Canadian housing to start showing signs of easing over next two years, says CMHC
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OTTAWA — Canada’s housing market may start showing some signs of easing over the next two years as new construction begins to slow and sale prices climb down slightly, according to the latest forecast by the Canada Mortgage and Housing Corp.
The national housing agency is forecasting housing starts in Canada to range between 179,600 and 189,900 units in 2014 on an annual basis, dropping to a range of between 163,000 and 203,200 units in 2015.
“Recent trends have shown an increase in housing starts, which is broadly supported by demographic fundamentals,” said Bob Dugan, chief economist at CMHC.
“However, our latest forecast calls for starts to edge lower as builders are expected to reduce inventories instead of focusing on new construction,” Dugan said Wednesday.
The third quarter outlook also says that Multiple Listing Service sales are expected to range between 450,800 and 482,700 units in 2014, with an average price of between $394,700 and $405,700.
In 2015, the CMHC says Multiple Listing Service sales are expected to range from 455,800 to 502,900 units, with and average price of $396,500 to $416,900.
“It certainly seems like the soft landing picture is unfolding,” said Benjamin Reitzes, a senior economist with the Bank of Montreal.
“Housing has remained resilient despite continuous calls for prices to collapse, or sales to collapse or condos to collapse. Sales have remained consistently strong and you’ve also seen construction remain consistently strong pretty much to everyone’s surprise.”
Sales should begin to slow down next year as interest rates begin to rise, which will lead to construction slowing down as well, he said.
Construction is currently at about 200,000 units on an annual basis, Reitzes said, but should go down to between 180,000 and 190,000 to avoid oversupply.
When it comes to pricing, he added, a lot depends on what market home buyers are in.
“You have a hot market in Toronto, a solid market in Vancouver and a very hot market in Calgary. Those are the areas that are really driving price gains throughout the country,” he said.
In its forecast, the CMHC said housing starts in the Prairies are projected to increase to 52,900 units in 2014 before moderating to 50,800 in 2015, as net migration to that part of the country is expected to decline from the record achieved in 2013, as is employment growth.
Ontario housing activity will regain momentum through the course of 2014 before easing later in 2015, with housing starts in that province ranging between 50,900 and 63,300 units over the next two years.
Quebec housing starts are expected to amount to 38,400 units in 2014 and 38,700 units in 2015, as moderate economic and employment growth will hold back demand for existing and new homes.
In Atlantic Canada, housing starts are expected to decline close to 14% in 2014 and a further 3% in 2015, amid a slowdown in economic growth.
Earlier this week, CMHC said in its monthly update that housing starts increased to a seasonally adjusted annual pace of 200,098 in July, a slight increase from 198,665 in June.
It was the fifth consecutive monthly increase in new housing construction, with gains in urban starts were concentrated in Ontario and Atlantic Canada, while the Prairie provinces and Quebec all recorded declines. There were also modest decreases in British Columbia.
On Wednesday, the Teranet National Bank National Composite House Price Index reported home prices were also up in July, rising 1.1% from the previous month and exceeding the historical average for July. The index measures price changes for repeat sales of single-family homes.
A separate condo report commissioned by Genworth Canada, also out Wednesday, found that population, economic and employment growth all point to a stabilizing of the Canadian condominium market, suggesting that while pockets of higher risk still exist in Toronto and Vancouver, a broad-based downturn is unlikely.