New home construction forecast revised to reflect declining market

Winnipeg’s new home market is being adversely affected by consumers exercising more caution before buying, which has caused Canada Mortgage and Housing Corporation to revise its forecast for 2009 and 2010.

“Builders have reported a slower pace of sales through the first quarter of 2009,” said CMHC senior market analyst Jeff Powell, “and express concern whether the weaker sales performance will continue through the year.”

CMHC said total housing starts in the Winnipeg Census Metropolitan Area — Winnipeg and surrounding municipalities — will decline by 27 per cent in 2009, reaching 2,200 units. In the Winnipeg CMA, there were 3,009 total starts in 2008.

“Home builders are also taking a hit because there is now more MLS® listing inventory available to home buyers,” said WinnipegREALTORS® MLS® market analyst Peter Squire.

The good news is that CMHC expects home construction to rebound in 2010 by seven per cent with 2,350 units built.

CMHC said the single-detached and multiple-family sectors will experience weaker activity due to higher inventories and cautious buyers influencing builders’ production decisions.

“Demand for new single-detached homes has declined since October and has yet to display signs of improvement,” said Powell.

Work was started on 404 single-

detached homes through the first four months this year, but most of the contracts were signed before October 2008. Builders operated at or near capacity for much of 2008 which delayed starts on these homes until this year.

“A source of downside risk exists in the second half of 2009 if builders remain unable to attract new buyers to their show homes,” CMHC said in a press release.

What is predicted for the single-family new home market also applies to multiple-family construction, according to CMHC. The Crown agency said only 750  multiple-family units are forecast to be built this year, which represents a 31 per cent decline from 2008.

“This should lead to a decline in the number of units under construction and those that are complete and unabsorbed,” according to CMHC. “Provided this occurs, there will be a modest rebound in (multiple-family) construction in 2010.

“While under construction counts for multiple-family dwellings are elevated by historical standards, they have been declining for a full calendar year.”

CMHC said new multiple-family construction absorbed by the market has remained high, allowing the market to begin clearing inventory.

“However, with almost 1,300 units either under construction or sitting vacant, a return to normal levels of supply is quarters away.”

The Crown agency predicts sales of existing homes in the Winnipeg CMA will become more in line with historical yearly averages, with 10,500 units sold by the end of the year, which represents an 11 per cent decline from the 11,854 units sold in 2008.

On the other hand, WinnipegREALTORS® is predicting a more modest decline of five per cent.

CMHC said sales of existing homes will rebound to 11,000 units in 2010.

The Crown agency said the average MLS® house price will be slightly below the 2008 level this year, reaching $190,000 in 2009 before moving upward to $197,500 in 2010. The average price for the Winnipeg CMA was $196,940 in 2008.

Both the Canadian Real Estate Association and WinnipegREALTORS® are predicting a modest MLS® average house price increase for 2009.