'Soft landing' expected for housing market, CMHC says

Canada's national housing agency says it expects builders to stop making as many new homes and focus on selling the ones they've already built.

The Canada Mortgage and Housing Corporations latest quarterlyforecast predicts lower salesvolumes for 2015,with163,000 to 203,200 homes expected to be built. The lower end of that forecast is below the 179,600 to189,900 new homes expected by the end of this year.

• MAP: House prices across Canada

The low end of that range is itself a slowdownfrom 2013, when 187,923 new Canadian homes were built.

Add it all up, and the housing agency calls fora "soft landing" in housing a term used by economists to describe a housing market that slowly cools down without ever experiencing a jarring, sudden large drop in prices, salesor new builds.

Prices will tick higher

Recent trends have shown an increase in housing starts, which is broadly supported by demographic fundamentals. However, our latest forecast calls for starts to edge lower as builders are expected to reduce inventories instead of focusing on new construction, CMHC economist BobDugan said.

While construction is expected to slow slightly, prices are expected to rise.

I think for a bubble there has to be an irrational supply. And I dont think we have reached that point.Toronto realtorJeff Cheng

CMHCs point forecast for homes predicts a 4.5 percent gain to $399,800 in 2014 and another increase of 1.8percent gain to $406,800 next year.

Just as prices are expected to inch higher, so too does the agency expect sales volumes to tick up.

CMHC expects approximately 463,600 Canadian homes to be sold this year, and474,300 units next year. Both figures are slightly above the457,338 homes sold last year.

Regional outlook

In all regions across Canada, the CMHC does not expect significant new home construction growth next year.

In Ontario, construction will slow to 57,100 new units in 2014 before steadying the following year. Meanwhile, home sales are expected to rise from 197,900 units in 2014 to 202,500 units in 2015.

CMHCs senior market analyst, Alex Meadow, says an improving Ontario economy means fewer people will leavethe province to go west, and instead will stay home and buy houses.

"An improving economy by 2015 and less out-migration to Western Canada will provide support to the broader Ontario housing market,"he said. "As home prices continue to rise, albeit at a more modest pace, demand will shift to less-expensive housing both by type and geography."

On the flip side, as fewer people head west to the Prairies, that's going to have an effecton the housing market there. TheCMHC expects construction in the region to slow next year to 50,800 after increasing to 52,900 homes this year.

In Quebec, moderate economic and employment growth will limit demand for homes this year andnext. The housing agency expects construction to start on 38,400 new homes in 2014 and 38,700 in 2015.

Building in Atlantic Canada paints the bleakest picture. With more migration out of the region, and a slump in economic growth, construction may dropnearly 14 per cent in 2014 and another three per cent in 2015.

Despite fears of alooming real estate crash, Jeff Cheng, arealtor with Tradeworld Realty Inc., says he sees no indication of a market bubble. "Real estate markets are cyclical by nature, but I think for a bubble there has to be an irrational supply. And I dont think we have reached that point." He points toemployment, immigration and interest rates supporting demand.

"Certainly Toronto and Vancouver have experienced balloons in pricing, but a soft landing makes sense to me,"Cheng said.