Surprise Decline In May Building Permits

Building permits fell sharply last month, surprising and confusing real estate analysts. The experts had predicted approximately 2% slowing in start-up construction; instead, new permits fell nearly 11%. The decline followed two months of steady, strong gains.

Led by a sharp reduction in the number of permits for single-family homes, the value of residential construction fell to just under $4 billion(cad) for the month.

This is a very volatile series, and I think the drop in residential permits was a bit of a surprise.
Robert Kavcic, economist at the Bank of Montreal [Source: The Globe and Mail]

In some circles, the decline in residential intentions triggered a rash of bearish forecasts, because the trend developed in spite of government initiatives to spur construction of affordable new housing. When the government announced last year that it would exempt low-cost new homes from HST and would sponsor generous first-time buyer incentives, officials claimed they meant to stimulate new housing construction in provinces where over-heated markets had put housing beyond the reach of average working families. Apparently, the initiatives’ effect has diminished as working families’ incomes fail to keep pace with increases in housing costs.

Overall, the market looks reasonably healthy, but we will need more stimuli to sustain residential construction. In the absence of that stimulus, the most important segment of the construction industry will struggle mightily.
Trystan Forbes, senior analyst [Source: Patterson Forbes Market Watch]

Commercial permits fell most precipitously—a shocking 35.2% from the previous month. Statistics Canada reported lower construction intentions were distributed evenly among all kinds of commercial and industrial properties–office buildings, recreational facilities, hotels and warehouses.

Offsetting losses in the other sectors, the industrial sector continued its series of strong gains, rising nearly 42%. Total industrial construction rose to $644 million(cad), and marked its fifth straight monthly increase.

Permits rose in the industrial sector, however, up 47.1 per cent to $644-million, the fifth monthly increase in a row mostly because of utility buildings in Ontario and manufacturing buildings in Quebec. Industrial construction intentions rose in eight provinces. [Source: The Globe and Mail]