February 9, 2009 / 1:35 PM / in 9 years

Canada housing market droops, more pressure seen

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.

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

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.

CREA said a deteriorating jobs market is putting pressure on the housing market. Last week, Statistics Canada said the economy shed a record 129,000 jobs in January, cutting at already-fragile consumer confidence.

“We are caught in a cycle where consumer confidence has been eroded because of job losses, and consumer confidence is an essential ingredient for housing sales activity,” said Calvin Lindberg, CREA’s president.

Urban single family house starts fell 20.2 percent to 50,000 in January from 62,700 the month before, almost double the decline recorded by the often-volatile urban multiple homes segment. New construction of multiple dwellings, such as condos, fell 12.2 percent to 76,700 units from 87,400 in December.

The sharp drop in single-home starts, generally a stable predictor of residential housing activity, could foreshadow weak real GDP growth in the first quarter, economists said.

Rural starts were estimated at a seasonally adjusted annual rate of 26,800 units in January.

All five major regions showed declines in housing starts, with the largest percentage drop in the Western provinces. In the Prairie region, starts fell 30.3 percent, while in British Columbia they dropped 29.1 percent.

CREA said it expects existing home sales to rebound by 9.9 percent to 396,600 units in 2010, with the average home price forecast to rise 1.1 percent to C$282,400.

($1=$1.22 Canadian)

Reporting by Ka Yan Ng; editing by Peter Galloway

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