CMHC predicts housing market cooldown in 2016 and 2017

A sold sticker is seen placed on a for sale sign outside a house in east Vancouver, B.C., on Sunday September 20, 2015. (DARRYL DYCK For The Globe and Mail)

Canada’s housing market is set to cool over the next two years as the frantic pace of both new home construction and existing home sales in some markets slows down, the country’s housing regulator predicts.

National existing home prices will end this year at an average of $437,000, Canada Mortgage and Housing Corp. said in a quarterly forecast, up 7.2 per cent for the year. The federal agency upgraded its predictions for 2015 from a forecast it released in May, when it expected home prices to rise just 3.4 per cent this year to about $421,000.

The housing markets in British Columbia and Ontario have benefited this year from lower gas prices, rejuvenated exports and record-low interest rates, CMHC chief economist Bob Dugan wrote. But those effects will wear off in coming years. Home prices will continue to climb over the next two years, but at a much slower rate – 1.3 per cent in 2016 and 1.4 per cent in 2017, the agency predicts.

New home construction will also fall, with housing starts hitting 186,990 this year before dropping to 178,150 next year and to 173,650 in 2017. The residential construction sector will be forced to grapple with high numbers of newly built, unsold condos that “encourage some builders to channel demand for new housing towards existing inventory,” CMHC wrote.

Not everyone agrees with that assessment. In a Monday report, Canadian Imperial Bank of Commerce economist Benjamin Tal wrote that CMHC’s data on unsold condos appeared to be unreliably volatile and that higher levels of unsold condo inventory in the Greater Toronto Area could be mainly attributed to just five projects by four developers.

“To be sure, the GTA’s condo market will be tested as interest rates start rising in the coming years, and increased resale activity from domestic condo investors will result in excess supply and some downward pressure on price,” he wrote. “But for now, those who look at the rise in unabsorbed units as a sign of increased vulnerability are barking up the wrong tree.”

A look at what CMHC sees in store for regional housing markets:

The Good

Vancouver: The region’s scorching housing market will cool only slightly over the next two years. Housing starts in the Vancouver area will remain “elevated,” CMHC said, while, with 20,000 units under construction each year over the next two years, home resales are expected to hit their highest levels in a decade this year, before slowing slightly in 2016 and 2017. Average resale prices should end this year up 9 per cent before growth slows to 3 per cent next year.

Windsor and London, Ont.: A stronger economy will encourage more millennials to leave the family nest and buy their own homes, boosting housing starts in both cities by 6 per cent next year, CMHC said. Existing home sales in London should rise 3 per cent.

Montreal: An improving labour market will spark new home buyers over the next two years, pushing home prices up by 2 per cent a year. However, a surge in new rental construction to 10-year highs will also boost rental vacancy rates.

The Bad

Toronto: The soaring cost of home ownership will finally begin to weigh on the Toronto housing market. Housing starts should drop by 5 per cent next year and fall another 10 per cent in 2017. Much of that will come from fewer new detached homes, with multifamily construction making up almost two-thirds of new homes under construction in 2017. Existing home sales, which are on track to hit 100,000 this year, will drop to 87,500 by 2017 as more prospective first-time buyers find they’re priced out of the market.

Quebec City: A glut of new and existing homes on the market will push down housing starts over the next two years, but an improving job market will help boost resale home prices by 1 per cent next year and 1.5 per cent in 2017.

Atlantic Canada: An improving economy and private sector energy projects should give a lift to the region’s struggling housing market, but residential starts will likely fall over the next two years. In St. John’s, home prices should fall 2 per cent this year as developers move away from speculative home building. In Halifax, existing home prices will grow below the rate of inflation as the city undergoes its biggest rental-housing renaissance since the 1970s.

The Ugly

Calgary: The city’s housing market has undeniably felt the effects of the struggling energy sector. Construction of detached homes is expected to reach its lowest levels since 1988 this year. By next year, multifamily starts, which include condos, townhouses and other types of attached housing, are expected to be 43 per cent lower than peak levels last year. Existing home sales activity will likely fall by nearly 30 per cent this year. Average resale home prices should end the year down 2.1 per cent, and will rise by less than 1 per cent next year.

Edmonton: Despite the shock of falling oil prices in Alberta, Edmonton has undergone a residential building boom this year, with construction started on roughly 10,000 new units, mainly rentals and condos. That number should plunge to 5,500 next year as sluggish job growth, high rental vacancy rates and a backlog of unsold condos weights on developers. Resale activity is expected to fall by 12 per cent this year and rebound slowly over the next two years.

Saskatchewan: The Prairie province was already grappling with a surge in new home construction in 2014 when oil prices began to plummet. By this year, construction of detached houses in Saskatoon had fallen by 30 per cent to its lowest level since 2009. Multifamily starts are expected to end the year down 34 per cent. Average home prices should fall by 0.7 per cent and see only “modest increases” over the next two years. In Regina, detached housing starts will fall to their lowest level since 2001, while existing home prices will fall by nearly 2 per cent this year.


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