November 12, 2007

Housing Market

Declines in western Canadian housing starts expected for 2008, CMHC warns

RICHARD GILBERT

STAFF WRITER

Housing starts throughout Western Canada are expected to decline in 2008, after reaching record highs in 2006 or 2007, the federal government’s housing agency said last week.

“Continuing high employment levels, income gains and low mortgage rates have been a boon to Canada’s housing markets. Despite this, however, housing starts are expected to decrease in 2008,” said Bob Dugan, chief economist at Canada Mortgage and Housing Corporation (CMHC).

“The pull back in housing starts next year will be mainly due to the increases in house prices in recent years, which have pushed mortgage carrying costs higher.”

According to CMHC’s fourth quarter Housing Market Outlook, Canada Edition report, housing starts in B.C. will remain above historical levels in 2007 but are expected to decline in 2008. Housing starts should decline slightly from 36,443 units in 2006 to 36,200 units in 2007 and 33,250 units in 2008. A tight labour market, income growth, and high levels of consumer confidence will help to offset the dampening effect of rising mortgage carrying costs on the demand for new and existing homes in B.C.

Housing starts in Alberta are expected to ease from 48,962 units in 2006 to 47,750 units in 2007 and 42,250 units in 2008.

Alberta continues to experience low unemployment, an abundance of job opportunities and continuing economic growth.

Despite these positives, Alberta is expected to face a drop in net migrants between now and the end of 2008, due to the growing difference in provincial house prices and improved economic conditions in other provinces.

Total housing starts in Saskatchewan are forecast to reach about 6,000 units in 2007, the highest level in 24 years.

However, escalating costs will push housing starts down to 5,500 units in 2008.

Saskatchewan has been experiencing steady economic growth, a healthy employment situation and gains in net migration, all of which has contributed to strong housing demand.

High levels of new home construction are expected in Manitoba in 2007 due to economic growth and increasing job creation and net migration. Total housing starts will reach 5,750 units in 2007, the best performance in 20 years.

Starts will decline slightly to 5,600 in 2008.

Housing starts in Canada are expected to reach 227,530 units in 2007, an increase of 0.1 per cent from the 227,395 units in 2006.

However, in 2008, residential construction will decline to about 214,000 units.

Despite this drop, 2008 will mark the seventh consecutive year in which housing starts exceed 200,000 units. Growth in the average Canadian MLS price will remain high at 10.1 per cent in 2007, mainly because of continued strong price pressures in the western provinces. As most resale markets move toward more balanced conditions, growth in average MLS price is forecast to slow to 4.2 per cent in 2008.

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