Canada Mortgage and Housing Corp. says the downturn in the economy will drive home construction to a nine-year low in 2009, a marked decline from the Crown corporation's November forecast.
But Bill Clark, senior economist with CMHC, said it was impossible last quarter to predict the severity of Canada's economic decline.
Three months ago, CMHC forecast that there would be 177,975 new homes built this year. Yesterday, the figure was adjusted to 160,250 -- a level not seen since 2000. The forecast would mean a 24-per-cent decline from the 211,056 units constructed last year.
"There (have been) some issues that have come up in the economy that were not foreseen, that's been the case for much of the forecasting," said Mr. Clark.
The drop in construction would mark the end of arguably the strongest housing market in Canadian history, a seven-year run of more than 200,000 units built each year. It would also mean the industry is now building fewer than the 175,000 units the country needs based on demographic estimates.
"There have been also a lot of new listings lately," said Mr. Clark, referring to the market for existing home sales, as one of the reasons for the contraction in new construction.
He says consumers have a wider choice in the existing home market and that's driving them away from buying a new home.
CMHC's forecast says existing homes sales will drop almost 15 per cent this year from 2008 while the average sale price will fall by 5.2 per cent to $287,900.
The agency is predicting a modest recovery in 2010 with sales up about nine per cent but the average sale price will only improve by $200.
Benjamin Tal, a senior economist with CIBC World Markets, says the lack of liquidity in the housing market makes it very difficult to forecast where prices will eventually settle.
"The resale market is basically paralyzed," said Mr. Tal, referring to the fact that year-over year sales are down as much as 50 per cent in some markets like Vancouver.
"The market is in a state of shock.
"Nothing is happening. The prices we are getting now are just a rough proxy. It's not an accurate reading."
CMHC is predicting that average Ottawa resale housing prices will rise just 0.5 per cent to $292,000 this year as sales fall 13 per cent and construction starts drop 17.7 per cent.
But it predicted the capital will recover quicker than other big cities because jobs and incomes will continue to grow slowly.
CMHC said that despite the slowdown in the resale market, the Ottawa market is benefiting from a stronger balance between listings and sales and moderate price increases in the past.
CHMC is predicting Ottawa housing prices will rise by an average of $5,000 in 2010 to reach $297,000.
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