CMHC Predicts Another Housing Downturn
Interest rates to temper housing demand
Globe and Mail Update
Rising interest rates will help cool Canada's booming housing market by next year, but that doesn't mean prices are about to fall.
According to a quarterly outlook from Canada Mortgage and Housing Corp., housing starts will rise to 227,900 units in 2006 from 225,481 last year, before sliding to 209,100 units next year.
“Higher mortgage carrying costs, due to modest increases in mortgage rates and rising house prices, will temper housing demand in Canada in the latter part of this year and next,” said Bob Dugan, the CMHC's chief economist.
Low borrowing costs, strong economic growth and a solid labour market have sparked a real estate boom in Canada. If the CHMC forecast holds, housing starts will top 200,000 for the sixth consecutive year in 2007.
Existing home sales, as measured by the Multiple Listing Service, will slip to 481,700 in 2006 from 482,788 last year, although that would still be the second-best year on record. Sales of existing homes are expected to ease to 462,200 in 2007.
”A rising supply of listings will give home buyers more choice thereby reducing the spillover effect into the new home market,” the report said. ”However, marginally higher mortgage carrying costs will ease demand for existing homes in many centres across Canada.”
The price of an average home will increase 12 per cent from $249,365 last year to $279,300 in 2006. The 12-per-cent price increase, a 17-year year high, will slow to 6.4 per cent in 2007, when ”higher listings and lower MLS sales will move the resale market toward more balanced conditions,” the report said. The average price of house in 2007 is forecast to hit $297,100.
New home construction in Alberta, where record-high energy prices have led to mass migration, is expected to reach 49,000 units this year, surpassing the previous record of 47,925 in 1978. That pace of growth will slip in 2007 to 45,000 units, CHMC said, as the rising cost of ownership bites into demand.
Central banks in Canada and the United States have been hiking interest rates, making mortgages more expensive. In the U.S., sales of both new and used homes have slowed but Canada's housing boom has yet to moderate.
In a report released late last month, the Canadian Real Estate Association forecast that home sales in major markets will set a new annual record this year. Between January and June of 2006, 186,177 homes were sold — a rise of 3.6 per cent from last year's record pace.
According to CREA, average prices climbed 11.8 per cent from December of last year to $304,328 in June.