May 7, 2012 / 12:57 PM / 5 years ago

Canada March building permits surge, housing cools

3 Min Read

OTTAWA (Reuters) - The value of Canadian building permits unexpectedly climbed in March even while plans for home building softened for the third straight month, Statistics Canada reported on Monday, likely calming nerves among policymakers troubled by soaring property prices and debt.

Building permits issued by municipalities jumped 4.7 percent from February to C$6.5 billion ($6.5 billion), confounding market expectations of a 2.8 percent decline.

The increase followed a 7.6 percent gain in February, according to revised figures.

Intentions for residential buildings fell 1.3 percent in March as the value of permits fell by 1.7 percent for single-family dwellings and by 0.7 percent for multi-family dwellings.

Permits for non-residential buildings jumped 13.9 percent to C$2.9 billion ($2.9 billion), their highest level since June 2010. Plans for new government buildings and medical facilities in the province of Ontario helped push up construction intentions in the institutional sector by 88.4 percent.

Permits for commercial buildings rose 15.3 percent in value while those for industrial structures fell 42.8 percent.

The report is consistent with the Bank of Canada's prediction of stronger business investment in months ahead and suggests construction activity will provide a boost to economic growth, despite the weaker housing component.

"Although residential building plans cooled in the first quarter, the recent solid gain in full time employment in March, together with evidence a stronger sales of existing houses through April, suggests that residential construction and house related consumer spending will make a positive contribution to domestic demand into the second half of the year, said John Clinkard, economist at Deutche Bank in Canada.

The decline in permits for housing adds to evidence from other data showing the heated housing market is cooling and may be in for a soft landing this year, though hot spots such as Toronto's condo market persist.

"Although housing starts data have been buoyant lately, the recent softening trend in residential permits suggests that the pace of homebuilding may slow in the months ahead," said Emanuella Enenajor, economist with CIBC World Markets.

Canadian home prices fell 0.5 percent in March from a year earlier, according to the Canadian Real Estate Association, which also showed a 3.1 percent drop in Vancouver property prices.

With interest rates still extraordinarily low at 1.0 percent, Canadians have sharply increased their debt load to finance home purchases at a time of sky rocketing prices, especially in Vancouver and Toronto.

In fact, the household debt-to-income ratio has surpassed that of the United States and Britain, leading Bank of Canada Governor Mark Carney to single it out as the biggest domestic threat to Canada's economy.

($1 = 0.9960 Canadian)

With additional reporting by Alex Paterson; Editing by Jeffrey Hodgson

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