June 23, 2020 / 7:59 PM / 12 days ago

UPDATE 1-Pandemic to decimate housing starts in Canadian cities in 2020, agency says

(Adds details from report)

By Nichola Saminather

TORONTO, June 23 (Reuters) - Housing construction in some major Canadian cities could more than halve this year due to the impact of the coronavirus pandemic, the country’s housing and mortgage insurance agency said on Tuesday, but it forecast prices in Toronto, the nation’s biggest housing market, would edge up slightly.

The government-backed Canada Mortgage and Housing Corp (CMHC) also said the pandemic-driven economic uncertainty would drive double-digit declines in home resales this year. Earlier this month, CMHC said Canadian home prices would fall between 9% to 18% over the next 12 months.

“Housing starts will fall sharply as construction decisions are delayed and builders work to protect employees’ safety on worksites,” Aled ab Iorwerth, CMHC’s deputy chief economist, said in a report, adding that prices are “unlikely to recover over the horizon of this report.”

Construction is set to slide between 38% - for Ottawa - and 64% - for the oil-production heartland city of Calgary - in 2020 from 2019, under a worst-case scenario, and pick up in 2021 and 2022, CMHC said.

The pessimistic scenario expects a severe economic hit, a second wave of novel coronavirus infections, continued pressure on oil prices and trade shutdowns, ab Iorwerth said on a media call.

Housing starts are down 3.9% over the first five months of 2020 from a year earlier, according to CMHC data.

In 2018, CMHC forecast housing starts of between 193,700 and 204,500 for 2019, lower than the actual 208,685.

The agency expects house prices in Canada’s capital, Ottawa, to rise 1.8% this year, and to gain 0.67% in Toronto, the country’s largest city.

In resales, Montreal is set to be the best performer with a 9.4% decline, while Edmonton, the worst, could see a 28% slide under the pessimistic scenario, the report showed.

Despite the pandemic, Canadian home prices rose 1.1% in May from April, marking the 10th consecutive month of gains, although a drop in repeat sales from a year ago pointed to a slowdown.

“If the virus starts to go away meaningfully, and people regain confidence in making decisions ... the economy would rebound very quickly,” he said. “That looks a little bit unlikely at this stage.”

Even in the optimistic scenario of no second viral wave and a quick economic recovery, only Toronto, Ottawa and Montreal would see price gains this year, although even these are forecast to decline next year, before surpassing 2019 levels in the following year. (Reporting By Nichola Saminather; Editing by Sandra Maler and Paul Simao)

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