2014 CMHC Annual Market Outlook
January 12, 2014 | Posted by: Mike Garganis
Housing starts in Canada were trending at 195,760 units in December compared to 196,430 in November, according to Canada Mortgage and Housing Corporation (CMHC).
“The trend in housing starts has remained essentially stable since October 2013. Housing demand continues to be healthy in Canada. The trend in existing home sales has been increasing since April 2013, while the trend in inventories of newly completed and unabsorbed homes has been declining at a modest pace since September 2013,” said Bruno Duhamel, Manager of Economic and Housing Analysis at CMHC.
Key factors and their effects on housing starts
- Mortgage rates will remain low by historical standards and supportive of housing demand.
- The labour market has gotten off to a slower-than-expected start in 2013, with employment growing in the first six months at a little over half the rate in 2011 and 2012. Nevertheless, employment is expected to improve during the course of the year and is forecast to grow 1.4 per cent in both 2013 and 2014, which will support Canada’s housing sector.
- Growth in incomes is expected to continue, albeit at a moderate pace, on account of modest economic growth in Canada and global markets. As a result, income growth will remain supportive of housing demand over the forecast horizon.
- Canada’s economy is expected to continue to perform well, relative to its peer countries. Canada should, therefore, continue to attract a high level of immigrants (net international migration) over the forecast horizon, which will support housing demand over the forecast horizon.
- By the end of the forecast horizon and into 2015, all regions but Quebec will see the growth rate of their population aged 25-34 decline according to Statistics Canada’s projections. By the end of the current decade, the growth rate of population aged 25-34 will be negative or very close to zero in most regions and will bring downward pressure on demand for multi-family housing. Furthermore, a steady decline in Canada’s natural birth rate should lessen the demand for additional housing stock beyond the forecast horizon. Population aging is also likely to impact the type and tenure of housing in demand.
- Resale market conditions for 2013 and 2014 are expected to be near balanced market conditions in most local markets. Nevertheless, some price momentum will see the average MLS® price grow above inflation in 2013 and in line with inflation in 2014.
- The average vacancy rate of purpose-built rental apartments across Canada’s metropolitan centres is expected to decline slightly to 2.5 per cent in 2013 and remain at that level in 2014. Lower vacancy rates for purpose-built rental apartments over the forecast horizon are expected to help support multiple-unit housing construction, particularly in 2014, through the expansion of the rental condominium market.
- The stock of unabsorbed new housing units has been stable in the second quarter of 2013, indicating continued strength in demand for newly completed homes. In addition, the ratio of the stock of unabsorbed new units to population, a simple gauge to assess potential overbuilding, is close to the historical average. Nevertheless, should the inventory increase inordinately, builders may delay or reduce the size of housing projects. This could lead to a sharper-than-expected moderation in housing starts.