While everyone’s been so busy watching the number of homes sold across Canada, and the price points that go along with them, looking for signs of a cooling market, there’s another indicator that many have been missing – building permits.
It’s no secret that while the Canadian housing market is indeed cooling, condos (especially in the GTA,) continue to go up just as fast as kites on a windy day. This has been creating an oversupply problem which in turn, creates another problem. Buyers no longer see them as the jewel in the market, that modern studio space to sip on wine and overlook the city. Instead, they’re being seen as “cookie cutter,” “typical,” and simply, just not all that appealing.
This less desirable light that’s being shed on condos has helped lead to a decrease in prices throughout the multi-family sector, which is a good thing for those who want to cool the market – but bad for those still trying to sell their condos. Yet, developers continue to build. Toronto’s skyline especially, is still being scraped by high-rises and now, has more dents in it than a banged-up Buick. Yes, this overzealous building certainly hasn’t helped anyone, not even the builders doing it; because they won’t be able to sell those units any time soon.
But, all of this activity on the building side might finally be winding down. Yes, the breeze has died down and finally, the wind has been taken out of the condo kite’s sails. That’s evident by the numbers released by Statistics Canada yesterday.
The numbers in the chart above can be broken down to show:
- Canadian building permits in December fell by 11.2 per cent, and dropped 14.5 per cent in November. Those two drops made history – they were the biggest two-month drop since the data started being recorded in 1989.
- The total value of Canadian building permits fell 16.2 per cent in 2012 when compared with 2011.
- Permits for the multi-family housing sector dropps a whopping 24.6 per cent (which, not shown in the chart, was down 41.1 per cent from June, when condos were the hottest part of the market.)
- Building permits also fell 5.3 per cent for single-family dwellings. That was the third month in a row that this sector saw a drop in permits.
- In fact, the only time the data veers towards the positive side of the chart is when talking about the analysts’ forecasts, which were expected to see a 5 per cent increase that unfortunately, never came to fruition.
Two analysts at CIBC World Markets believe that this is a sign of bad things to come. This they expressed in a note to clients,
“Today’s figures suggest Canada’s homebuilding sector could be a drag on activity in late 2012/early 2013, and the recent trend in slowing permits bodes poorly for tomorrow’s housing starts reading.”
But RBC assistant chief economist Paul Ferley, says that we shouldn’t be too disheartened by these numbers, as everything tends to slow to a crawl over the winter months.
“If you get a little bit of noise through the winter period, the seasonal adjustment can be so large that it can result in a very sharp move in one month that’s likely not going to be sustained,” he said.
But it was more than just one month that saw a serious decline. In fact, December was the sixth consecutive month that saw a drop in building permits in the multi-family sector. And that doesn’t mean that it’s a foreboding tale either. It simply means that the condo sector was overheated for a very, very long time; and the building simply needed to slow down.
Now it has, and maybe those condos will soon come to be viewed as valuable properties once again.
