BC Population Growth to Q4 2011

BC Stats released its quarterly population estimates and BC continues sluggish growth through Q4 2011.

Population growth consists of the following bulk components:

• Natural increase (births - deaths)
• Net interprovincial migration
• Net international migration (including permanent and non-permanent residents)

So let's look at how recent quarters look in a historical context (there is seasonality so quarters are best compared to each other):

The most recent Q4-2011 data indicate continued negative net interprovincial migration and dropping net international migration from 2010.

Below are graphs of NPR migration and annual population growth up to 2011. The drop off in 2010 is most likely due to changes in federal worker visa requirements, a one-time change. 2011 saw renewed NPR in-migration and gives some guidance as to what types of dwellings will need to be available to house such residents.

If we look back to CMHC housing data I highlighted here, there unsurprisingly appears to be some correlation between housing starts/completions and population growth. But of course the adage that correlation does not mean causality applies here; nonetheless we can look for cross-correlation and see if one leads the other. In other words, does rising population growth beget housing, or does simply building more houses bring in more people? Some evidence is below:

This graph states that the peak correlation occurs when completions are shifted backwards by about a year -- housing completions lag population growth; conversely, housing starts lead population growth. But does that mean "build it and they will come"? Yes, but perhaps not based on the intent of the original author. Starts leading population growth indicate the initial ground breaking will start drawing residents from other locales but, ultimately, once dwellings are built, that growth is to some degree ephemeral. Something to keep in mind.

Weak population growth has continued through 2011, including a drop off in international immigration, most notably in the investor and skilled worker classes. These recent population data are what I would characterise as a continuing bearish indicator for BC real estate, especially for owner-occupier dwelling formation.

February 2012 CMHC Data - Vancouver CMA

Here are mohican/VHB's charts for housing starts, housing completions, and under construction 

The last few months have seen a continued dearth of completions and an increasing amount of starts and under construction volume. Starts will typically lead completions by about 12 months so we should expect to see increased completion volumes heading into the second quarters of 2012. Given that completions are still low compared to pre-recession levels I expect this to provide some constraints on new supply for the first half of 2012. Completions will likely be increasing through the remainder of 2012. 

Here is a breakdown of the new persons per bedroom start and completion, assuming 4 bedrooms per detached and 1.6 bedrooms per multi. The higher the number the more population growth there is per start/completion and this would tend to lead to higher unit absorption. In contrast a lower value would mean less absorption. As we can see we are currently trending closer to the lower bound. But also notice how violently these measures can move, a chilling indication of how vulnerable BC's economy is to a slowdown in housing construction activity and population growth.

Below we can see the marked increase in multi-unit construction compared to detached construction and its effect on the change in housing mix over the past decade.

As Vancouver grows, not surprisingly, the mix of housing is switching to multifamily units.

This

I've been calling for changes in OSFI guidelines for close to a year now. This is no surprise, and it should not be a surprise if this is the type of tightening of credit the Bank of Canada has been lobbying.

http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=4831

OSFI is issuing for comment Draft Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures. Guideline B-20 sets out OSFI’s expectations for prudent residential mortgage underwriting, and is applicable to all federally-regulated financial institutions that are engaged in residential mortgage underwriting, the purchase of residential mortgage loan assets and, where appropriate, the issuance of mortgage insurance – in Canada and internationally. Interested parties may submit comments to OSFI regarding draft Guideline B-20 by May 1, 2012 through their industry associations or directly to OSFI. Comments concerning the draft Guideline should be sent by e mail to B20@osfi-bsif.gc.ca.


Things just got interesting.

Rent or Buy, or Rent and Buy

Another rent vs buy comparison made the CBC website again.

The premise behind the standard buy vs rent calculation, as this one, is comparing two scenarios: buying now and holding for (say) 25 years, or renting now and renting for the same 25 years. Chop off the monthly outlay difference between the two (and putting aside the strangeness of any situation where buying a condo is more expensive than renting, but that's another post altogether!), invest the difference at a "conservative" 5%, extrapolate past appreciation (condos have been appreciating at 5% p.a.), assume current mortgage rates remain for the duration of the loan, and do a comparison. No problem.

The problem, notwithstanding the brazenness of some of the above assumptions, is that there is an embedded out-of-the-money option built into the renter scenario not considered in any of these calculations. That is, a renter need not rent for 25 years; instead he may rent for 5 years and, should prices drop, has the option of buying at lower prices. While lower prices are not an absolute certainty, the option still has value, especially if one calculates a high probability of price drops. (Of course these days landlords are in effect paying renters to hold this option, a bit bizarre when thought of in those terms.)

Greater Vancouver Market Snapshot February 2012

Below are updated sales, inventory and months of inventory graphs for Greater Vancouver to February 2012.

Commentary: February sales volumes are low compared to most years of the last decade. Total inventory was not growing as fast as in January, likely due to advanced listings being "borrowed" from February to hit the markets before Chinese New Year (my speculation).

Below is the predictor of price gains, based on half-over-half price change to months of inventory correlation, and below that the scatter plot showing the raw actual data:

What this shows is the change in prices in a month from 6 months ago based on actual data and “predicting” the price based on months of inventory from that month based on linear regression of half-over-half price change to months of inventory (with 3 month moving average). With changes in the benchmark price I may adjust these graphs using the new figures in the months ahead.

February did see some enclaves of price strength, most notably in lower-priced detached properties, and some noted weakness in higher-priced newer homes and most of Richmond, the latter of which one can only opine had previous buyers looking at economics reflected in funny mirrors. March is usually the onset of the peak selling season and sales volumes will likely increase, as will inventory through the rest of the first half of the year. While tracking and comparing year-over-year data may be interesting it likely won't portend much for this year, at least initially; any retracing of conditions preceding the severe housing recession starting in about April of 2008 and lasting for about a year has little predictive power on future price movements. Now if months of inventory climbs over 10, that would be worrisome for those hoping to maintain their current equity positions in Vancouver real estate.