Housing Market Develops a Slow Leak

.....a report from Canada Mortgage and Housing Crop. says.

The agency's first-quarter market outlook predicts new-home construction will continue to cool this year, with starts falling to 208,700 from 225,481 last year. Looking further ahead, CMHC expects building activity to fall even further in 2007, with new-home starts dipping to 194,800 after five straight years above 200,000.

In the resale market, CMHC predicts an end to a string of record-breaking years. It expects 461,500 existing homes to trade hands this year, down from last year's record pace of 481,900. Next year, it forecasts the decline will continue, with activity falling to 444,000.

Price increases also are expected to moderate. Last year, the prices of resale homes across the country increased 10 per cent, the strongest showing in 16 years. CMHC expects the increase to slow to 5.5 per cent this year and to 3.8 per cent in 2007.

Bob Dugan, CMHC's chief economist, says the decline will put the market at more sustainable levels. Higher carrying costs caused by higher interest rates and rising home prices are expected to contribute to the slowdown.

In the rental market, the agency reports the national vacancy rate remained steady at 2.7 per cent as of last October. It predicts that it will edge up slightly, to 2.9 this year and next as renters continue to enter the housing market.

Housing markets in B.C. and Alberta are expected to remain strong, with a slight drop in starts in both provinces. An increase in immigrants to Ontario is expected to fuel housing demand, but this will be partly offset by the strong economy in the West, which is expected to attract workers from Ontario and other provinces, CMHC said.

(prepared by Elizabeth Church/Globe & Mail)