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Residential construction expected to decline


August 26, 2010
By CNW

NEWS HIGHLIGHT

Residential construction expected to decline

Canada's residential construction industry
rebounded quickly from the recession. However, home building activity is
expected to slow down in the second half of year.

Aug. 25, 2010, Ottawa – Canada's residential construction industry rebounded quickly from the recession. However, home building activity is expected to slow down in the second half of year due to declining affordability, according to The Conference Board of Canada's Canadian Industrial Outlook: Canada's Residential Construction Industry – Summer 2010.

"Most of the costs associated with home ownership, such as mortgage costs and insurance, are outstripping inflation and income growth. As a result, housing affordability in Canada, which has been deteriorating over the past decade, will continue to decline during the next two years," said Michael Burt, Associate Director, Industrial Economic Trends.

Although the performance of the Canadian housing industry is weakening, it contrasts with the situation in the U.S. market, where data released this week showed that existing single-family home sales fell by 27 per cent in June. Housing market fundamentals, such as lending and building practices, are stronger in Canada than in the United States, generating a more positive outlook for the Canadian residential construction.

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The strong pace of spending at the beginning of the year means that, by most measures, the Canadian industry has fully recovered from the recession. Revenues have already returned to their pre-recession peak. However, higher costs, particularly for labour and wood products, have prevented a recovery in profit levels.

Although new home construction activity is expected to slow, housing starts will remain at a healthy level. The slowdown represents a shift to a more sustainable building pace rather than the beginning of a large correction in demand.

Profits are expected to fall to $2.9 billion in 2010, their lowest level since 2005. Profit margins are expected to begin improving in the second half of the year and to continue to rise steadily. However, profits are not expected to return to their pre-recession levels before the end of the forecast period (through 2014).