Tighter Canadian mortgage rules appear to have put a serious damper on the housing market, especially on the heated condominium sector, judging by Statistics Canada data released on Thursday.
The value of Canadian building permits fell 11.2 per cent in December after a 14.5 per cent decline in November. That was the biggest two-month drop since the data series started in 1989, and left the value of building permits 16.2 per cent lower than a year earlier.
The median forecast in a Reuters survey of analysts was for a 5 per cent rise in the value of building permits in December.
The government set new mortgage rules and guidelines in June to cool what it had worried was becoming a housing bubble.
Permits for multi-family housing, which include condominiums, fell 24.6 per cent and were 41.1 per cent lower than in June. Permits for single-family dwellings fell 5.3 per cent, the third straight decline.
"Today's figures suggest Canada's homebuilding sector could be a drag on activity in late 2012/early 2013, and the recent trend in slowing permits bodes poorly for tomorrow's housing starts reading," Emanuella Enenajor and Andrew Grantham of CIBC World Markets wrote in a note to clients.
January housing starts data are due at 8:15 a.m. ET on Friday. A Reuters survey shows expectations the seasonally adjusted annualized rate will have fallen to 195,000 units from 198,000 in December.
Royal Bank of Canada assistant chief economist Paul Ferley said he expected to see housing construction decline to more sustainable levels in 2013-14.
But he also noted that building permits are low in frozen winter, and that can lead to volatility in the published figures, which are seasonally adjusted.
"If you get a little bit of noise through the winter period, the seasonal adjustment can be so large that it can result in a very sharp move in one month that's likely not going to be sustained," he said.
But the overall softer direction seems clear. December marked the sixth consecutive decline in multi-family dwellings.
The fall in building permits was steeper in the residential sector, where building permits fell 13.1 per cent by value in December after a 7 per cent fall in November.
Nonresidential permits fell 8.5 per cent by value, after a 23.2 per cent drop in November. The commercial component registered the biggest drop at 10.6 per cent, followed by institutional and industrial building intentions.
Statistics Canada separately said new housing prices rose by 0.2 per cent in December from November, and were 2.3 per cent up on the year. That price index does not cover the condo market.