New home construction will begin to slow in 2008, but will remain high by historical standards, according to a report released today by Canada Mortgage and Housing Corp. (CMHC).

Higher mortgage carrying costs will be a catalyst for the decrease in residential construction to 215,475 units in 2008, from 228,343 in 2007. As a result, seven of the 10 provinces will register a lower number of housing starts in 2008 than in 2007, CMCH says.

“Strong economic fundamentals such as continuing high employment levels, rising incomes and low mortgage rates will provide a solid foundation for healthy housing markets this year,” says Bob Dugan, chief economist for CMHC. “Increased competition from the existing home market, coupled with the elimination of the pent-up demand that built up during the 1990s, will exert downward pressure on housing starts, which will decline to 194,000 units in 2009 from 215,000 in 2008.”

Existing home sales, as measured by the Multiple Listing Service (MLS), are expected to fall by 11.9% in 2008 to 458,300 units. In 2009, the trend will continue with a decrease to 446,600 units (-2.6%). Despite a slowdown of MLS sales, demand remains strong by historical standards, CMHC says. For 2008 and 2009, MLS price growth will remain above inflation. Prices will reach $317,450 (+3.3%) in 2008 and $327,000 (+3%) in 2009.

At the provincial level, British Columbia housing starts will decline to 35,800 units in 2008 and 31,500 in 2009 from 39,195 units in 2007.

In Alberta, CMCH forecasts housing starts to drop 32,750 in 2008 and 29,000 in 2009, from 48,336 units in 2007.

In Saskatchewan, total housing starts reached 6,007 units in 2007, the highest level in 24 years. However, escalating costs will stabilize housing starts at 6,700 units this year and 5,750 units in 2009.

In Manitoba, starts will edge down to 5,400 units in 2008 before rebounding to 5,550 in 2009, CMCH says.

In Ontario, housing starts will move up to 76,025 units in 2008 from 68,123 units last year due to pent-up demand; however starts will decrease to 65,000 units in 2009.

A moderation in employment growth in Quebec will cause a slight shift downwards in 2008 to 46,600 units and 45,750 in 2009.

In New Brunswick, housing starts are forecast to decline slightly to 4,200 units in 2008 from 4,242 units in 2007. Moving into 2009, starts are expected to fall to 3,875 units.

Housing starts in Nova Scotia are forecast to decrease to 4,475 units in 2008 and 4,200 in 2009 from 4,750 units in 2007.

In Prince Edward Island, housing starts will slowly decline to 700 units in 2008 and 650 in 2009 from 750 units in 2007.

In Newfoundland and Labrador, a strong export-driven economy has pushed housing demand up. Housing starts for 2007 were up 18.6% to 2,649 units. For 2008 and 2009, starts will reach 2,825 units for both years.