Canadian Building Permits Tumble More Than Expected 10.8% in May on Homes

Canadian building permits tumbled more than five times as much as expected in May because of drops in single-family houses and commercial buildings such as hotels and offices.

The total value of permits issues by municipalities decreased 10.8 percent -- the biggest decline since February 2009 -- to C$5.98 billion ($5.65 billion), Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg News predicted a 2 percent decline, based on the median of 13 responses. The value of permits has fallen in five of the past seven months.

The residential permits’ decline supports the central bank’s April prediction that housing activity will “weaken markedly” through the rest of the year and cut 0.1 percentage point from growth next year. Housing starts fell to an annualized 189,100 units in May and the five-year mortgage rate rose to 6.25 percent in the last week of April, the highest since the beginning of 2009.

“It does fit in the greater picture, which is the demand side of the housing market is slowing pretty quickly and the construction side is probably going to trail off as well,” said Robert Kavcic, an economist with BMO Capital Markets in Toronto.

The Bank of Canada raised its overnight target rate to 0.5 percent last month from a record-low 0.25 percent and said future rate increases aren’t “pre-ordained.”

“The Bank of Canada might hike rates one more time and sit on the sidelines for a while, just to assess how the economic recovery plays out,” Kavcic said.

Non-Residential Declines

Permits for non-residential construction fell 18.3 percent to C$2.32 billion. Commercial buildings declined 35.2 percent while institutional buildings, such as hospitals and schools, fell 21.6 percent. Partly offsetting these declines were permits for industrial building such as manufacturing plants and utilities, which rose 47.1 percent.

Residential permits decreased 5.3 percent to C$3.66 billion. Housing permits were still 35.2 percent above the level from a year earlier, Statistics Canada said.

Housing starts may keep slowing after two of Canada’s most populous provinces -- Ontario and British Columbia -- harmonized their sales taxes with the federal goods and services tax on July 1, meaning buyers of new homes will now pay higher taxes. Starts in those two provinces may have been boosted by as much as 10 percent over the last year as buyers rushed to beat the tax, TD Securities economists Derek Burleton and Diana Petramala said in a research note to clients today.

Burleton and Petramala said they expect housing starts to drop to a 167,000 units annualized pace in the third quarter, from an average of 200,000 units during the first half of the year.

Single-family home permits dropped 9.2 percent to C$2.32 billion in May while multiple-unit dwellings rose 2.5 percent to C$1.34 billion, the report said.

The agency also boosted its estimate for April’s gain to 5.9 percent, from the originally reported 5.4 percent.

To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.

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