Canada’s national statistics agency delivered another measurement pointing to a housing chill. Statistics Canada (Stat Can) data shows investment in building fell in May. The drop was due entirely to residential investment, which was cut from a record high. Even with the substantial cut, investment in home building is above historic levels. Though that can change pretty fast at this rate.
Canadian Investment In Building Construction Fell 2% In May
The total amount of money invested in building took an unexpected slide in the latest data. The seasonally adjusted value of investment came in at $19.4 billion in May, down 1.9% from the previous month. It was the first drop in seven months of data, and all of it was due to residential real estate.
Canadian Investment In Building Construction
The seasonally adjusted investment in Canadian building construction, including residential and non-residential segments.
Source: Stat Can; Better Dwelling.
Residential Investment Is Behind The Entire Drop
Investment in residential real estate pulled back for the first time in months. The seasonally adjusted value of residential investment fell to $14.8 billion in May. It represents a drop of 2.7% from the previous month, which made it over-represented from the total.
The decline is the first since April of last year, the first full pandemic month. It’s still an absurd amount of capital pumped into residential construction investment. The drop may just mean an adjustment for the economy, as capital is reallocated.
Canadian Investment In Residential Building Construction
The seasonally adjusted investment in Canadian residential building construction.
Source: Stat Can; Better Dwelling.
Even With A Significant Drop, Residential Investment Is Very High
Prior to the pandemic, this level of residential construction investment hadn’t been seen. In March 2020, there was $10.9 billion of investment, about 36.3% less than was seen this past May. About 76% of total building investment is residential, the second highest ever. Only the month prior was able to beat it. It was an absolutely massive number.
The amount of cash pumped into residential investment is slowing, but still very high. A drag on residential investment is probably welcome at this point. Over recent months, people have been allocating capital to little other than housing. An adjustment period of capital reallocation is often a little short-term pain though. You don’t exactly just lose half a billion in spending, without it impacting anyone.
Concerns about the slowdown impacting supply would be overblown though. The amount of investment is significantly higher than it’s been in the past. Almost a third higher than just before the pandemic.
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A drop, even as small as this one is, seems like bad news, unless our population is set to slow in growth, which is not what Canada’s current agenda is. Seems like we are building less due to higher cost of building, which will cement in higher resale prices and possibly drive them higher yet if population growth accelerates.
First it drops a little. Then a lot.
The good news is this money is going to find its way back into the rest of the economy. If they’re lucky, the labor that needs to chase the employment won’t be unemployed for long.
Half a billion looks like a rounding error now, and two years ago it would have been 5% of activity. That should scare the heck out of politicians.