CMHC Predicts Housing Market to Cool Down in 2016

58155The country’s housing regulator predicts Canada’s housing market is set to cool over the next two years as the frantic pace of both new home construction and existing home sales in some markets slows down.

In 2015, “the housing markets in British Columbia and Ontario have benefited from lower gas prices, rejuvenated exports and record-low interest rates”, CMHC chief economist Bob Dugan wrote. But those effects will wear off in coming years.

New home construction will also fall, with housing starts hitting 186,990 in 2015 before dropping to 178,150 this year and to 173,650 in 2017. The residential construction sector will be forced to grapple with high numbers of newly built, unsold condos that “encourage some builders to channel demand for new housing towards existing inventory,” CMHC wrote.

“To be sure, the GTA’s condo market will be tested as interest rates start rising in 2016 and 2017, and increased resale activity from domestic condo investors will result in excess supply and some downward pressure on price,” Mr. Dugan wrote. “But for now, those who look at the rise in unabsorbed units as a sign of increased vulnerability are barking up the wrong tree.”

Not everyone agrees with that assessment. In a recent report, Canadian Imperial Bank of Commerce economist Benjamin Tal wrote that CMHC’s data on unsold condos appeared to be unreliably volatile and that higher levels of unsold condo inventory in the Greater Toronto Area could be mainly attributed to just five projects by four developers.

With the start of 2016, the housing market in Toronto and Vancouver is expected to taper off slightly over the next two years, the prices should drop by 5.0%, and the number of units sold is to drop down as more prospective first-time buyers find they’re priced out of the market due to the new government rules.

In Montreal, an improving labour market will spark new home buyers over the next two years, pushing home prices up by 2.0% a year. However, a surge in new rental construction to 10-year highs will also boost rental vacancy rates.

The improving economy and private sector energy projects should give a lift to the Atlantic Canada region’s struggling housing market, but residential starts will likely fall over the next two years. In St. John’s, home prices should fall 2.0% this year as developers move away from speculative home building. In Halifax, existing home prices will grow below the rate of inflation as the city undergoes its biggest rental-housing renaissance since the 1970s.

The market in Calgary, Edmonton, and Saskatchewan has undeniably felt the effects of the struggling energy sector. Construction of detached homes is expected to reach its lowest levels since 1988. High rental vacancy rates and a backlog of unsold condos will put its weights on developers and resale activity is expected to fall by 12.0% by the end of 2017.