08:12 AM EDT, 09/13/2024 (MT Newswires) -- Canadian building permits surprised to the upside in July -- jumping 22.1% month over month compared with the more modest 6.6% expected increase -- in the biggest monthly gain since May 2020, said Rosenberg Research.

The series is volatile on a month-to-month basis, but on a smoothed siz-month over six-month annualized basis, the trend is showing some life -- up to a 12.4% annual rate, noted Rosenberg Reasearch. Early days to be sure, but Canada may be seeing signs of an industry response to declining borrowing costs and expectations that a long and steady stream of easing is on its way, as well as the effects of a coordinated push from the government to address Canada's severe housing shortage.

Even on an inflation-adjusted basis, the volume of building permits jumped 23% on the month. Permits represent intentions to build and nothing more, so, while encouraging, Rosenberg will need to keep an eye on the housing starts data for official follow-through on those plans.

That said, the gain was broadly based across both residential, or 16.7% month over month, and non-residential, or 31.8% month over month.

Borrowing costs may be heading lower, but the economics behind overall construction costs and the most efficient way of solving Canada's housing supply crisis still favor multi-unit over single-family dwellings -- and that is exactly what builders went with, stated Rosenberg. Indeed, multi-family permits surged by 29.3% month over month in response.

Restocking the pipeline should help on the affordability front as well, as new units come online and help to bring rents lower over time -- currently running at 4.4% year over year higher. The caveat is population growth slows as intended as well, currently running at 1.1 million people year over year rose).

In other words, disinflationary, pointed out Rosenberg. Single-family, or 1.9% lower, went the other direction, falling in three of the past five months and running at a 4.5% year-over-year weaker pace.

In terms of the number of actual units created -- headline building permits data in Canada are calculated on a value basis -- the shortage of single-family housing doesn't look to be ending any time soon. Only 4,100 units (non-annualized) were added to the pipeline in July bringing the total over the past year to 52,700, where it continues to hover around the worst readings since the 1980s.

This will only further serve to fuel affordability issues as potential buyers looking to upgrade from condos and townhomes compete against limited new supply. For multi-family, plans for 20,100 units were submitted, bringing the 12-month moving total to 213,000 as the pipeline grows back to its post-COVID highs, added Rosenberg.