BUSINESS

Canada Housing Forecast: CMHC Sees 11 Per Cent Decline In Housing Starts, Potentially Hitting Economy

02/22/2013 04:20 EST | Updated 02/22/2013 04:22 EST
Getty Images

Construction on new Canadian homes will fall 11 per cent in 2013 compared to the year before, but pick up in the second half of the year, says Canada's public mortgage insurer.

The Canada Mortgage and Housing Corp. expects about 190,000 new housing units started in 2013, compared to 214,000 new units in 2012.

But the Crown corporation says it sees Canada's economy picking up speed in the second half of the year and through 2014, which will help to hold up Canada's increasingly shaky housing market.

CMHC expects housing construction activity will trend lower in the first half of 2013, before gaining more momentum by the end of the year as economic and employment growth remain supportive of the Canadian housing market,” CMHC deputy chief economist Mathieu Laberge said in a statement.

“In 2014, improving economic conditions may be partially offset by a slight moderation in the number of first-time homebuyers, and potential small and steady increases in mortgage interest rates.”

However, a significant decrease in housing starts in the short term could still pose a problem for the economy. In a speech in Toronto Thursday night, housing analyst Ben Rabidoux pointed out that Canada's reliance on housing-related jobs has grown to an unprecedented level.

The "FIRE" industries — finance, insurance and real estate — now account for 27 per cent of Canada's GDP, up from a long-running average of around 24 per cent. So a slowdown in housing would have a larger impact on Canada's economy than would previously have been the case.

housing industry canada

Source: Ben Rabidoux

Analysts are expecting the slowing housing market to hit the bottom lines of Canada's big banks because it means fewer homeowners looking for mortgage financing. Bloomberg News reported Friday that Canada's six largest banks are forecast to show a 6.9-per-cent decrease in per-share profit for the quarter that ended in January, largely because of weaker lending.

"The nation’s banks, ranked the world’s soundest by the World Economic Forum for five straight years, face a consumer-lending slowdown as Canadians struggle with record debt levels and a cooling housing market," Bloomberg reported.

CMHC's forecast did have some good news. Total existing home sales are expected to remain steady this year, falling by 2,000, to 451,000 from 453,000 in 2012.

And the mortgage insurer says house prices will continue to climb, albeit at a much slower pace than has been seen in recent years. It expects prices to rise one per cent this year, in line, more or less with inflation, growing to a 2.7-per-cent gain in 2014.

However, the Teranet-National Bank index of Canadian housing prices in January continued to show the effects of a cooling trend that has hovered over the real estate market for more than a year.

The index was at 153 last month, up just 2.7 per cent from January 2012 — the lowest 12-month growth rate since November 2009. But house prices have fallen in each of the past five months.

With files from The Canadian Press

World's Most Overvalued Housing Markets