Housing starts in Canada are expected to hit 225,700 units this year, making 2004 the strongest year since 1987 for new home construction, according to Canada Mortgage and Housing Corp.

But with mortgage rates on the rise, starts as well as sales and the rate of increase of home prices will begin to slow, CMC said in third-quarter housing outlook report, released Wednesday.

Last year the number of starts was a “robust” of 218,426 units.

“In March of this year, the five-year mortgage rate was at the lowest level since April 1951. Although rates have risen, they remain very low and together with solid employment and income gains will propel housing starts to a 17-year high,” CMC chief economist Bob Dugan said in a statement.

But Dugan said the number of starts is expected to slow next year to 204,200 units as mortgage rates continue to rise.

CMHC said existing home sales, as measured by Multiple Listing Service, should post another record this year after hitting new highs in 2003 and 2002. MLS sales are expected to increase 5.1% to 457,000 units in 2004.

Next year, however, the combination of rising mortgage rates and higher house prices will cause existing home sales to edge lower to reach 433,100 units. “As sales moderate, relative to the number of listings on the market, growth in the average price of existing homes will slow from 9.2% this year to 4.6% in 2005,” CMHC said.

The outlook for renovation spending is also upbeat thanks to record sales of existing homes, a strong job market, and low borrowing costs. Spending on renovations will rise 9.1% cent in 2004 to reach $36.3 billion and will continue to advance strongly in 2005, reaching $38.5 billion, a 6% jump over this year.