There are more signs Canada's housing market is facing a significant slowdown after a double-digit percentage drop in home construction starts last month and a forecast that sales and prices will slide this year.
As the recession digs in and the unemployment rate rises, economists say nervous consumers are standing still when it comes to buying and selling real estate.
The results are increasing numbers of dwellings on the market, dropping prices and a slowdown in construction.
"The Canadian housing correction is in full swing, having a wide impact across the country," BMO Capital Markets economist Robert Kavcic commented Monday.
Canada Mortgage and Housing Corp. reported housing starts fell to a seasonally adjusted annual rate of 153,500 units in January, down 10.9 per cent from December in the steepest monthly drop since March 1995.
It was the fifth straight decline and left home construction at its slackest pace since 2001, well below market expectations of 169,000.
Also Monday, the Canadian Real Estate Association predicted house prices nationally will fall eight per cent this year as the number of Multiple Listing Service sales tumbles 16.9 per cent to 360,900 units.
Three months ago, the association was forecasting only a 2.1 per cent price slippage for 2009 on a three per cent decline in the number of sales.
Its latest forecast would represent the smallest national MLS sales volume since 2000, following a 17.1 per cent drop in 2008.
Gregory Klump, chief economist for the association, said that although there were some incentives for home buyers in the recent federal budget, "they won't take hold until there is an improvement in buyer psychology."
The Jan. 27 budget included a plan to expand the insured mortgage purchase program by $50 billion to $125 billion, which is meant to encourage banks to increase mortgage lending.
Ottawa also increased the RRSP withdrawal limit for qualified home buyers to $25,000 from $20,000, and introduced up to $750 in tax relief for closing costs for first-time buyers.
The real estate association said sales are expected to fall in every province this year, led by declines of about 19 per cent in British Columbia, Alberta and Ontario.
B.C and Alberta, which have seen the biggest price jumps in recent years, are expected to see home prices fall the most, by 10.6 per cent and 8.9 per cent respectively.
Meantime, the average home price in Newfoundland and Labrador is forecast to rise 4.8 per cent -- the only province forecast to see an increase.
CIBC economist Benjamin Tal said he is forecasting a sales drop of about 15 per cent and price decline of about 10 per cent nationwide this year.
Tal said the Canadian housing market is in a "correction, not a free fall." However, "the recovery will not be very quick."
Scotiabank economist Adrienne Warren said the home market is in "retrenchment mode."
"It's no surprise that home builders are pulling back, facing slowing demand and increasing amounts of unsold inventory," Warren said.
"What you are also seeing now is that the condo market has finally cooled off."
Still, Warren said Canada has nowhere near the housing crisis as the United States, where risky lending has made foreclosure sales common.
CMHC said in its report that overall housing starts declined across the country, with a lot of the steam coming off the hot market that had prevailed in most of Western Canada.
"Reduced sales and increased listings in the existing-home market have led to reduced spillover demand in the new-home market," stated Bob Dugan, the Crown corporation's chief economist.
On a seasonally adjusted basis, January's starts were down from December by 30.3 per cent on the Prairies, 29.1 per cent in British Columbia, 14.6 per cent in Ontario, 8.6 per cent in Atlantic Canada and 1.4 per cent in Quebec.
"Western Canada in particular continues to see activity fall off a cliff, with starts in B.C. at the lowest level since 2002, and in Alberta the weakest since 1996," BMO's Kavcic wrote in a note. "Both provinces are seeing activity at half year-ago levels."
And last month's steep national drop in single-family-unit starts "adds further downside risk to economic growth forecasts," commented TD Bank economist Pascal Gauthier.
Gauthier said single-unit construction is generally less volatile than multiple-unit starts, and the sharp downturn "bodes poorly for the private residential investment component of real GDP growth."
The TD commentary added that improved home affordability will likely support starts this year at the pre-boom level of about 150,000, but "if starts continue on this downward momentum without signs of stabilization ... even this prudent forecast could fall by the wayside."
