Further 10% slide in home prices: CMHC

The balancing of supply and demand in British Columbia housing markets should result in a 34-per-cent decline in housing starts and a further 10-per-cent slide in home prices, according to Canada Mortgage and Housing Corp.’s latest forecast.

Canada Mortgage and Housing, in a forecast update issued Thursday, called for new-home starts of 22,800 in 2009, down from 34,321 in 2008.

The national housing agency also estimates the average B.C. home price will hit $407,700 in 2009, down from $454,599 in 2008.

Carol Frketich, Canada Mortgage and Housing's regional economist for B.C., said that the slowing economy and rising unemployment in the province’s economy will lead to weaker demand for housing over the next two years.

“We’re going to see consumers rein in their spending, and that includes spending on housing,” Frketich said in an interview, and builders will slow down construction on new homes as a result.

Frketich said the decline in starts falls below the level of construction that would be expected considering B.C.’s population growth and the rate that new households are formed in the province.

Based on that growth, B.C. would expect to see 30,000 to 32,000 new homes built in 2009 if the economy were stronger.

“In a period where you have a strong economy and strong job market, which we did see over the last few years, you build above [population] demand,” she said.

Frketich added that the forecast numbers are still higher than the 15,000 level experienced during the last correction in B.C.’s real estate markets.

Tsur Somerville, director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C., said B.C. saw a period between 1994 and about 2001 where housing construction didn’t keep up population growth and the increase in household formations.

“That’s why you can have starts be above household growth for a while and not necessarily be overbuilding,” he said.

However, B.C. built so many new homes in the last few years he thinks there could be room for starts to fall further than the Canada Mortgage and Housing forecast.

Thought Frketich’s forecast calls for a 34-per-cent decline, Somerville said “that still seems to be closer to the optimistic end of the range,” compared with the level of sales in provincial home-resale markets.

“Right now, our starts are not as low as they have been in previous downturns,” Somerville said. “Yet our sales numbers are dropping off significantly. That seems to suggest start numbers are going to be low for a while.”

Housing starts trail from housing sales, Peter Simpson, CEO of the Greater Vancouver Home Builders Association said in an interview. Thus, with the decline in housing sales that has spilled from 2008 into 2009 he is not surprised to see expectations for housing construction decline.

“Sales are starting to pick up now, so they might readjust that [forecast],” Simpson said, but regardless, he expects the drop in housing starts to pinch employment in the sector from jobs on construction sites to the manufacturers that produce building supplies.

“That’s a deep cut, 7,000 starts,” Simpson said. “But again, that’s just a prediction.”

Frketich expects housing markets to balance out in 2010 with the return of some economic strength and as buyers are attracted to the reduced home prices and lower mortgage carrying costs.

(prepared by Derrick Penner/Vancouver Sun)