Building takes steam out of housing market, CMHC says

Canadian housing construction will ramp up in 2010, taking some steam out of existing home sales and signaling the return of a buyers’ market, the Canadian Housing and Mortgage Corp said Monday.

New housing starts, a key measure of economic growth, are expected to be between 152,000 to 189,300 units this year. There were 149,081 new units built in 2009. And in 2011 construction could be even higher, in the range of 156,400 to 205,600 units.

"Canadian housing markets will benefit from improving economic conditions and low mortgage rates," Bob Dugan, chief economist for CMHC, said in a release.

"As well, measures recently announced by the Government of Canada to support the long-term stability of Canada's housing market will help moderate housing activity as some potential buyers will have to save a larger down payment or consider a less expensive home."

Finance Minister Jim Flaherty recently announced tighter mortgage lending rules to protect Canadians from taking on more debt than they can handle before interest rates rise in the second half of this year.

According to Dugan, real estate in Canada had shifted from a buyers’ market at the beginning of last year to a sellers’ market by the end of 2009. A shortfall in new listings for existing homes pushed some demand into the new home markets, which explains the forecast for a busy home building period ahead, the group said.

Wary consumers delayed activity at the start of 2009, which in part explains the strong pace of Multiple Listing Service (MLS) sales in the latter half of the year. Rising home prices and transactions led to talk of a real estate bubble potentially forming.

But the pace isn’t likely to be sustained as pent-up demand is exhausted and higher financing costs are on the horizon, it said. All this could swing momentum in favour of the prospective buyer.

The CMHC expects existing home sales to come in at around 486,700 units this year before tapering off in 2011.

A more balanced marketplace should see prices remain close to the average seen in the last quarter of 2009 for most of the year and rising modestly in 2011.