Building permits reach second-highest level on record

ROMA LUCIW

Globe and Mail Update

Building permits, an early indication of planned building activity, surged past expectations to their second-highest level on record in August, Statistics Canada reported Thursday.

Municipalities issued $5.8-billion worth of permits, an 8.3 per cent jump from July, soaring past expectations for a 1 per cent rise, as construction intentions increased across all residential and non-residential components. Ontario was the main driver of the “exceptional” monthly gains.

Statscan said August's proposed building activity was the highest since permits rose to $6.3-billion in December, 2005, when several permits in Toronto had to be rushed through before the end of the year to avoid higher development charges.

Stewart Hall, market strategist with HSBC Securities (Canada), said that if building permits are a reflection of builder sentiment, the construction sector appears to be “all beer and little froth.”

The higher dollar valuation is in part a reflection of the recent jump in prices, Mr. Hall said, adding that prices have been climbing at a rate of 1.3 per cent. He said the report suggests that housing start data for September, slated to be released next week, could top expectations.

The U.S. housing market is suffering through a severe slowdown, raising fears the Canadian market will follow down that same path. But, the Canadian “fundamental picture continues to support the optimism reflected in the permits data,” Mr. Hall said.

There are indications that Canada's housing market is gearing down. Existing-home sales will reach a record for the sixth straight year in 2006, the Canadian Real Estate Association forecast on Wednesday. However, the market is projected to ease in 2007 as sales slip back to more normal levels.

The building permit data released Thursday contained no evidence of a slowdown, as residential permits climbed 5 per cent and non-residential permits jumped 14.2 per cent. Permits for commercial, industrial and institutional projects logged double-digit increases.

The value of residential permits hit $3.6-billion, up 5 per cent from July.

“These results point to a busy end of 2006 for workers in both the residential and non-residential construction sectors, as the value of permits are a leading indicator for building activity,” Statscan said.

Although Alberta's housing market has been booming, Ontario drove the sharp monthly increases for both residential and non-residential permits. British Columbia saw the second-largest rise in July.

“Based on these results, the housing sector has remained clearly healthy,” Statscan said. “The favourable job market, a dynamic economy in western Canada, solid consumer confidence and still advantageous mortgage rates continued to sustain the nation's housing market.”

Royal Bank of Canada senior economist Dawn Desjardins and economist Rishi Sindhi said the report does not change the economic picture of a strong domestic economy, albeit with continued drag from net trade but with solid import demand. “As such, the data is consistent with the Bank of Canada keeping the policy rate at 4.25 per cent in order to ensure that the domestic economy remains robust.”