New property builds fall for six month in a row in Canada

Canadian new builds fall six month in a row

New property construction in Canada has fallen for the sixth consecutive month in a row and the slowdown is expected to continue for at least another six months.

However, developers have anticipated the slowdown and are building less so a US style glut in the real estate market is unlikely, experts point out.

The figures for February from the Canada Mortgage and Housing Corporation show that there were 134,600 starts on a seasonally adjusted annualized basis, down sharply from the 153,500 units in January. The consensus among economists was for 145,000 starts.

'This will continue for another six months or so. The rate is accelerating and I would not be surprised at one point in the cycle starts will drop to 120,000. This is not unthinkable,' said predicted Benjamin Tal, a senior economist with CIBC World Markets.

At one point it did seem implausible. New home construction had topped 200,000 for seven straight years going into 2009 but the February figure was down 50% from the peak of this cycle reached in September, 2007.

However, as contractors and builders have reacted so swiftly to the change in the economy that the level of unsold inventory in Canada is not expected to be anywhere near as high as the United States.

'This is the good news. It means the faster they slow down, the less a correction house prices that we will see. It's positive for sellers because prices will not fall in a significant way. It's good for the economy although bad for the housing sector,' added Tal.

CMHC said a slowdown in sales for existing property continues to have an impact on the new home market. Sales for existing homes are off as much as 50% from where they were a year ago in some Canadian cities.

'Originally the decrease in sales in the existing homes market was pretty well isolated in Western Canada, but since in October we have seen it spread to Ontario and Quebec. We are in buyers' market territory,' said Bob Dugan, chief economist with CMHC.

Two weeks ago CMHC was forced to downgrade its forecast for new home construction to 160,250 in 2009, down from the 177,975 it forecast three months earlier.

'There's no credible positive spin on these figures. They're just plain bad. A US style pace of erosion in housing markets has arrived in Canada as we've long said it would, but we remain of the view that the implications for Canada's financial system offer a night and day comparison to what has occurred stateside,' said Derek Holt, an economist with Scotia Capital.

Builders, however, don't see any reason to panic and have been planning all along to scale back their efforts, it is claimed. 'We aren't surprised at all by the numbers. We are building to meet the demand of the current market,' said Gary Friend, president of the Canadian Home Builders' Association.