Canada housing market droops, more pressure seen

Mon Feb 9, 2009 2:16pm EST
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By Ka Yan Ng

TORONTO (Reuters) - Canadian housing starts fell more than expected in January and the downtrend in sales of existing homes will became sharper, reports said on Monday as the country's economic gloom deepened.

House starts dropped 11 percent in January from December to a seasonally adjusted annualized rate of 153,500 units from 172,200 in December, Canada Mortgage and Housing Corp said.

That was below the average expectations of analysts for 169,000 starts. The December figure was revised lower from 177,300 units reported last month.

"The Canadian housing correction is in full swing, having a wide impact across the country," said economist Robert Kavcic at BMO Capital Markets Economics. "With sales activity showing no sign of life, residential construction will be under pressure for most of 2009."

Meanwhile, the Canadian Real Estate Association (CREA) forecast on Monday that sales of existing homes will drop 16.9 percent to 360,900 units in 2009 following a 17.1 percent tumble in 2008.

That will bring national home sales made through real estate agents to the lowest level since 2000, CREA said.

"To a certain extent, the decline in housing starts coincides with recent developments in the existing home market," said Bob Dugan, CMHC's chief economist. "Reduced sales and increased listings in the existing home market have led to reduced spillover demand in the new home market."

On average, CREA sees average home prices falling 8 percent this year to C$279,400 ($229,016) from C$303,594 in 2008. The price decline will be sharpest in the Western provinces and Ontario. But CREA sees prices rising 4.8 percent in the province of Newfoundland and Labrador.   Continued...

<p>A builder works at a Bovis homes housing development near Bolton, northern England, July 9, 2008. REUTERS/Phil Noble</p>