After a record-breaking run earlier this year due to pandemic precautions, Canadian house investment is slowing.
Residential investment — a three-pronged measure of house rehabilitation, new building, and ownership transfer costs — dropped in the third quarter, despite strong real estate values across the country.
Seasonally adjusted residential investment declined 7.1 percent ($17.7 billion) from the previous quarter to $231.2 billion, according to Statistics Canada’s (StatCan) latest GDP income and expenditure report.
COVID-19 lockdowns and work-from-home mandates sparked a real estate boom as Canadians looked for larger homes on the resale market, fixed up their existing ones, or built their own.
During the epidemic, residential investment actually outpaced business investment as a percentage of GDP in Canada. However, due to lower sales, postponed development projects, and a return to pre-pandemic spending patterns, this tendency has shifted.
Following the second quarter’s record-breaking figure of nearly $250 billion, a dip in housing investment was expected as pandemic fears faded and COVID case counts fell, however the magnitude of the shift was significant.
Home remodelling spending plummeted 11.6 percent ($9.6 billion) to $73.3 billion in the third quarter, the largest quarterly drop since 1974.
The largest of the three residential investment subcomponents, new construction, fell 2.6 percent ($2.8 billion) in the third quarter to $102.7 billion on a seasonally adjusted basis.
After correcting for inflation, StatCan reports a 5.2 percent drop in new construction, the greatest since 2009. While rising expenses played a part, construction delays caused by supply chain disruptions and labour shortages also contributed to the drop.
As sales numbers climbed early this year, ownership transfer costs – a sum of broker commissions, land transfer taxes, and legal fees — was one of the primary drivers of residential investment.
Transfer expenses fell 8.8% ($5.3 billion) to a seasonally adjusted $55.2 billion in the third quarter due to lower resale activity. Only Newfoundland and Labrador and the Yukon reported higher figures than the previous quarter.
While housing investment was on the downswing, StatCan noted that Canadian household spending on semi-durable goods and services rose 14 per cent and 6.3 per cent, respectively, during the third quarter as pandemic restrictions eased.
Clothing and footwear spending exceeded pre-pandemic levels, increasing by more than 25 per cent from the previous quarter, while transport (40.3 per cent) and personal grooming (35.8 per cent) led the way on the service side.