A solid labour market and record low interest rates should make for the best new home construction market in 17 years, Canada Mortgage and Housing Corp. forecast Wednesday.
In its latest quarterly forecast, the Crown corporation said it expects construction to begin on a seasonally-adjusted 225,700 new housing units across the country this year, up by 3.3 per cent from 218,426 starts in 2003.
If that forecast holds true, CMHC said it would make for the best year since 1987.
The obvious driver has been record low interest rates as the Bank of Canada attempts to stimulate the economy.
"In March of this year, the five-year mortgage rate was at the lowest level since April 1951," CMHC chief economist Bob Dugan said in the report.
"Although rates have risen, they remain very low and together with solid employment and income gains will propel housing starts to a 17-year high."
However, the central bank is expected to begin raising rates this fall as the economy picks up steam in order to keep inflation in check. As mortgage rates rise and drive up the cost of home ownership, demand for new homes is expected to cool off. For 2005, CMHC forecasts the number of starts will drop by about 9.5 per cent from the 225,700 starts forecast for this year, to 204,200.
The biggest increase by region this year is expected in British Columbia. Housing starts are expected to jump by 21.1 per cent. For 2005, B.C. is the only province expected to enjoy additional gains.
In Ontario, the number of housing starts in 2004 is expected to slip to 84,500 from a 14-year high of 85,180 units in 2003.
CMHC also expects low interest rates to continue driving Canada's resale market in 2004. The number of resales is expected to rise another 5.1 per cent this year, making for three straight years of record results. Resale prices are forecast to increase by 9.2 per cent, on average, from last year's levels.
In 2005, higher interest rates will slow activity on the resale market, but prices are still seen advancing by a healthy 4.6 per cent.
CMHC said a strong resale market bodes well for home improvement retailers.
"Spending on renovations will rise 9.1 per cent in 2004 to reach $36.3 billion and will continue to advance strongly in 2005, reaching $38.5 billion, a six-per-cent increase over 2004," Mr. Dugan said.
"The strength in renovation spending will be broadly based across the country this year with the largest gains occurring in British Columbia and Quebec."
