Canadian Building Permits Decline In June

According to the Canadian Real Estate Association, building permits declined 5.3 per cent in June. This represents the biggest fall since November 2007 in the country’s construction sector.

The value of residential permits fell 4.4 per cent, as builders planned fewer multiple-unit projects. Non-residential permits also dropped 6.6 per cent, due to less construction activity by utility and hotel companies.

The value of permits issued by municipalities reduced to C$6.32billion, although economists were anticipating a smaller fall of 1 per cent. Many reporters see this as further confirmation that housing and construction will detract from Canada’s economic growth this year, as record prices and rising mortgage costs make real estate purchase less affordable.

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More Subsidized Housing Promised For Province

Burnaby- The Province is going to subsidize the majority of the 162 units at Hillside Gardens in Burnaby to improve housing affordability for families, according to an announcement by Housing and Social development Minister, Rich Coleman.

Budget 2008 increased the amount the province invests in affordable housing and shelter to more than $380 million a year, more than three times as much as in 2001.

The provincially owned development at 7434 Kingsway currently provides market rental housing for residents, many of whom are low-income or new to Canada. Over the next several years, about 100 of the units will be converted to subsidize housing, for which residents who qualify will pay a maximum rent of 30 per cent of their income. Residents not eligible for subsidized housing will continue to pay lower-end-of-market rent.

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Housing Construction Showing Signs Of Cooling

The number of housing starts in Canada fell in June, but the previous month’s figure was upwardly revised which convinced economists the sector is not headed for a US-style meltdown.

Housing starts fell 4.3 per cent to a seasonally adjusted annual rate of 217,800 units last month from a revised 227,700 units in May.

Data from Canada Mortgage and Housing Corp (CMHC) came in ahead of the median estimate of analyst, who had expected 217,000 starts in June. Even though the June numbers showed the construction sector cooling, some economists predict the decline will not turn into the type of meltdown that has plagued the US housing sector since last year amid the sub prime mortgage crisis.

Bob Dugan, chief economist at CMHC said,

“Despite the decrease in June, total housing starts remain at high levels. This is mostly due to the multiple segments, which has been continuously above the 100,000 unit threshold since the beginning of the year.”

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Canadian Housing Market Still Strong

Conditions in the Canadian housing market remain favourable with overall prices rising and few signs of excess supply, according to the Central Bank. Last month statistics showed the annual rise in new housing prices slowed to 5.2 per cent, its weakest pace since September 2005.

The recent deceleration in house prices has been most noticeable in certain markets, such as the energy-rich province of Alberta, which had seen steep price increases in the past two years.

Sheryl Kennedy, deputy governor of the Bank of Canada said,

“The moderation in activity and price increases that we have seen in recent months is both expected and welcomed.”

A declining trend in building permits also suggest that supply is adjusting to softening demand, while the mortgage market is in reasonably good shape. Canada has a conservative mortgage culture, but the deputy governor urged domestic lenders to apply consistent standards in both good times and bad.

Innovations in mortgages and home equity loans should not depend on an assumption of appreciating house prices, and they need to be transparent, so that market participants understand the risks they are taking.

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