‘Firing on all cylinders’

October 13, 2009 - Updated: October 13, 2009

‘Firing on all cylinders’
Helen Morris, National Post
Published: Friday, October 09, 2009

Residential building permits across Canada have risen almost 40% since February, including a 6.3% rise in August over July.

What a difference a month makes, at least to building permit values. The end of the civic workers strike in Toronto led to a sharp turnaround in the value of building permits in August. The value of permits for Toronto - which indicate an intention to build, not actual construction - rose a whopping 83.7% to reach $798-million in August compared with $434.4-million during strike-hit July, according to Statistics Canada.

Across Canada, municipalities issued a total of $2.9-billion

worth of building permits for the residential sector.

"The value of Canadian residential building permits rose a solid 11.2% in August, driven largely by the ending of the Toronto civic workers' strike," notes Robert Kavcic at BMO Capital Markets Economics. "Permits more than doubled in Toronto, while most other Canadian cities saw declines,"

Statistics Canada noted that when the numbers for Toronto are excluded, the the total value of residential building permits in August rose 6.3% from the previous month.

"Still, nationwide residential building permits have bounced nearly 40% since February, hinting at a continued improvement in housing starts," Mr. Kavcic notes.

That hint was indeed correct at least for Toronto if not nationally. September housing starts for Toronto, also reported this week, rose 25.3% compared to the month before to reach a seasonally-adjusted annual rate of 30,200 units according to Canada Mortgage and Housing Corp. (CMHC).

"The sharp recovery in housing demand is beginning to work its way into the residential construction sector in Toronto," said Shaun Hildebrand, CMHC's senior market analyst for the GTA in a release.

Starts for single-detached homes rose to a seasonally-

adjusted annual rate of 9,500 in September, a hefty 46.2% hike from the August numbers. The traditionally more volatile multi-family starts rose 17.6% to reach a seasonally adjusted annual rate of 20,700 in

September.

"Starts for single-detached homes have risen to their highest level this year following an impressive summer for sales. Low-rise housing is benefiting from improved affordability conditions enticing more buyers into the new home market," Mr. Hildebrand notes. "With high-rise activity beginning to pick up as well, residential construction will be firing on all cylinders as we head into 2010."

Building permits and housing starts all relate to new homes, but this week TD Economics took stock of the prospects for the resale housing market across Canada, including in Toronto.

Report author Pascal Gauthier, economist at TD Economics, notes that faced with rising unemployment and a contracting economy, the housing market in Toronto recovered more strongly and at a faster pace than many observers had

expected.

"The sales collapse of last year was also disproportionate in light of the overall performance of the GTA economy. Sales had fallen by more than a third (-36%) from September 2008 to January 2009," notes Mr. Gauthier. "Once the financial storm clouds of last fall had dissipated, homebuyers came back in droves. As a result, sales in August were nearly double their low of January and match earlier record levels set in 2007."

Projecting ahead, Mr. Gauthier expects the market to cool off but not, at least initially, at the expense of prices.

"Looking forward, new listings are expected to continue their uptrend and the erosion in affordability will cool sales," Mr. Gauthier notes. "It is nonetheless remarkable that the Toronto area average resale home price now looks set to climb by 1% to 2% this year when all prior indications were that they would drop substantially. The handoff from late this year should translate into annual price growth of as much as 5% to 6% in 2010."

However, toward the end of next year, rate rises could mean fewer buyers may be willing or able to step into the Toronto housing market.

"We then expect sales activity to moderate significantly in 2011, with consequent price growth (1%) struggling to keep pace with inflation," Mr. Gauthier says.


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