Housing starts to drop 16 per cent in '09: builders

Canada's housing market could slip more than 15 per cent in 2009 and set this country on a pace to fall further than the ultra-depressed U.S. home market, according to a new report by the Canadian Home Builders' Association released Monday.

In its report, CHBA forecast that new housing starts in Canada will fall to 178,000 this year, a 16 per cent tumble from the 212,000 expected once all the figures for 2008 are assessed.

Canada's slowing economy is a big factor depressing activity in the sector, said the association, which represents the country's residential construction sector.

Still, CHBA said, this year's housing numbers show Canada's sector at "a very robust level of activity" and indicates that the housing market north of the Canada-U.S. border is in better shape than the beleaguered American industry.

"There is absolutely no merit in drawing such a parallel (with the U.S. housing sector)," said CBHA in releasing the report.

Canada's housing sector has not faced the level of foreclosures and financial problems reached in the United States in the past year, the CHBA noted.

For instance, only 0.3 per cent of Canadian mortgages are 30 days in arrears compared to 4.3 per cent in arrears for 90 days in the United States. The U.S. number would rise if measured at a one-month cutoff.

Housing starts'09 (000s) Growth rate vs. '08 (%)Canada 178 -16.0 United States 806 -12.8 Source: Canadian Home Builders' Association, Wells Fargo

Still, U.S. housing starts are expected to drop at lower rate in 2009 than the CHBA's estimate of Canada's market.

Wells Fargo & Co., a U.S. bank that closely follows American housing market, predicts that U.S. housing starts will come in at an annualized level of 806,000 for 2009. That is down only 13 per cent from 2008's projection of 923,000 American starts.

Further to fall

One reason for the lower drop in the U.S. market compared to Canada might be that the American market has already slumped badly in the past two years.

At the 2009 level, the number of housing starts in the United States would be 39 per cent of the level reached in the halcyon days of 2006, when there were more than two million new homes under construction in the United States.

By contrast, Canada's 178,000 represents 78 per cent of the 227,395 housing starts in 2006.

Sunny disposition

Housing tends to be an industry that thrives on economic optimism, a commodity in shorter supply in these tough economic times.

In a recent interview, the former chief economist of the National Association of Realtors said he often viewed the economic evidence in this sector through a positive public policy lens.

"If you look at my actual forecasts, the numbers were right in line with most forecasts. The difference was that I put a positive spin on it. It was easy to do during boom times, harder when times weren't good," David Lereah told Money Magazine, a U.S. finance publication.