Canada's Housing Bubble

Jul 06, 2010 Financial Post

Ottawa — The value of building permits fell by a much-larger-than expected 10.8 per cent in May from April, slipping to $6 billion, Statistics Canada reported Tuesday.

Analysts polled by Bloomberg had called for a two per cent month-over-month drop.

The federal agency blamed decreases in both the residential and non-residential sectors for the decline.

Statistics Canada said the value of residential permits fell 5.3 per cent to $3.7 billion as a result of a decline in the single-family component, while the value of non-residential permits fell 18.3 per cent to $2.3 billion. The industrial component however rose 47.1 per cent to $644 million, the fifth consecutive monthly increase.

"If there is hope for house prices in Canada, it lies in curtailing supply," Scotia Capital economist Derek Holt wrote in a morning note. "That's where any room for optimism lies in an otherwise bleak report that displayed widespread losses in value and volume terms within both the nonresidential and residential categories.

"It's important to keep in mind the trend that has been in place, however, in that the volume of housing permits granted is still up 30 per cent from year-ago levels, and is focused upon single homes (up 46 per cent) versus multiples (up 18 per cent)."

The decline in May follows two previous monthly increases, Statistics Canada said.

Decreases were experienced in seven of 10 provinces, rising only in British Columbia, Saskatchewan and Prince Edward Island.

At the metropolitan level, the total value of permits fell in 18 of the 34 census metropolitan areas. Edmonton, Calgary and Windsor experienced the biggest declines, while Montreal, Vancouver and St. Catharines—Niagara were the top advancers.