Canada’s home-building industry will slow by 7.5% this year and a further 6.5% in 2007, Canada Mortgage and Housing Corp. predicted today.

CMHC said housing starts this year are expected to total 208,700 units, down from 225,481 in 2005. Starts in 2007 are forecast to decline to 194,800, ending five consecutive years above 200,000.

House price increases are forecast to moderate to 5.5% this year and 3.8% in 2007, after hitting 10% in 2005/

“The housing market will continue to moderate both this year and next as demand for home ownership eases toward more sustainable levels,” said Bob Dugan, chief economist at CMHC, in a release.

“Higher mortgage carrying costs due to strong house price growth and modest increases in mortgage rates will contribute to the slower pace of new home construction.”

Sales of existing homes, which hit a record 481,900 units in 2005, are expected to ease about 4% to 461,500 this year.

CMHC also said the average urban rental apartment vacancy rate, steady at 2.7% in October, will rise to 2.9% next year as renters continue to be drawn into home ownership.

Solid home-building activity is forecast for Alberta and British Columbia, while a resurgence of immigrants in Ontario “will be partly offset by Western Canada’s energy-based economy which will continue to attract migrants from Ontario.”

Quebec’s housing starts will weaken amid “a sluggish provincial economy coupled with the slight rise in interest rates,” CMHC said.