Housing activity on brink of rebound, CMHC says

Canada's national housing agency predicts home construction to make a comeback in the second half of this year and into 2010, however economists say it could be a long time before we see the same building frenzy that has dominated this decade.
Canada Mortgage and Housing Corp. said Thursday it believes housing starts will hit 141,900, of which 68,400 will be single-family detached homes and 73,500 multiple-housing units, such as condos.
CMHC chief economist Bob Dugan said economic uncertainty and lower employment tempered new-housing construction in the first half of this year.
"In the second half of 2009 and in 2010, we expect housing markets across Canada to strengthen," he said in releasing the agency's third-quarter outlook.
CMHC says improving activity on the resale market and lower inventory levels in both the new- and existing-home markets should prompt builders to increase residential construction.
CMHC predicts overall starts to reach 150,300 in 2010.
That compares to 211,056 housing starts recorded in 2008, of which 93,202 were single-family and 117,854 were multiple-housing units.
Annual housing starts have surpassed the 200,000 mark every year since 2002.
However, CIBC World Markets economist Benjamin Tal believes the recovery in housing starts will be much slower.
"I think those number are a bit on the high side," he said, predicting a "not very weak, but not very strong" recovery of about 140,000 units in 2010.
Tall also believes housing starts won't surpass 200,000 annually again for quite some time.
"We simply can't justify it. We don't have the demand," Tal said.
The new normal will be about 170,000 to 180,000 starts annually, which we could hit by 2011, Tal said.
Slower population growth and higher costs for new homes after provincial sales taxes are harmonized with the GST in provinces such as Ontario and B.C. next year will soften near-term growth in new home construction, Tal said.
Scotiabank economist Adrienne Warren also sees a slow recovery in new home building due to oversupply in some major markets, particularly in the condominium sector.
But Warren said the CMHC forecast is yet another sign Canada's real estate market is on the rebound, and performing better than previously thought.
"It reaffirms that the market is far exceeding expectations across the board," Warren said.
CMHC also said Thursday it expects total sales on the Multiple Listing Service (MLS) to hit 420,700 in 2009 compared with 433,990 in 2008.
That forecast is slightly higher than the Canadian Real Estate Association's recently revised 2009 resale forecast of 432,000 units.
CREA boosted its outlook last week, saying it expects resale activity to drop by 0.4 per cent in 2009 versus 2008. That's better than its previous forecast of a 14.7 per cent drop year-over-year.
CHMC said the average price of a home across Canada last year was $303,607 and is expected to fall slightly to $301,400 in 2009, before climbing to $306,300 in 2010.
Warren predicts 2009 sales and prices will be on par with last year's levels.
"By and large we are looking at matching last year's levels, and holding steady on average, which is far from what anyone expected a few months ago," she said.
She expects a "modest pickup" in sales in 2010.
"We will be looking at more of a balanced market."