Canadian Housing Market: Housing starts to remain stable in 2014 and 2015
Date Released: First Quarter 2014
|Housing starts to remain stable in 2014 and 2015|
|MLS® sales to rebound in 2014 and increase slightly in 2015|
*The outlook is subject to uncertainty. Although point forecasts are presented in this publication, CMHC also presents forecast ranges and risks where appropriate. The forecasts included in this document reflect information available as of January 22, 2014.
*Multiple Listing Service® (MLS®) is a registered trademark owned by the Canadian Real Estate Association.
While housing demand will be supported by an improvement in fundamentals, total housing starts will remain more or less stable over the forecast horizon. With a relatively high number of units under construction in some local markets, builders are expected to adjust the pace of new activity in order to manage their inventory levels.
Overall, total housing starts are expected to remain mostly unchanged in 2014, reaching 187,300 units, before moderating to 184,900 units in 2015.
Existing home sales are expected to rise moderately along with economic conditions in 2014 and 2015. On an annual basis, sales through the Multiple Listing Service® (MLS®) are expected to reach 466,500 units in 2014 and 474,700 units in 2015.
*Multiple Listing Service® (MLS®) is a registered trademark owned by the Canadian Real Estate Association
In line with expectations that most local housing markets will remain in or near balanced market conditions, the average MLS® price average for Canada is expected to grow at a rate near inflation over the forecast horizon. The average MLS® price is expected to reach $390,400 in 2014 and $397,100 in 2015, representing increases of 2.1 per cent and 1.7 per cent, respectively.
CMHC uses publicly available information and the consensus among major Canadian forecasters as a basis for its economic forecasts.
GDP growth is estimated at 1.8 per cent in 2013. In accordance with the consensus among prominent Canadian economic forecasters, growth in gross domestic product (GDP) is forecast at 2.2 per cent in 2014, rising to 2.5 per cent in 2015.
Over the forecast horizon, the sources of economic growth are expected tobe more diverse. While consumption will continue to provide support, the contribution of business investment and exports to economic growth will expand as they progressively strengthen in 2014 and 2015.
Employment increased by 1.3 percent in 2013. CMHC expects that employment will grow by 1.5 per cent in 2014 and 1.8 per cent in 2015.The anticipated employment growth is expected to sustain moderate income growth and household formation over the forecast horizon. This will, in turn, support demand on the housing market.
Consistent with a somewhat higher economic growth prospect, interest rates are forecast to register gradual and modest increases by the end ofthe forecast horizon, ultimately leading to a slight increase in mortgage rates. Nevertheless, this interest rate outlook will continue to support housing market activity over the forecast horizon, as mortgage rates will remain low by historical standards.
According to CMHC’s base case scenario for 2014, the average for the one-year posted mortgage rate is forecast to be within 3.0 per cent to 3.50 per cent, while the average forthe five-year posted mortgage rate is anticipated to be within 5.25 per cent to 5.75 per cent. For 2015, the average for the one-year posted mortgage rate is expected to rise and be in the 3.75 per cent to 4.25 per cent range, while the average for the five-year posted mortgage rate is forecast to be within 5.50 per cent to 6.25 per cent.
Over the forecast horizon, the sources of economic growth in Canada are expected to continue to improve and broaden, as exports and business investment progressively strengthen. As the shift occurs, economic fundamentals, including employment and disposable income growth, are expected toincrease modestly. These factors will help to sustain demand for new home construction in 2014 and 2015.
While the above cited fundamentals will help to sustain the demand for new homes in 2014 and 2015, the influence of other factors will cause housing starts to moderate over the latter part of the forecast horizon.
With a relatively high number of units currently under construction in some local markets, builders are expected to gradually adjust their pace of activity in order to manage their inventory levels. Also, the expectation of modest and gradual increases in mortgage rates toward the end of the forecast horizon will also contribute to tempering demand. This, combined with a slow down in the growth of the pool of first-time buyers in late 2014 and into 2015, will lead to further moderation of housing starts next year. Nevertheless, housing starts are projected to remain somewhat stable, at 187,300 units in 2014. In 2015, housing starts are expected to moderate to184,900 units.
Multiple housing starts expected to stabilize in 2014 and decline in 2015
High level of activity in the years prior to 2013 left a reltively high number of multiple housing units* currently under construction in some local markets, when compared to historical averages.The strengthening of economic fundamentals over the forecast horizon, will provide support to multiple housing demand and contribute to offset the effect of a gradual and modest increase in mortgage rates and slower growth in the pool of first-time home buyers. However, in the face of relatively high numbers of units under construction, builders are expected to adjust the level of starts, so as to channel demand toward the absorption of inventories. Overall, these effects will result in multiple housing starts remaining relatively unchanged, at 110,600 units, in 2014 and 108,700 units in 2015.
*Multiple housing starts consist of row, semi-detached and apartment units
MLS® sales expected to reboundin 2014 and increase slightly in 2015
In 2014 and 2015, MLS® sales are expected to continue to rise along with improving economic conditions. Specifically, sales through the Multiple Listing Service® (MLS®) are expected to reach 466,500 units in 2014, before seeing an increase to 474,700 in 2015.
Balanced market conditions expected to prevail over forecast horizon
Balanced market conditions are expected to persist in most regions across Canada throughout the forecast horizon, and the average MLS® price is expected to remain relatively stable at a rate slightly above inflation.The average MLS® price is expected to increase by 2.1 per cent to reach $390,400 in 2014. In 2015, the average MLS® price should move up modestly, to $397,100, for an increase of 1.7 percent.
For more information on the Housing Market Outlook, and the statistical details on the housing forecast, please go to CMHC - Housing Market Outlook - Canada Highlights - First Quarter 2014.
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The information, analyses and opinions contained in this publication are based on various sources believed to be reliable, but their accuracy cannot be guaranteed. The information, analyses and opinions shall not be taken as representations for which Canada Mortgage and Housing Corporation or any of its employees shall incur responsibility.