Fewer new housing starts predicted for Saskatoon in 2009

Saskatoon housing starts will fall 43 per cent in 2009, driven down by a large supply of new homes on the market, Canada Mortgage and Housing Corp. said Thursday.

In its first-quarter housing market outlook, CMHC forecast that starts will fall to 1,325 from the 2,319 posted in 2008. Starts should improve to 1,400 in 2010.

"In Saskatchewan, a 49 per cent increase in building activity in 2007, followed by a 13 per cent increase in 2008, has led to a rapid rise in the supply of single-detached housing," says the CMHC report.

"With complete and unabsorbed inventories in most markets, a reduction in the pace of construction will be required this year to reduce inventories to manageable levels."

New single-detached starts are predicted to fall to 775 in Saskatoon, down 40 per cent from 2008, while multiple-unit construction will contract 47 per cent to 550 units.

Paul Caton, senior market analyst for CMHC, said the multiple side of building is traditionally more volatile for the simple reason that a start can represent 50 to 150 units.

"There's a lot more momentum on the multiple side of building than the single side," he said. "Inventory and supply mounts much more quickly than on the single side.

"There are more than 1,000 multiple units out there. They take a little while to be absorbed."

Condo builders will therefore move their efforts to marketing instead of building. Caton expects it to be a competitive spring, and very good for consumers, who will have plenty of choice and some time to make decisions.

Sales of existing homes will also drop 16 per cent to 3,000 from 3,540 in 2008, although CMHC says the average price will fall only slightly. Sales are forecast to increase slightly to 3,150 in the city in 2010.

CMHC says price escalation in 2007 and early 2008 dampened demand for housing in the second half of last year, driving up inventories and causing month-over-month price reductions. However, the year-over-year price remains fairly stable.

The average price in Saskatoon will fall to $277,000 this year, down from $287,800 in 2008, predicts CMHC. The price will rebound to $285,000 in 2010.

Caton says the average price will be sustained by the new products on the market.

"Furthermore, the average price, even if it does go down, will be higher than it was pre-2006 when this boom began," said Caton.

"We continue to have a strong economy, one of the strongest in Canada if not the strongest. We're going to continue to have positive (in-)migration. Mortgage rates are very affordable.

"Already, during the odd bouts of good weather we've had, home builders are telling us that their traffic is up."

Al Thomarat, CEO of the Saskatoon and Region Homebuilders' Association, said there are some unknowns that may give builders better results than the CMHC forecast.

"Certainly, (CMHC is) predicating their forecasts on what they see as market conditions. You can never just look at housing starts in exclusion from the supply that's in the market right now."

Thomarat noted that while starts were slightly down in 2008 from 2007, they were still well above the 2006 level. There has been some price adjustment in the used market, but there was a "negligible" downward change of 0.7 per cent in the Saskatoon new home price index from November to December 2008.

Thomarat remains hopeful housing inventories will come down reasonably quickly. If in-migration remains strong as expected, Saskatoon will need more homes as people take jobs at the many businesses that are growing.

That will put more pressure on the housing market, he said. Fortunately, the city has opened up a substantial number of serviced lots, and builders are ready to go when new product is needed, said Thomarat.

In Saskatchewan, CMHC says starts in 2009 will fall to 8,600 from the 10,200 recorded last year. The provincial average house price is expected to drop to $217,500 from $224,468 in 2008.

- Joanne Paulson, Saskatoon Star Phoenix