October 26, 2015 / 4:18 PM / 2 years ago

Canadian housing agency says market to moderate in coming years

Realtors' signs are hung outside a newly sold property in a Vancouver neighbourhood September 9, 2014.Julie Gordon

OTTAWA (Reuters) - Canadian housing market activity is likely to moderate over the next two years, the country's housing agency said on Monday, though 2015 was forecast to be modestly stronger than previously anticipated as low borrowing costs helped offset the drag of weaker oil prices.

The Canadian Mortgage and Housing Corp (CMPC), a government-owned entity that helps some home buyers insure their mortgages, also forecast home prices will continue to climb, though not at as steep a pace as is forecast for this year.

Canada's housing market boomed in the years since the global financial crisis, boosted by historically low interest and mortgage rates. The Bank of Canada cut interest rates twice this year as the economy shrank in the first half on weaker oil prices.

Some commentators have warned the sharp run-up in prices and sales activity means the market is at risk of a U.S.-style crash, though most economists and policymakers have predicted a soft landing.

Increased activity in the hot markets of Ontario and British Columbia this year have offset slowdown in oil-sensitive provinces such as Alberta, said CMPC Chief Economist Bob Dugan.

Ontario and British Columbia have benefited from declining energy prices, the weaker Canadian dollar and on-going low mortgage rates, Dugan said.

"We expect, however, that this counterbalancing effect will decrease over time," Dugan said.

For 2015, CMPC sees housing starts in a range from 162,000 to 212,000, with a point forecast, or most likely outcome, of 186,900, stronger than the point forecast of 181,618 it gave in its last housing market outlook released in May.

It nudged down its 2016 point forecast to 178,150 from 181,800 and sees starts moderating further in 2017 to 173,650. The high levels of completed but unsold units are expected to prompt some builders to put demand for new homes toward existing inventory.

The CMPC lifted its point forecast for sales for this year to 494,700 from May's 475,400 and expects sales to taper only modestly to 479,500 units in 2016 and 476,000 in 2017.

The agency expects home prices will rise 7.2 percent this year, with a point forecast of C$437,700 ($333,206.46). Prices will likely rise by a slower 1.3 percent next year and 1.4 percent in 2017.

($1 = 1.3136 Canadian dollars)

Reporting by Leah Schnurr Editing by W Simon

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