Residential building permits are a well known leading indicator as to the future strength of the housing market and the economy. Given the obvious knock-on effects from a weaker housing market, and the loss of jobs in the ever so important construction sector, any decline in building permits is generally perceived as being negative for the medium term outlook of the economy.
While home builders maintain a bullish outlook on the housing market in media presence (for obvious reasons) the recent slowdown in building permits suggest optimism has soured. On a national level, the value of permits for residential buildings declined 11.3% on a year-over-year basis in February. While the data is relatively noisy, it was the sharpest monthly decline since October 2017 and something to keep an eye on as home sales drop across the nation.
The slowdown was particularly acute in Greater Vancouver where we are seeing significant weakness in the value of building permits for single family homes. The 12 month sum of permits fell to just below $1.5B, down 22% after peaking in June 2016. This coincides with the peak of the detached housing market which has seen prices drop anywhere from 15-35% depending on the area and price point.
The 12 month sum of building permits remains relatively strong in the Vancouver multi family market which took a small dip in February after potentially peaking out in January of this year. Given the length of construction times to build multi family and the pre-sale process which generally requires a building be 65% pre sold prior to receiving construction financing, developers are rushing to market to squeeze out projects as this housing cycle winds down. Whether or not they actually get off the ground is another story.