Morning Market Brief: Wednesday, April 5, 2023

Canadian building permits surge higher

The value of Canadian building permits rose for the first time since November 2022. February’s increase exceeded economists’ expectations and might suggest builders’ growing confidence in Canada’s real estate market. Building permits are a strong indicator of Canadian real estate sector health. The Organization for Economic Co-operation and Development (OECD) uses building permits as one of its composite leading indicators when drafting economic outlooks. ?

• Building permits rose 8.6% in February over the previous month to $10.7 billion, a strong rebound from January’s 4.0% decline.
• This is the first increase in building permits since November 2022. It was also the highest value of building permits since that month.
• The value of building permits in both residential and non-residential sectors rose. Building permits in the residential sector jumped by 7.9% in February, driven by a rise in multi-unit permits. Non-residential permits rose by 9.8% over the same month.
• The result suggests that builders’ confidence might be edging higher. The sharp rise in building permits comes as the Bank of Canada signalled its intention to pause interest rates, which could boost Canadian real estate market demand and support higher prices. ?
• The rise in building permits in February is a relatively favourable sign for Canada’s real estate market. With expectations of higher demand, builders may be more inclined to start construction, particularly as many parts of Canada face a supply issue.

Increased demand could prompt higher prices, reversing the drop in real estate activity and prices posted over the past year. A stronger real estate market bodes well for Canada’s economic health. It also raises consumer confidence, typically leading to more spending and investment. This could be beneficial for Canadian equity markets.

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