New housing supply outstripping demand

New housing construction shows more signs of cooling in British Columbia, with a local research firm finding supply outstripping demand in some areas.

Also on Thursday, the Canada Mortgage and Housing Corp. predicted that new housing starts in B.C. will top out at 36,900 this year and taper off to 35,300 in 2007.

In a report, the Vancouver-based development-research firm MPC Intelligence said markets are still strong, but "for the first time we are beginning to see small corrections in some areas."

MPC president Jennifer Podmore said the corrections referred to in the report relate to the slowdown of new-project sales seen in pockets of the region such as New Westminster, parts of Richmond and Maple Ridge.

"For the first time we're finding the market needs just a little bit of time to recharge before the next introduction of supply," Podmore said.

In other words, "instead of six months to sell out a development, some sites are taking eight months." And buyers are able to take their time making decisions, she added.

A large number of projects were launched over the summer in Richmond and it is taking time for the market to absorb all the units, she said.

In New Westminster, Podmore added, sales have slowed because little new supply has been put out. In Maple Ridge, a large amount of the same type of housing is being built and it is taking more time for the market to absorb all the units.

In the 60 days between Sept. 1 and Oct. 31, Podmore tracked the release of 3,833 units for sale in the pre-sale market. At the end of that period, she counted 2,235 sales, which left 1,598 -- 41.6 per cent -- as unsold inventory.

Podmore added that when she reviewed the year-to-date, of 20,355 units for sale, only 4,212, or 20.6 per cent, remained unsold.

MPC conducts research for clients in the development industry, and in its report Podmore advised developers to stagger the release of new projects to avoid flooding the market.

Podmore added that in her recent research, she has seen the number of "speculative investors" buying units in housing projects drop.

"Market fundamentals still make sense," she said. "We still know we're building to meet consumption numbers."

Podmore said allowing a bit of air out of the housing balloon so that prices and sales slow down a bit is probably a good thing for the market.

Canada Mortgage and Housing, in its forecast for 2007, said a slowing of sales in the resale market will leave less spill-over of demand into the new housing market, which will lead to a dip in new housing starts.

Carol Frketich, CMHC's regional economist in B.C., said the combination of rising prices and moderately higher interest rates will be the main factors that reduce housing starts.

"The impact [those factors] are going to have on monthly mortgage payments is going to slow demand," Frketich said. "We're seeing that in the market now."

CMHC's forecast estimates that declining sales in B.C. and Ontario will contribute to a nationwide drop in housing sales from a record high in 2005. Nationally, the federal mortgage insurer predicts housing starts next year will dip to 210,900 units from 227,900 this year.

Forecasts for lower sales and fewer housing starts are not surprising to Helmut Pastrick, chief economist for Credit Union Central B.C., who also expects the mortgage rate increases seen between July 2005 and August 2006 to continue dampening demand.

"My view has been that we are headed for a soft landing, metaphorically speaking, over the next couple of years," Pastrick said.

"The market is beginning to show some signs of shifting from a tight sellers market."

(prepared by Derrick Penner/Vancouver Sun)