CMHC sees home building decline in '09, slow rebound after

But the Crown corporation foresees no return to the lofty, pre-economic crisis level of 200,000-plus starts a year

Globe and Mail Update
May 19, 2009 at 2:57 PM EDT

OTTAWA — The days of Canadians clamouring for new houses won't return even after the economy resumes growth, according to the latest long-term forecast from the federal housing agency.
Canada Mortgage and Housing Corp. says housing starts are expected to decline to 141,900 this year – down from 211,056 last year, and a distinct contrast to several years seeing more than 200,000 new homes spring up.
Next year, building activity will rebound somewhat, with 150,300 new homes predicted to be going up.
“The outlook for the housing market is uncertain for the near term due, in large part, to continuing economic volatility,” CMHC says.
CMHC says housing starts are expected to decline to 141,900 this year – down from 211,056 last year.
But even when the economy turns positive again, housing starts will climb back only slowly, to reach 176,800 units by 2013.
“We do not expect housing starts to return to the 200,000-plus-unit pace of recent years,” the long-term outlook states. “Rather, housing starts will remain in a range that is consistent with demographic fundamentals over the 2010 to 2013 levels.”
That's not bad news, however. The frantic building of the past few years won't return because the downturn Canada's housing market is experiencing right now won't be so long and deep as to build up significant demand, CMHC explained. So when the economy improves, home builders won't have to jump into overdrive to meet the demand of hungry buyers.
Home prices and volume sales of existing homes are likely to follow similar trends, CMHC says.
The national average price for a home is projected to fall 6.8 per cent this year to $283,100 before stabilizing next year, CMHC predicted.
It sees the number of houses resold through the Multiple Listing Service declining to 357,800 units this year, from 433,990 in 2008, but increasing slightly next year to 386,100 units.
The CMHC forecasts are actually the midpoint of a wide range of expectations from the Crown corporation, reflecting the huge uncertainty about the direction of the Canadian economy, mortgage rates, employment and income.
CMHC's expectations for average home prices and the volume sales of existing homes are somewhat more pessimistic than projections made by the Canadian Real Estate Association last week.
CREA sees a 5.2-per-cent decline in the average home price in 2009. The association expects the number of homes sold to total 370,500 this year and 397,000 next year.
The CMHC projections are generally in line with forecasts from the private sector. While some economists see a deeper downturn in the housing market this year, most agree with CMHC that the market will stabilize by next year, and only gradually move back to housing activity that is consistent with long-term demographics.
Canada's growing population demands about 170,000 new homes a year. Given deterioration of old homes, the Canadian economy can sustain about 180,000 housing starts a year over the long term, said Pascal Gauthier, economist at Toronto-Dominion Bank.
He sees a much steeper drop in average home prices this year than CMHC because TD's outlook on the Canadian economy is gloomier than most. Like CMHC, however, he sees a slow recovery, but not a return to the days of more than 200,000 housing starts a year.
Housing market dynamics vary considerably by region.
Part of the reason for the feverish pace of home building in recent years was rampant demand in booming Western Canada, CMHC notes. Now, the West faces deeper declines in home construction than the rest of the country – although Ontario is also facing steep drops.
Across the country, housing starts are expected to decline 32.8 per cent this year, with a 53-per-cent drop in Alberta, a 42.5-per-cent slide in British Columbia and a 50.2-per-cent decline in Saskatchewan. Ontario's home construction activity is expected to be 31.6-per-cent lower this year than in 2008.
Next year, all provinces should see at least some increase in building activity, CMHC predicted, and nationally, home construction activity will pick up by a moderate 5.9 per cent.
For single detached homes, Saskatchewan and Ontario will see the biggest declines this year, while British Columbia and Alberta are expected to lead the rebound next year.
As for home prices, they will likely be stable in Atlantic Canada this year, but in decline everywhere else, especially in British Columbia and Alberta – where prices had risen the most in previous years.


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