OTTAWA - Builders will likely reduce housing starts in 2014 and 2015 as they adjust to rising interest rates and a slowdown in demand from first-time buyers, Canada Mortgage and Housing Corp. says.
"While housing demand will be supported by an improvement in fundamentals, total housing starts will remain more or less stable over the forecast horizon," CMHC said in an outlook issued Thursday.
"With a relatively high number of units under construction in some local markets, builders are expected to adjust the pace of new activity in order to manage their inventory levels."
CMHC estimates there will be about 187,300 housing starts in 2014, with a range of between 176,600 and 199,800 units on an annual basis.
That's relatively unchanged from 187,923 units in 2013.
In 2015, CMHC estimates about 184,900 units, with a range from 163,200 to 206,600 units.
CMHC also that sales of existing housing through the multiple listing service, run by Canada's main real estate boards and realtors, are expected reach 466,500 units this year and 474,700 units in 2015.
That compares with 457,485 in 2013.
The average MLS price is expected to increase 2.1 per cent to $390,400 this year and another 1.7 per cent to $397,100 in 2015.
"In line with expectations that most local housing markets will remain in or near balanced market conditions, the average MLS price average for Canada is expected to grow at a rate near inflation over the forecast horizon," CMHC said.
The CMHC outlook follows a report earlier this week by TD Bank that suggested home prices in Canada were about 10 per cent overvalued, based on current expectations for interest rates.
However, TD cautioned that the overvaluation in markets like Toronto, Vancouver, Montreal and Ottawa was likely higher.
The Canadian housing market and the risk of a downturn has been highlighted as a key concern for the economy by policy-makers.
Recent indicators have suggested, that a soft landing may be in the works for the market, but worries about a bubble bursting have persisted.
CMHC said housing starts will moderate in seven out of 10 provinces this year with Alberta, British Columbia and Quebec expected to post gains.
Housing starts in 2015 are expected to post a modest rebound in Manitoba and in Quebec, with British Columbia showing no change.
The other provinces are forecast to see housing starts moderate.