Toronto, Ontario, October 24, 2005--Canadian new home construction is easing off this year and will continue the trend in 2006, due to increased competition from the existing home market and rising mortgage carrying costs, Canada Mortgage and Housing Corp. said on Monday.
After hitting a 17-year high in 2004, there should be 223,600 units built in 2005, a 4.2% decrease, CMHC said in its fourth-quarter housing market outlook. In 2006, starts are expected to decrease to 207,200, a drop of 7.3%, but still above the key 200,000 level for a fifth straight year.
The forecast is slightly higher than CMHC's third quarter outlook, when it predicted 2005 starts at 218,900 units, and called for a decline to 200,200 starts in 2006.
A sustained period of low interest rates has buoyed the recent housing boom, as cheap mortgages have enticed renters to become buyers.
But with Bank of Canada interest rates now rising and expected to keep climbing in 2006 and housing prices also surging, demand is expected to decrease.
"Housing markets across the country continue to respond to low mortgage rates", said Bob Dugan, chief economist at CMHC.
"However, increased competition from the existing home market and rising mortgage carrying costs due to strong house price growth and modest increases in mortgage rates will slow the pace of new home construction in 2006.
Sales of existing homes are expected to hit a record 476,000 in 2005, then ease to 453,700 units in 2006. Meanwhile, housing prices are expected to climb 10.2% in 2005, the strongest increase in 16 years, and should increase 4.9% in 2006, CMHC said.
