Canadian investment in home construction is slipping and due entirely to housing. Statistics Canada (Stat Can) data shows building construction investment fell in September. This data is mostly based on building permits, providing insight into construction sentiment. Home building isn’t doing so hot — falling enough to be considered a technical crash. It fell so fast, it dragged the whole index lower.
Building Construction Investment Falls For A Fifth Month
Canadian real estate development intentions continue to spiral lower. Seasonally adjusted construction investment fell to $17.5 billion in September. This is 0.7% lower than the month before, marking its fifth consecutive decline since peaking in April. The value of the segment is now 11.6% lower than it was at the peak — a sharp drop into “correction” territory.
Then there’s inflation. As big as that drop was, it gets even larger when measured in real terms. Stat Can said real construction investment fell to $12.0 billion in September, down 1.5% from a month before. Real dollar values are now 16.6% lower than they were during the peak hit in April. The monthly decline doubles when inflation-adjusted.
Residential Building Construction Investment Has Crashed
New home building represented the entire drop in construction investment (and then some). Seasonally adjusted real residential construction investment fell to $8.4 billion in September. This is down 2.7% from a month before and also peaked in April. Since the peak, the value of home construction investment has fallen 22.1% lower. A drop of more than 20% in less than 12 months is technically considered a crash. This is officially a crash of home construction investment.
Canadian Residential Building Construction Investment
Source: Stat Can; Better Dwelling.
Non-Residential Building Construction Is Holding Up Well
On a positive note, non-residential investment showed growth. The segment saw seasonally adjusted real investment reach $3.6 billion in September. This is an increase of 1.3% from a month before, but this segment peaked all the way back in 2014. That’s a long time considering these are buildings where jobs are created. Residential investment likely absorbed most of the capital.
The crash in residential investment is the big story here — it’s responsible for all of the declines. Unstable inflation is one of the biggest reasons, especially with rates stimulating demand. Home builders have delayed or postponed half of their projects due to future costs. It’s hard to make a profit building a home if you’re not sure what your costs are going to be.
No need to worry about supply… yet. There’s more than enough housing in the pipeline that’s just been started or under construction.