Uncertain economic outlook hitting number of new property starts in Canada

New property starts in Canada are experiencing a steep decline in 2009 due to economic uncertainty but are expected to increase again in 2010, according to a new report.

The market is moderating due to three key factors, says the report from the Canada Mortgage and Housing Corporation.

First, strong house price growth between 2002 and 2007 has tempered home ownership demand particularly in Western Canada. Second, the record high levels of new listings have increased the competition from the existing home market and reduced spillover demand. And, finally, uncertainty about the economic outlook is a contributing factor restraining demand for home ownership.

Overall in 2009, property starts will decline in all areas of Canada and more so in Western Canada and Ontario. By 2010, however, all provinces will see increases in property starts, the report states.

Analysts point out that strong sellers' market conditions in recent years were reflected in strong upward pressure on the average price of residential properties, which increased in the 9 to 11% range between 2002 and 2007. The first half of 2008 saw an easing of sales and higher levels of new listings. This brought the Canadian resale market back into buyers' market territory by the end of 2008.

For 2009, prices are expected to decrease by 6.8% to $283,100 and remain at that average in 2010, the report says. While the Atlantic provinces will see stable or rising prices, the other provinces will see declines in 2009. The adjustments will be more important in British Columbia and Alberta, where price gains were particularly strong in recent years.

The report also warns that if the US recession proves to be deeper and more prolonged than is currently expected, then job losses in Canada could be greater than forecast. In turn, this could cause the demand for home ownership to fall.

However analysts point out that there has been a strong policy response to the economic downturn. 'This will continue by governments at all levels in many countries. Central banks throughout the world, including Canada, have dramatically cut interest rates. The impact of existing and future stimulus could boost economic growth beyond expectations, which would lead to stronger job creation and increased demand for ownership housing,' it says.