Chris Lau - Seeking Alpha

Thursday, August 07, 2008

Canada: What Real Estate Slow down?

1. Toronto Real Estate Board

In Toronto, the supply of homes increased. The number of sales, however, declined. Since I am also a licensed Real Estate agent for the Toronto area, I have the resources to review sales activity by area.

General Highlights:

  • Demand: 7,806 sales of single family dwellings took place in July, down 12% over 2007
  • Supply: 26,543 active listings, a 28 per cent increase from a year ago.”

Read more here:

http://communications2.torontomls.net/newstand/news/2008/mn0808/newsrel080608.htm

2. StatsCan released Construction figure activity in Canada:

Building permits, June 2008


In June, the total value of building permits fell 5.3% from
May to $6.3 billion, as construction intentions decreased in
both the residential and non-residential sectors and in
several provinces. In constant dollars, the decline was about
the same magnitude at 5.5%.

Residential: Decline in multi-family intentions


Municipalities issued $1.3 billion worth of permits for multi-family housing in June, down 13.8%, a second consecutive monthly decrease. Most of these declines occurred in Ontario and Alberta.

At the same time, single-family permits edged up 1.8% to $2.3 billion. In the last four months, the value of single-family permits has remained between $2.2 billion and $2.3 billion.

Municipalities approved 17,309 new residential dwellings in June, down 9.3% and lower than the 2007 monthly average of 19,817 units.

Permits down in several provinces


The value of building permits decreased in six provinces.

The most significant decrease occurred in Ontario (-7.9% to $2.3 billion), due mainly to a 15.8% decline in intentions for non-residential buildings. The decline in the residential sector was a slight 1.7%.

British Columbia and New Brunswick also experienced declines in both the residential and non-residential sectors.

Alberta posted a 7.5% decline to $1.2 billion, due to a 19.6% decrease in the residential component.

In contrast, intentions rose 3.5% in Quebec, with gains in both the residential and non-residential sectors.


Metropolitan areas: London and Kingston show large declines


Of the 34 census metropolitan areas, 18 recorded reductions in the value of building permits in June.

The largest decrease occurred in London, with declines in the residential and non-residential sectors. Kingston followed closely with a decline mostly in the institutional component.

In contrast, the total value of permits in the census metropolitan area of Québec rose in June, due to increases in both the residential and non-residential sectors.

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For more information, or to enquire about the concepts, methods or data quality of this release, contact Evelyn Park (613-951-3506; fax: 613-951-6696; evelyn.park@statcan.ca), Service Industries Division.

Despite this modest decline, real estate stocks have actually rebounded.

Why then, are Real Estate stocks not falling?

Two stocks that are of interest to investors: Home Capital Group and Brookfield Properties.

HCG.TO is a secondary lender in the mortgage market. Contrary to banks in the U.S., this lender adhered to strict lending practices. Therefore, any possible weakness in Canadian housing will come from weakness in the job market. So far, the only way real estate will weaken north of the border will be directly correlated with U.S. companies. That is:

1) Canadian companies who rely on American demand and

2) U.S. companies downsizing in Canada

Watch for weakness for communities where homeowners are heavily employed in the automobile sector.

A large percentage of revenue (about 40%) for Brookfield Properties is derived from commercial real estate in New York. Nevertheless, the stock is trending and is showing signs of relative strength.