Posted November 21, 2008 in the Ottawa Business Journal. 

Despite forecasted slowdown, agency says market to remain above 12-year average.

Shrinking demand for single-detached houses among baby boomers will cause housing starts in Ottawa to plunge 12.4 per cent next year, according to a leading local housing analyst, though she added the decline should help rebalance the local market.

Sandra Perez Torres, senior market analyst at the Canada Mortgage and Housing Corp. (CMHC), said around 6,000 new homes will be built next year - down from the forecasted 6,850 in 2008 - during remarks last Thursday at the Ottawa Housing Outlook Conference.

"Next year, housing starts will be moving more in line with demographic trends," she said, adding empty-nesters will continue moving into condominiums. Single-detached homes are expected to make up 39.1 per cent of new home construction in 2009, compared to 42.6 per cent this year.

Forecasted construction activity is at its lowest level since 2005, but is still higher than the 12-year average of 5,768 housing starts, she added.

Ms. Torres explained that fewer first-time homebuyers in Ottawa will shrink the resale market by 3.4 per cent next year, which will bring it more in line with 2004-05 levels of approximately 13,400 homes changing hands per year - following three years of record or near-record activity.

But despite the slowdown the housing market remains solid, she said.

"Employment levels are still supporting the home resale market in Canada, and Ottawa in particular," she added.

While the projected decline in home sales may at first seem like another indicator of gloomy economic times ahead, Ms. Torres said the decline will actually help balance the local housing market. In all but two months since the start of 2005, Ottawa's sales-to-new-listing ratio has been greater than 0.55, making the city a seller's market, she said.

This decline in the number of transactions will also moderate the growth in property prices, she added.

"When we see this ratio going down, we see prices growing closer to the inflation rate," said Ms. Torres.

Across the river, housing sales in Gatineau are forecasted to retreat four per cent next year to 4,300 as the price gap between Gatineau and Ottawa narrows, said CMHC senior market analyst Patrice Tardif in a separate presentation.

Despite recent gloomy economic news, economists at the national housing agency said recent and expected future interest rate cuts, combined with government stimulus packages, lead them to side with more optimistic growth forecasts.

"Our view for Canada is 1.2 per cent to two per cent (GDP growth in 2009), which implies that all this stimulus will have an impact on consumer confidence sooner, rather than later," said CMHC chief economist Bob Dugan, adding this is good news for the housing market, especially when combined with mortgage rates forecasted to remain at close to 50-year lows and a strong labour market.

"Since 2002, we've seen stronger demand for housing supported by labour growth ... a near-record share of Canadians have a job right now."