CMHC says house sales to cool over next 2 years

Canada Mortgage and Housing Corp. is predicting housing starts and overall sales will slow in the coming two years, as the boom market in housing cools.

A rise in the numbers of unsold homes, an increase in the number of rental units and the beginning of higher interest rates will slow sales and moderate price rises, CMHC says in its quarterly Housing Outlook.

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This doesn't mean the average price of housing will fall, CHMC forecasts, but the pace of increases will slow.

CMHC predicts a 7.2 per cent gain in 2015, a 1.3 per cent gain in 2016 and a further 1.4 per cent gain in 2017.

Uneven market

It acknowledges Canada's house price changes are uneven, with rapid increases in Toronto and Vancouver offset by a slowdown in Calgary.

"In 2015, increased housing market activity in provinces like Ontario and British Columbia — provinces that have benefited from declining energy prices, a lower Canadian dollar and continued low mortgage rates — offset slowdowns in oil-producing provinces like Alberta," says CMHC chief economist Bob Dugan.

"We expect, however, that this counterbalancing effect will decrease over time. As such, housing starts and MLS sales are projected to moderate in 2016 and 2017."

Sales through the Multiple Listing Service are expected to range between 444,000 and 546,000 units in 2015, with sales records in hot markets such as Vancouver and Toronto.

But in 2016, sales are forecast to range from 425,000 to 534,000 units and they could fall further to 416,000 to 536,000 units in 2017.

Housing starts are also expected to cool in 2016 and 2017, as demand slides for new units.

What about condos?

This is particularly true of multi-unit projects, which are typically started two to three years before coming on the market, CMHC says.

A CIBC report finds Toronto currently has about 2,000 condo units built but not absorbed by the market, while Vancouver has about 1,000.

CIBC economist Benjamin Tal argues this number is not out of line and does not indicate an oversupply of condos.

"To be sure, the GTA's condo market will be tested as interest rates start rising in the coming years, and increased resale activity from domestic condo investors will result in excess supply and some downward pressure on prices," he writes in a research report.

But he says the condo market is not vulnerable to a crash — at least not yet. About one-third of the unsold units are concentrated among four developers.

"I do believe that the condo market eventually will correct because when interest rates start rising those domestic investors will start selling, there will be excess supply and that's when I see a bit of a correction in the market, nothing like the U.S., but it will come," Tal said in an interview with The Exchange.

Condo construction helps introduce stability into housing markets in these cities, by providing a more affordable option and alleviating the lack of land supply, Tal says.