Canadian building permit issuance has experienced a significant slump, reaching its lowest level in over three years. Concerns surrounding the pent-up demand for housing in the country have played a role in this decline.
According to Statistics Canada, the total value of building permits dropped by 14% in December, amounting to a seasonally adjusted 9.25 billion Canadian dollars ($6.83 billion).
This sharp retreat was much weaker than economists had anticipated, as TD Securities expected a 2% rise. December’s decline follows a 3.9% fall in permits the previous month.
The decrease in permits, plunging them to their lowest level since October 2020, was largely attributed to weaknesses in both the residential and non-residential sectors.
Comparing year-over-year data, December witnessed a 14.5% decrease in the overall value of permits issued.
Building permits act as an early indicator of construction activity in Canada. They are derived from a survey conducted among 2,400 municipalities that represent 95% of the country’s population. It is important to note that the issuance of a permit does not guarantee immediate construction.
Interestingly, despite the drop in permits, there have been some signs of life in Canada’s housing market. According to the Canadian Real Estate Association, existing home sales rose by 8.7% in December compared to the previous month. However, sales for the entire year fell by 11%, marking the lowest level of annual activity nationally since 2008. In Toronto, Canada’s largest market, home sales surged by 37% in January, as reported by the Toronto Regional Real Estate Board.
Construction Intentions in Residential Sector See Sharp Decline
According to Statistics Canada, construction intentions in the residential sector experienced a significant drop compared to the previous month. Building permits were 17.9% lower, amounting to C$5.66 billion. Multifamily dwellings saw a substantial decline of 31.1% in permits, while intentions for single-family homes increased slightly by 0.8% month-over-month.
The decline in the value of multi-unit permits in Ontario played a significant role in the overall weakness for the month, falling by 45.2%.
Nonresidential building permits also experienced a decline, dropping by 7.0% to C$3.59 billion, as reported by the agency.
Looking at the overall value of building permits in the final quarter of last year, it amounted to approximately C$31.3 billion. This reflected a substantial decrease of 9% from the previous quarter and a 1.7% decline compared to the same period in 2022. This marks the lowest value since the third quarter of 2021, with both non-residential and residential intentions experiencing declines. However, single-family homes were the only segment that saw a quarterly increase, rising by 1.4% to approximately C$8.5 billion in the fourth quarter, following a 9.8% advance in the previous quarter.
Throughout 2023, the value of building permits witnessed a decline of 2.3% despite nominal permit valuations being inflated due to rising material and labor costs. When considering constant-dollar basis, the value of building permits went down by 8.9% compared to 2022.
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