Canada's federal housing agency softens forecast for new home starts

PUBLISHED : Wednesday, 11 February, 2015, 6:00am
UPDATED : Wednesday, 11 February, 2015, 6:00am

Canada's federal housing agency softened its forecast for housing starts this year, saying it expects the pace of new home construction to gradually moderate in the coming years.

Although the Canada Mortgage and Housing Corp said it expected employment and disposable income to continue to support the country's robust housing market, it noted the downside risks had increased since its October forecast because of the decline in oil prices.

As such, the CMHC said it had widened its forecast ranges for starts, sales and average prices.

Housing starts are expected to range between 154,000 and 201,000 units this year, with a point forecast, or most likely outcome, of 187,400 units, the CMHC said.

That is slightly lower than the forecast it gave in October of a range of 172,800 to 204,000 units, with a point forecast of 189,500. Under its base case scenario, starts will decline by 1 per cent compared last year, CMHC said.

"Lower oil prices will negatively affect oil-producing economies like Alberta, Saskatchewan, and Newfoundland and Labrador, which will only be partly offset by the positive effects of lower exchange rates and interest rates across all provinces," said CMHC's chief economist Bob Dugan.

For next year, the CMHC expects a range of 148,000 units to 203,000 units, with a point forecast of 185,100.

Canada avoided the worst of the global financial crisis and has seen its housing market accelerate amidst years of low interest rates.

Most economists and policymakers still expect the housing market to see a soft landing, although the sharp drop in the price of oil has raised some uncertainty around Canada's economic outlook. Oil is a major export for Canada.

The agency expects average home prices to increase by 1.5 per cent compared to last year, while existing home sales are seen as unchanged.