The housing market forecast looks dim for the next two years, according to a forecast by the Canada Mortgage and Housing Corporation.

While CMHC isn’t predicting a collapse or a massive correction in the housing market, it projects that prices would barely keep pace with inflation through 2017. It also projected a slowdown in sales and new construction, according to a Financial Post report.

“In 2015, increased housing market activity in provinces like Ontario and British Columbia – provinces that have benefitted from declining energy prices, a lower Canadian dollar and continued low mortgage rates – offset slowdowns in oil-producing provinces like Alberta,” said CMHC chief economist Bob Dugan. “We expect, however, that this counterbalancing effect will decrease over time.”

CMHC predicts that the average price for an existing home will rise to $437,700, 7.2% higher than a year earlier. But next year, it predicts the annual price increase to be just 1.3%, with only another 1.4% gain in 2017.

Meanwhile, the corporation expects existing home sales to drop by 3% in 2016 and under 1% in 2017. New construction is expected to drop by 4.7% in 2016, with another 2.5% drop the following year as builders try to unload excess inventory.

Not everyone agrees with that assessment, however. Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal said he doubts the claim of excess inventory, according to the Financial Post. Tal suggested the claim resulted from insufficient data – taken from just four Toronto condo developers – and questionable statistical reporting.

“The big question is to what extent is to what extent the condo markets in (Vancouver and Toronto) are overshooting. … A good starting point is to assess the trajectory of recently completed and unabsorbed units,” Tal wrote in a report.  “An increase here suggests that developers are finding it increasingly hard to sell completed units – usually a first sign of troubles ahead.”

In Vancouver, the number of unabsorbed units actually fell over the past year, from just over 2,000 to 1,100, the Financial Post reported. According to Tal, that indicates an improving situation.
And the Greater Toronto Area saw 26,000 condo completions in the first half of the year – three times the level of previous years.

“To be sure, the GTA’s condo market will be tested as interest rates start rising in the coming years, and increased resale activity from domestic condo investors will result in excess supply and some downward pressure on prices,” Tal said. “But for now, those who look at the rise in unabsorbed units as a sign of increased vulnerability are barking up the wrong tree.”

CMHC : Real Estate Boom Will End in 2016 by Ryan Smith | Canadian Real Estate Wealth