Canada

Canadian Home Building Intentions Are In A Correction After Peaking Earlier This Year

Canadian home sales are falling, and that’s turning into a drag for home building intentions. Statistics Canada (Stat Can) data shows September permit values made a monthly increase. Despite the bump, values are still generally trending lower. Soft housing demand has residential permit values currently in a correction.

Canadian Building Construction Investment Is Trending Lower

Construction intentions bumped higher from a month before but didn’t break the trend. Building permit values reached a seasonally adjusted $10.1 billion in September. This is 4.3% higher than a month before and 4.9% higher than last year. Leaving it there, things would sound pretty good. However, there is a lot to unpack with this number.

Canadian Building Permit Value

The seasonally adjusted value of Canadian building permits.

Source: Statistics Canada; Better Dwelling.

The downtrend is still intact and permit values show negative growth after inflation. September’s building permit values were still 1.5% lower than the peak growth hit in June. When inflation-adjusted, Stat Can data also shows the value as 11.0% lower than the same month last year. That’s… a lot of inflation being worked out in the seasonal data. When that happens, there are a lot of questions about how much real value is being produced.

Home Building Permits Are Down 16% From Peak

Home building intentions are where most of the construction drag will be. Residential building permit values fell to $6.9 billion when seasonally adjusted for September. This represents an 8.2% decline from the month before, and it’s 16.1% lower than the peak reached in June. A fall of 10% or more is correction, so this is well into technical correction territory.

Canadian Building Permit By Sector

The seasonally adjusted monthly value of Canadian building permits by residential and non-residential use.

Source: Statistics Canada; Better Dwelling.

For a little context, Canadian home builder confidence dipped slightly in last week’s numbers. The CHBA, an association of home builders, attributed the decline in confidence to a fall in qualified demand and rising construction costs. The former is partially due to home values hitting the point where the new stress test is slowing buyers. As for construction costs, they might be coming down as rates rise and demand for goods slows.

Non-Residential Permits Have Yet To Reach Pre-Pandemic Levels

Canadian non-residential building intentions fell lower and still haven’t hit pre-pandemic levels. The value of permits for the sector reached a seasonally adjusted $3.3 billion in September. This is down 3.2% from a month before, and 13.6% lower than the December 2019 peak. Unlike residential construction, commercial and institutional buildings didn’t receive a pandemic boom.

Canadian building intentions remain high, but they are lower than its pandemic peak. A slowdown in residential building is likely to be intensified as rates rise. Rising rates are generally responsible for slowing housing demand and price growth. Still, overall investment intentions remain very high. Especially when one considers record building construction occurring at the same time.

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6 Comments

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  • Mortgage Guy 4 weeks ago

    Anecdotal insight from a builder friend. Pre-sales are relatively soft compared to last year, but the few people in the market think it’s huge. Throttle release, make them line up, and voila! They’ll trample their own kids to buy a new home.

    Real estate is marketed just like any other product, but people think it’s an investment. If you sold actual investment like they sell condos, you would be in jail.

    • Trader Jim 4 weeks ago

      Correction. In Canada, you would be sanctioned from a self-regulating industry in a province, and move to another one and continue your greasy business. One of the lowest bars for investment regulations since cracking down is too criminal.

  • Gerald Haw 4 weeks ago

    And of the permits issued, almost 50% of the projects have been shelved until construction costs are under control.

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