Housing growth to wane - could see shift to Buyer's market

The heat draining out of Canada's housing landscape is expected to continue for the remainder of this decade, with growth in construction, sales and prices all set to ease from the recent run-up in activity.

The slower growth would act to balance conditions between buyers and sellers after years of rising house prices that have favoured those on the supply side, said Derek Holt, vice-president of economics at Scotia Capital.

The morphing conditions may even begin to turn toward a "buyer's market" in Western Canada by the end of the year as housing supply in British Columbia, Alberta, Saskatchewan and Manitoba rises amid easing demand, he said.

The Canadian Real Estate Association this week predicted national home sales would ease by 11.5% this year and by 4% in 2009. At the same time, new sales listings would also likely increase in all provinces, resulting in a more balanced resale market as supply catches up with demand, it said.

As a result, CREA said national house prices would likely rise 5.3% in 2008 to an average $323,500. The pace of growth would be much slower than the 11% recorded in 2007, which took prices to $307,265.

New-home supply also continues to rise, but at a much slower pace than in recent months. New-home construction fell 12% in April to a seasonally adjusted annual rate of 213,900, the latest Canada Mortgage and Housing Corporation figures showed yesterday.

But as Bob Dugan, chief economist at CMHC, points out, activity remains strong with the decline largely a correction from unusually high levels in February and March as well as a fall in the volatile multi-unit sector. Construction of urban multi-units fell 19.2% in April, while construction of single homes in urban areas fell 11.3%.

"Despite the decline, starts remained robust at over 200,000 units," Mr. Dugan said.

While new-home construction remains robust, the growth figures have begun to show a "gentle downwards slope" in activity, Mr. Holt said.

He expects annual housing starts to decline 7% to 212,000 this year before falling to 190,000 units in 2009. He said it is likely housing starts would cool further in 2010 as demand also eases.

David Wolf, vice-president and chief strategist at Merrill Lynch Canada, said the decline in housing starts followed figures on Tuesday that showed a 4.5% drop in building permits in March, with residential permits down 5.7%. Building permits are used as a forward indicator of construction activity.

"The Canadian market appears to have just recently reached a broad balance, with the recent years' overbuilding simply making up for a decade of below-trend construction that had left a supply gap," Mr. Wolf said.

(prepared by Alia McMullen/Financial Post)