Housing starts seen easing through 2007

After four years of strong growth, the Canadian housing market is expected to cool down through 2006, with housing starts slowly declining, according to the latest report from Canada Mortgage and Housing Corporation.

“Housing starts this year will be stronger than previously forecast, mainly due to persistent strong demand in Alberta and British Columbia, but will not match last year’s pace,” said Dugan. “Higher mortgage carrying costs, due to modest increases in mortgage rates, and rising house prices will temper housing demand this year and next.”

New starts hit a high of 225,481 units in 2005 and CMHC expects 2006 will see a slight drop, to 222,200 units this year, before cooling to 204,100 in 2007. While a drop of 21,000 home starts may sound significant, 2007 will mark the sixth consecutive year with 200,000 or more homes started.

“Over the medium term, housing starts will continue to slow gradually, reaching 184,400 units by 2010,” said Bob Dugan, chief economist at CMHC. “The decrease in starts in the medium term will be more pronounced for single homes than for multiple family dwellings, because multiple dwellings are less expensive than single homes. The aging population and increases in immigration will also contribute to the relative strength of multiple starts.”

With starts slowing, there could be increased demand for existing homes, but owners may be dampening the market in an effort to cash in. Listings on the multiple listing service (MLS) are expected to total 478,400 this year, making it the second best year in terms of volume on offer.

With all that choice, sales are expected to total 450,000 homes in 2006 and 2007, despite higher borrowing costs. Rising interest rates and a four-year bull run on housing are expected to cool demand somewhat across much of the country and CMHC predicts slower sales in all regions except for the west.

Sellers in Alberta and B.C. could see accelerated price growth of 11.2% in 2006, as workers flock to those provinces to fill the needs of the booming energy industry. Alberta should see growth in the number of starts to meet demand, rising to 45,000 units this year before easing back to 41,000 in 2007.

British Columbia’s booming economy should generate 37,000 new starts in 2006 and 34,900 in 2007. Stronger resource and agricultural markets should help Saskatchewan reach 3,600 starts in both 2006 and 2007.

Next door, Manitoba is expected to be a standout market, as both sales and starts are seen rising in 2006 and 2007. An improving economy is expected to boost starts in the province to 4,800 units in 2006 and 5,000 units in 2007.

Despite a battered manufacturing sector, Ontario’s housing starts are expected to remain above historic levels, but ease to 75,000 in 2006 and again in 2007 to 68,500. Higher net migration out of Quebec will hit the construction industry, with starts seen falling to 45,000 in 2006 and 40,000 in 2007.

New Brunswick’s rising supply of existing homes will stifle construction with starts totaling 3,650 in 2006 and 3,350 units in 2007. Housing demand in Nova Scotia is not expected to be much stronger, but starts are still expected to rise to 5,100 units in 2006 due to accelerating apartment construction. Housing starts will decline to 4,800 units in 2007.

Prince Edward Island is expected to see moderate economic growth through 2007, stimulating 800 starts in 2006 and another 750 units in 2007.

Continued out-migration from Newfoundland and Labrador, coupled with rising interest rates will cut into home starts, which should decline to 2,250 units in 2006 and 2,150 units in 2007.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com