The slowdown in the construction of new houses in Canada during 2008 is leading a downtrend in both resale home sales and homebuilding.
CMHC (Canada Mortgage and Housing Corp.) announced on May 15, 2008 that the housing industry in Canada is expected to witness downward movement in both resale home sales and homebuilding as the pace of construction of new houses will slowdown during 2008, as reported by REUTERS.
According to Q2 2008 Housing Market Outlook from CMHC, the residential construction dropped to nearly 214,650 Units this year over 228,343 units in 2007. Moreover, out of the ten Canadian provinces, seven are expected to have less number of housing sector establishments in 2008 as compared to the previous year. According to national housing agency, the sales of existing houses are also likely to decline by 8.5% and this decline is expected to continue in 2009.
High mortgage rates and slow economic conditions are the main reasons for decline in the Canadian housing industry. In future also, no improvement is expected in the economy with decreasing mortgage rates and resulting in decline in the demand for new houses, especially among first-time buyers.
Also, the high home prices will lead to a decline in sales of existing homes. Furthermore, moderate increase in prices of new homes and continuously rising inventories of unsold new houses will further push the Canadian housing sector down in near future.
According to the industry experts, the tight labor market generated due to slow growth of population and low disposable income of the Canadian consumers is exerting a lot of pressure on existing home sales with decline in demand for houses. Moreover, the fall in employment growth, rise in prices of energy, stagnant growth in wages and increase in student loan debt are causing a decline in the demand for new houses in the country.
According to a Research Analyst at RNCOS, “The Canadian housing industry declined due to economic slowdown and high mortgage rates. Thus, the industry players need to increase consumer confidence as despite lower prices of houses, consumers are not purchasing new homes. Also, the stable growth in the housing sector of the country mainly depends upon the rate of interest on housing loans, prices of houses and economic growth.”
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