Derrick Penner
Sun
British Columbia housing starts will fall 4.8 per cent this year as slower-than-anticipated economic growth translates into less demand for new homes, Canada Mortgage and Housing Corp. reported Monday.
Provincial housing starts will fall to 34,700 in 2007 from 36,443 new units in 2006, CMHC forecasts in its housing market outlook for the first quarter. They will then slip another 6.3 per cent to 32,300 in 2008.
“The level of activity is still high,” Carol Frketich, regional economist for Canada Mortgage and Housing said in an interview, “but [with] a little bit of moderation,” which she characterized as a soft landing.
Frketich said the current forecast predicts slightly lower economic growth for B.C. in 2007 — 3.2 per cent compared with 3.5 per cent in 2006.
She added that while immigration is expected to increase B.C.’s population by about 80,000 people over the next two years, the province will also lose workers to Alberta. That will hold back housing demand.
Although mortgage rates are expected to remain stable, “the combination of higher prices and interest rates. . . will still have a bit of an impact.
“[Unaffordability] is going to dampen demand a little bit in 2007 and 2008.”
However, Canada Mortgage and Housing expects that will only slow, not halt price growth. Frketich said the forecast is for a seven per cent increase in 2007 and 3.5 per cent in 2008.
On a national level, housing starts are forecast to fall to 209,500 units in 2007 after hitting 227,395 units last year, again due to high prices and slightly higher mortgage rates, Bob Dugan, CMHC’s chief economist, said in a news release.
“Most of the pent-up demand that built up during the 1990s has been absorbed,” Dugan said, “and higher mortgage carrying costs due to continued strong price growth and modest increases in mortgage rates will contribute to the slower pace of new home construction this year and next.”
Derek Burleton, associate vice-president and senior economist with TD Economics, said B.C.’s markets show signs of a necessary cooling-off period.
“I’m on the same page as CMHC [about a soft landing],” Burleton said.
While B.C. faces some economic challenges from the slowing of United States housing markets, Burleton added that TD Economics estimates B.C.’s growth will still remain at “a healthy” three per cent for 2007.
And the housing market should remain relatively strong for the next few years.
“To the extent that the market remains strong obviously raises the risk of a nastier correction down the road, or a bigger retrenchment of [house] prices,” Burleton said.
“But I think [we’re seeing] a bit of cooling this year and 2008, and I think that mitigates the risk of [a correction] significantly.”
He added that TD Economics has “always talked about the risks for the [B.C.] economy being post-2010.”
In rental markets, Canada Mortgage and Housing forecast that Vancouver’s rental vacancy rate will inch up from 0.7 per cent in 2006 to one per cent in 2007 and 1.3 per cent in 2008.
Frketich said that will be because many first-time condominium buyers are expected to move into their new homes, freeing up rental stock.
However, she added that there will still be strong rental demand because high prices have created “a widening gap between the cost of home ownership and the cost of renting.”
TEPID TIMES
Slower economic growth and more unaffordable prices will cool housing markets, CMHC is forecasting.
Not enough, however, to bring down B.C. prices any time soon.
B.C. HOUSING STARTS
2006 36,443
2007 34,700 -4.8%
2008 32,300 -6.3%
GREATER VANCOUVER
2006 18,705
2007 19,500 +4.3%
2008 18,500 -5.1%
Source: Canada Mortgage and Housing Corp.
© The Vancouver Sun 2007
