TORONTO - New home construction is expected to drop slightly in the near-term as the number of unsold units as well as waning consumer confidence overshadow low mortgage rates, the Conference Board of Canada said Tuesday.
The Ottawa-based economic forecaster predicts housing starts will moderate over the next two years with no uptick in housing starts until late next year or early 2014.
The expected slowdown would be good news to those economists watching the recent frenzied pace of activity for signs of overbuilding -- especially in the condo markets of Toronto and Vancouver.
About 190,000 new units are expected in 2012 and 2013, slightly lower than the 193,950 units built in 2011, the think-tank's report said Tuesday. Total starts are expected to pick up in 2014, surpassing 200,000 units.
Much of the strength in recent construction activity has been concentrated in the multi-unit, or condo sector, which has been identified as most at risk of a downturn because of a potential glut of supply that could outpace demand.
However, the Conference Board noted there will be differences between the single-family and multiples segments of the market considering the current backlog of multiples that have been built but not yet sold.
"In the short term, increases will come from the single-family market but over the medium term the multiples segment has more potential," it said.
The Conference Board said that exceptionally low interest rates are still enticing consumers to buy houses and are probably supporting prices, but it observed that the lower rates "won't last forever."
"Although no large changes are expected in the next 12 to 18 months, mortgage rates will increase from their historical low in early February," it said.
Low borrowing rates have propped up demand for houses since the recession and the Conference Board expects them to remain low for the next 12 to 18 months.
At the same time, home prices have risen sharply as buyers rush in to take advantage of those low rates and compete for homes, making ownership less affordable for some. Senior government officials have issued repeated warnings about the implications of taking on too much debt when mortgage rates inevitably rise.
Consumer deleveraging and weak confidence in the economy could signal weaker demand, making builders reluctant to take on new projects when units still sit unoccupied.
Meanwhile, a disappointing jobs market has been clouding the picture in recent months.
"This is occurring at a time when Canadians' debt loads are high and confidence is low," it said. "As a result, new construction is expected to be moderate and spending on renovations and repairs will be limited this year and into next year."
Some aspects of the Conference Board's report stand in contrast to the predictions recently made by TD Bank economist Sonya Gulati, who believes the true slowdown will come in 2014 -- just when the think-tank projects a pickup.
Gulati expects between 190,000 to 200,000 units will be build annually until mid-2013.
She also said that in 2012, multi-unit building will constitute 60 per cent of new construction projects, while the Conference Board expects emphasis will be on the single family home segment.
"At this point, interest rate increases are set to take place and we believe that builders will ease up off the gas pedal given concerns about excess supply and growing worries about resale home price overvaluation," she wrote in a report last week.
Gulati foresees housing starts falling to a low of 165,000 to 170,000 units in 2014.
