Sunday, January 16, 2011

"Soft landing" arrives for Canadian housing industry

TORONTO — Canadian new home construction in 2010 finished 29% ahead of last year’s pace, but the "soft landing" many in the industry have been predicting appears to have finally arrived, based on data from Canada Mortgage and Housing Corp.

The Crown corporation said December starts were 171,500 on a seasonally adjusted annualized basis, down from 198,200 a month earlier. CMHC would not provide annual statistics for 2010 because the numbers will be revised later this month but economists pegged actual homes built in 2010 at about 192,500.

It’s a pretty big increase,” said Bob Dugan, chief economist of CMHC, comparing this year’s starts to the 149,081 in 2009. “It was a pretty strong recovery. It was kind of expected once the economy recovered and the jobs were being created again. There was a certain amount of pent up demand.”

Still, with CMHC forecasting only 175,000 starts for this year, it is starting to look like the glory days of the last decade, when starts hit 200,000 annually for seven straight years, are well behind us.

“I would call it a soft landing, what we are forecasting for 2011. The reason I say that is starts hitting 175,000 is pretty much in line with household formation,” said Mr. Dugan.

The economist says “never says never” but he can’t see the market having a similar bull run again. “You look a longer time projections of populations with baby boomers aging and going into retirement and the generations behind them being smaller we just won’t have the population growth to sustain that level of housing starts.”

CMHC actually has a range for its 2011 forecast with 148,00 on the bottom end and 203,000 on the top end. Mr. Dugan says a major change in the economy like another credit crunch would drive us to that lower number while the high end would need stronger than expected economic growth in the United States.

Toronto-Dominion Bank economist Sonya Gulati says the second half of 2010 was more of what economists had been expecting in terms of a downturn in the housing market. “Recent homebuilding activity supports our view that the market has begun to gradually correct itself, but in an orderly fashion consistent with a soft landing. We continue to believe that homebuilding activity will take its cue from the resale housing market such that both ease in 2011, before a pick up in activity in 2012,” said Ms. Gulati.

Year-end statistics from the Canadian Real Estate Association, which tracks the existing homes market, are not due out until mid-month but its statistics have been showing year over years sales declining by about 20% for a few months.

Even the president of the Canadian Home Builders’ Association Victor Fiume said he was actually surprised by the strength of the market in 2010 and called it a good rebound year.

“A lot of the deals that were done were already bought and paid for,” says Mr. Fiume, noting some of the construction now is from previous sales. “It’s softening. We see that on the ground. People are being cautious about their attentions. Purchasers are cautious, buyers are cautious. So far, that caution has held us in good stead.”

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