Canada's housing market to fall by double-digits in '09: CMHC

Canada's housing market should fall substantially in 2009 because a faltering economy likely will suppress how many new homes are built and existing homes are traded, according to a report released Tuesday.

The Canada Mortgage and Housing Corporation said that the number of new residential starts across Canada will drop in 2009 by 33 per cent while existing home sales nationwide will tumble by 17.5 per cent.

The Crown agency released the figures in its second-quarter market analysis.

CMHC said Canada will see approximately 141,000 new housing starts in 2009, a drop of almost 70,000 compared to 211,056 starts nationally for 2008.

As well, the country's national housing agency now forecasts that existing home sales will drop to about 358,000 on an annualized basis in 2009, compared to 433,990 sales in the previous year.

While the Canadian real estate market has performed better than its U.S. counterpart, the CMHC forecast likely does not come as a huge surprise as economists have watched the housing sector slide along with the overall national economy.

"The decline in housing starts in 2009 can be attributed to several factors, including the current economic climate, increased competition from the existing home market, and the impact of strong house price growth between 2002 and 2007," said Bob Dugan, CMHC's chief economist.

Rising unemployment has made potential homeowners reluctant to jump into the housing market. In addition, shrinking housing prices have made homebuyers hesitant to put their abodes on the market.

The average home price across Canada will hit $283,100 in 2009, down 6.7 per cent compared to 2008, the report predicts.

Alberta and British Columbia are the two provinces where home values have experienced the biggest drops compared to their most recent annual peaks.

CMHC now expects the average price for a home in Alberta to reach $322,500 in 2009, down 9.4 per cent from a peak value of $356,235 in 2007.

In B.C., house prices will fall to $403,700 in the current year compared to a pinnacle valuation of $454,599 in 2008, the CMHC report says.

If CMHC's predictions are correct, home values in five provinces — New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Saskatchewan — will not fall at all on an annualized basis between 2004 and 2009.