Take building-permit figures with a pinch of salt

Markets know to take Statistics Canada's measure of building permits issued by municipalities with a grain of salt, since it's notoriously volatile.

A major project or two (think hospitals and schools) can massively inflate the total value of permits taken out, sometimes distorting what's really going on.

This happened in March, according to Statscan's latest tally, which was released Monday: the value of permits rose 4.7 per cent from the previous month to $6.8-billion, as non-residential permits soared 14 per cent – on the strength of an 88-per cent gain in plans for institutional buildings like medical facilities.

Residential building permits, meanwhile, dipped 1.3 per cent, the third consecutive monthly drop. The value of permits for single-family dwellings fell 1.7 per cent, and for permits to build multi-family dwellings like apartments and condominiums, it fell 0.7 per cent. Despite the value of residential permits going down, the number of units being built actually went up 2.1 per cent, reflecting a 2.5-per cent increase in multi-family dwellings, which typically cost less than single-family homes.

This multiple-heavy trend has existed for a while, and with a lack of developable land in many big cities, building 'up' instead of 'out' will continue. (Doug Porter of BMO Nesbitt Burns points out permits for single-family homes are running close to recession-era lows, while multi-unit permits are near a pre-downturn peak.) Most economists say the home resale market is the best barometer of housing, since it accounts for the bulk of residential activity. Still, the pace of condo building in Toronto and Vancouver is high on the radar at both the Bank of Canada and the Finance Department, as low, steady interest rates continue to entice domestic buyers and an unclear amount of foreign investment keeps prices high.

Two other pieces of data this week could give the latest sense of whether the housing market will cool down in an orderly, gradual way, or whether a more jarring correction could be on the horizon.

On Tuesday, Canada Mortgage and Housing Corp. reports on what the annual pace of housing starts was in April. Two days later, on Thursday, Statscan reports on new-home prices for March.

Economists say starts slowed by as much as 7 per cent last month, following a warm weather-fuelled, 5.1-per cent gain in March that pushed the annual rate to 215,200 – the highest in 3½ years. Prices for new homes, they say, likely gained just a touch in March, after rising 0.3 per cent the month before.