Real estate markets are forecast to slow in 2005, but that does not diminish the record-breaking real estate activity that Canadians saw this year.

Housing starts in Canada will reach 226,800 units this year as favourable economic factors carry starts to a 17-year high, according to Canada Mortgage and Housing Corporation's (CMHC) fourth quarter CMHC Housing Outlook National Edition report. Housing starts are expected to "slowly drift back toward more sustainable levels" over the medium term, but will still remain high at 210,200 units in 2005.

"Activity in the new home market in the third quarter hit heights not seen since the latter half of the 1980's, so the stage is now set for residential construction activity to slow in the months ahead," said Bob Dugan, Chief Economist at CMHC, our federal housing agency. "...rising prices and mortgage rates will result in lower housing demand."

Resale activity, as measured by the Multiple Listing Service (MLS®), should set all time high sales records for the third consecutive year at 462,600 units in 2004. MLS sales will rise across the nation this year with the exception of Nova Scotia where they will fall for the second consecutive year.

"Resale activity will dip 3.6 per cent next year to 445,900 with the greatest declines coming in Alberta and British Columbia," reported Dugan. "As sales activity backs off its record setting clip and listings increase, the existing home market will move closer to a balanced position next year, resulting in a deceleration of price gains. Look for the average MLS price to climb 5.3 per cent next year following this year's 9.2 per cent."

If you are considering a real estate purchase or sale outside your province, you might find these CMHC forecasts helpful:

• British Columbia's residential construction boom is expected to increase 21.1 per cent to 31,700 units this year. Solid gains in employment, increased interprovincial migration and high levels of consumer confidence will continue to drive housing demand in 2005. B.C. is forecast to be the only province in Canada to register an increase in housing starts next year at 32,400 units.

• Ontario has moved into its third year of strong home construction. Key drivers of Ontario's housing demand include low mortgage rates, moderately strong in-migration and respectable job growth. Starts will edge higher to reach 85,200 units this year, only a slight increase over 2003's 14-year high of 85,180 units. In 2005, starts will reach 79,000 units, closer to the province's demographically driven demand.

• Quebec housing starts will be strong at 56,000 units this year reflecting favourable economic and demographic conditions. Sluggish employment growth and the slight rise in mortgage rates next year will lead to lower housing demand. For 2005, in spite of continued high levels of net migration, loosening resale and rental housing markets will cause residential construction in Quebec to fall to 48,000 units.

• Alberta and Saskatchewan economies will continue to be boosted by high levels of investment in the oil and gas sector. Saskatchewan has also benefitted from a rebound in the agriculture and manufacturing sectors, so its residential construction climbed to 3,400 units. Next year, home construction will drop to 3,200 units in Saskatchewan. Housing starts in Alberta however, are set to decline to 34,000 units and may slow to 32,000 in 2005.

• Manitoba's higher levels of consumer spending, capital investment and exports are fueling its economy. Residential construction has moved higher in Manitoba with starts this year expected to reach 4,600 units, but they may slow to 4,400 in 2005.

• New Brunswick faces rising building material costs, land prices, wages and mortgage rates that will cause housing starts to drop to 3,750 in 2004 and to 3,700 units in 2005.

• Nova Scotia may experience only modest economic and employment growth through 2005, so the outlook is an uninterrupted, steady decline in housing activity as total housing starts fall to 4,450 units this year and 4,225 units in 2005.

• Prince Edward Island starts are forecast to decline to 750 units next year after a record-breaking 900 starts this year, the highest level since 1988.

• Newfoundland and Labrador will see economic growth ease as oil production moderates and government restraint takes hold. With a slowing economy and rising home ownership costs, starts are forecast to drop to 2,500 units next year after reaching 2,750 units in 2004.

Published: November 23, 2004

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