New home construction likely to peak this year, the federal agency says
Derrick Penner
Sun
Lower Mainland real estate markets should hit new record levels for sales this year before waning slightly in 2007 due to declining affordability factors, Canada Mortgage and Housing Corp. said Wednesday.
CMHC analyst Cameron Muir also expects Lower Mainland new home construction to hit the peak of it’s cycle in 2006, though he believes a decline in housing starts in 2007 will be mainly because builders once again will have trouble keeping up
However, Muir’s forecast doesn’t see the inventories of both new-home and resale housing rising enough to give home buyers any relief from rising prices.
“We’re in the midst of a strong economic-growth cycle,” Muir said. “So job growth, wage increases and migration are pretty solid underpinnings to the housing market.
“The only fundamental that is not in place, or eroding, is affordability.”
Muir expects the average single-family-home price to rise 12 per cent this year to $685,000, and another seven per cent in 2007 to hit $730,000. Condominiums are forecast to rise 10 per cent to $360,000 this year, and another 10 per cent to $400,000 next.
Muir said those prices, combined with moderately rising interest rates will keep more buyers away from the market starting next year.
CMHC, on Wednesday, released revised forecasts for new housing construction for all markets nationwide. CMHC predicts that all of British Columbia will counter the trend of its national forecast, which calls for a tapering off to 222,000, compared with 225,481 in 2005.
Muir’s forecast for Lower Mainland is for real estate resales to hit 60,700 in 2006, 2.6 per cent higher than the region’s 2005 high. In 2007, however, he expects to see a three-per-cent decline in sales to 59,000 units.
He has forecast that housing starts this year will ramp up by eight per cent over 2005 to a peak of 20,500, the third highest number on record.
Muir said builders have managed to overcome bottlenecks in production that held them up last year: labour shortages, a lack of building lots and slow municipal approvals for development.
In 2007, however, Muir believes contractors will hit another choke point in production.
CMHC regional economist Carol Frketich is also predicting a peak for all new-home construction in B.C. this year at 37,000 units. In 2007, she expects starts to drop to 34,900 units and decline again to 33,200 in 2008.
“A combination of rising prices and rising interest rates is going to slow things down,” Frketich said, though not as much as declines experienced in previous market cycles.
Other analysts, however, are more skeptical about B.C.’s ability to keep generating high increases in housing and real estate sales.
“Residential construction will remain at very strong levels, there’s no doubt about that,” Sebastien Lavoie, economist with TD Bank Financial, said. “But we won’t see the growth we’ve seen in the past few years.”
Lavoie said B.C. is “bucking the trend of what we see in Atlantic and central Canada.” However, he believes the combination of the province’s skyrocketing prices and higher interest rates will lead to “an ease on demand” that could take hold later in the year.
He added that Vancouver is still one of the markets TD Bank believes is in most danger of a major correction because price increases are outpacing wage raises and the potential income from property.
© The Vancouver Sun 2006
