National housing starts predicted to decline in 2012 due to deteriorating economic conditions

Subdued economic growth will take the sizzle out of Canadian housing starts in 2012, according to the October 2011 Housing Forecast issued by Altus Group. Deteriorating global economic conditions leading to lower Canadian growth expectations will constrain housing demand across the country, with only Alberta expected to see an increase in housing starts.

“Based on recent data, the Canadian housing sector is performing at a very high level, with elevated housing starts, steady prices, and steady resale markets. Interest rates are also no longer expected to increase over the next year,” said chief economist Peter Norman, Altus Group. “But at the same time a number of risk factors are emerging, especially deteriorating economic conditions and tighter mortgage rules. Canadians can expect lower levels of housing construction in most areas of the country next year.”

Apartment starts continue to drive housing market

2011 has seen an increase in Canada-wide housing starts over 2010, with apartment starts offsetting lower single-family homes, particularly in British Columbia, Ontario and Nova Scotia. However, in 2012, apartment starts will begin to fall back and single-family starts will continue to moderate, creating an overall drop. The report also found that inventories of existing homes have declined in most markets over the past year, resulting in less competition for new home starts.

Key factors impacting housing starts by region

Altus Group looked at regional trends across the country for the coming year: Alberta has seen job conditions and interprovincial migration rise sharply this year (at the expense of Ontario and British Columbia), positively impacting housing demand next year.

However other areas of the country will experience lower starts, including Atlantic Canada, where migration will continue to be impacted by the weak economy, which will hamper new housing demand. “In Atlantic Canada, although Newfoundland continues to fire on all cylinders, sharply deteriorating job levels in Nova Scotia and New Brunswick have led to much weaker migration and already weakening conditions in the housing sector,” said Norman.

In Montreal, higher inventories and units under construction will limit apartment starts, and in Regina and Saskatoon new home inventories are slightly elevated and will limit starts.

Other areas of the country are expected to see pockets of modest growth. Norman forecasts, “Condominium apartment sales remain elevated in Toronto, albeit strongly influenced by investor purchases, but deteriorating migration, weakening job growth and other factors will see a softer housing market with modestly lower housing starts for apartments and single family homes in Ontario next year.”

In Manitoba, despite some market softening, strong levels of migration will continue to fuel housing demand. In British Columbia the transition rules for the removal of the HST on housing have yet to be announced, but will likely cause delays for home buyers of higher-end homes.

House prices remain stable

The report also found that increases in new house prices remain stable across the country and are in line with the general inflation rate in most provinces, aside from Alberta where there is little change, and British Columbia where they are declining.

Existing home sales posted a modest uptick. Prices for building products including brick, gypsum and lumber remain soft. Asphalt prices continue to be influenced by higher crude oil prices.

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