of provincial respondents expected energy costs to continue to rise, up from 55 per cent in December.

That may be a reflection on B.C.'s new carbon tax, coming out in July, Jones said. "Energy prices are a huge concern for business owners and introducing a carbon tax into that mix certainly isn't instilling a whole lot of confidence," she said.

But across Canada, 71 per cent of businesses expected energy costs to worsen, even in the absence of a carbon tax. But Jones said B.C. businesses shouldn't be too pessimistic. "We are still higher than the national average," she said. "But the main message for government would be that this is really not the time to get complacent about the economy."

Tolko Shuts Down Interior Mills

Friday, February 22, 2008 03:59 AM

Tolko has announced some temporary curtailments at all four of its Cariboo lumber operations.

A minimum two-week curtailment will begin March 3, affecting more than 1,100 direct and contractor employees at three mills in Williams Lake and one in Quesnel. Nearly 40 million board feet, or one billion board feet on an annual basis, will be removed from the marketplace.
“These decisions are never easy and they are even more difficult when our employees, mills and contractors have performed so well,” says Rob Fraser, General Manager, Cariboo and Alberta Lumber. “Unfortunately, the current economic conditions do not support the continued operation of our mills at their current levels.”

A return to operation for all four mills will depend on market improvements.
2008 has seen Tolko take plenty of action.

January 10th, Tolko announces temporary sawmill curtailment of it’s Manitoba division between January 28 and February 8. 110 employees impacted

February 11th Tolko announces indefinite closure of High Prairie OSB mill 119 employees

February 18th Tolko extends the downtime at two panel operations in Armstrong and White Valley ( near Vernon) 300 workers impacted

February 22nd, Tolko announces curtailment at four Cariboo lumber operations, 1100 direct and indirect workers impacted

In all cases, the curtailments or closures are being blamed on poor market conditions.

More mill closures.

I just have to ask what are the laid off mill workers going to do? Move to Vancouver? Live where? They can't afford to buy any housing here and who would buy their old house anyway. Maybe they could work construction for a year or two and then what? I think its more likely that these people will go work in Alberta in the oil patch and probably retain ownership of their home.

Forestry Sector News

Some facts (2005 data):

- Logging operations employ 21,600 people in BC
- Logging and silviculture accounts for 2.9% of GDP

- Wood Product manufacturing employs 43,600 people in BC
- Wood Product manufacturing accounts for 3.6% of GDP

- Pulp and Paper manufacturing employs 12,300 people in BC
- Pulp and Paper manufacturing accouts for 1.5% of GDP

TimberWest to permanently close Elk Falls sawmill

TimberWest Forest Corp. has announced that it will permanently close the Elk Falls sawmill in Campbell River, B.C. The last full operating shift will be May 9. - 2/8/2008

Interfor's Adams Lake mill taking downtime

Interfor's Adams Lake sawmill and planer in Chase, B.C., were down this week and are scheduled to remain down the week of January 28, due to market conditions. The downtime will be re-evaluated early next week, according to a company spokesman. - 1/25/2008

Canfor to indefinitely close OSB, plywood mills

Canfor has announced plans to close its Polarboard OSB mill and Tackama plywood mill, both in Fort Nelson, B.C., for an indefinite duration due to market conditions. The mills will be closed once existing log inventories are utilized and finished products are shipped. This is expected to occur in April for the Tackama mill and during the summer for the Polarboard operation. The Tackama mill has an annual capacity of 270 million square feet (3/8-inch basis) of plywood, and the Polarboard mill has an annual capacity of 640 million square feet of OSB. - 1/18/2008

Tolko schedules downtime

Tolko has announced plans to take a temporary, two-week curtailment at the Manitoba Solid Wood Division between January 28 and February 8. "High log costs, the continued weakening of market conditions, and difficulty managing within the Softwood Lumber Agreement's quota restrictions are the three main factors which led to this decision," said Dave Neufeld, plant manager. The downtime will reduce the mill's production by 6.5 million board feet. The division expects to return to production on February 11. - 1/16/2008

Two AbitibiBowater sawmills shut down indefinitely

Two AbitibiBowater sawmills and two planers, all in Mackenzie, B.C., went down for an indefinite duration beginning January 11. Market conditions were cited. The two mills have an annual production capacity of 475-500 million board feet. - 1/15/2008

Winton Global extends downtime to March

Winton Global Lumber Ltd., Prince George, B.C., has extended the Christmas shutdown of all operations until mid- to late March. Market conditions, and flooding due to an ice jam on the Nechako River, were cited. Upon resumption of operations in March, the sawmill and planer may only operate until the log deck has been utilized and rough lumber processed and shipped. At that time, the operations would be subject to another temporary shutdown. The inventory of logs at the sawmill will allow for about three months of operations. - 1/15/2008

Tembec to reduce production

Tembec has announced plans to cut production via a reduced work week at its sawmill and planer in Elko, B.C., beginning January 14. The company also will reduce production at its Canal Flats sawmill starting the week of January 21. Over the next three months, Tembec will take the equivalent of three weeks of production downtime, through reduced shifts at the mills. The curtailments will reduce production by about 24 million board feet. Market conditions and exchange rates were cited. - 1/14/2008

Well I sure am glad we have a NEW ECONOMY in British Columbia that isn't dependant on the messy forestry sector for a big part of our economic output. The retail sector and the darling real estate sector combined with the uplifting effects of hosting a two week long sporting event in two years will replace this antiquated business of cutting down trees and sawing them into usable lumber to build things with. In the past, the effects of a forestry industry in its death spiral would have had disastrous consequences on our provinces economy. I'm sure glad that those baristas at Starbucks, the framers building lousy overpriced houses, and the real estate agents who consume the coffee and buy the houses will keep our economy afloat. Clearly real estate agents are the most beneficial purveyors of wealth in our provincial economy.

Vancouver Population and Economic Prospects

Vancouver's population growth, despite having an indestructible economy and real estate market (according to some), has been undergoing a rather mediocre period of population growth for the past few years since 1998.

Vancouver's population growth was fairly robust until 1998 when growth plummeted and has never fully recovered to the above 2% rate witnessed for much of the city's recent history.

In light of accurate statistics to the contrary, why are so many locals convinced that our population growth is high? Could it be because so many new homes are being built? Why are the homes being built if population growth is so low?

This raises the important question dealing with the possibility of an oversupply of new homes. Is there an oversupply? Based on the CMHC numbers in the previous post, I believe that builders are currently overbuilding and the consequences will be severe. Severe, meaning a massive amount of construction industry layoffs and possibly widespread developer bankruptcies.

Just how high could our unemployment rate get if there were massive construction industry layoffs? Quite obviously, very high, as in double digits high. Construction / Real Estate employment as a percentage of Vancouver labour force was 7% in 2001 and it now stands at 11%. If we just lost the increase in percentage the local unemployment rate would increase from around 4.5% to 8.5%.

How prepared are individuals for the prospect of increasing unemployment and job loss? Not very prepared. BC has a negative savings rate, which means the residents of BC spend more than they earn and have done so for many years now and do not even consider sustained job loss as a remote possibility as we have not had double digit unemployment rates for quite some time.

I don't really like being negative on the prospects of our region's economic future but I see very few bright spots and many risks for the future. The construction / real estate business is in a bubble, the manufacturing, film and tourism businesses are being negatively impacted by the currency, the forestry sector is in for a long downturn and now mining companies are walking away from projects for cost reasons.

It is my hope that people would use our current boom time to cushion themselves for the financial impacts that will be coming. Save, don't spend. Plan, don't consume. Pay off debt and build a cushion. Good luck.