By Fergal Smith
TORONTO (Reuters) - Canadian homebuilders are expected to dial back new construction for a third straight year in 2024 as elevated borrowing costs reduce the appeal of starting projects, Canada's national housing agency said on Thursday.
Housing starts will fall to 224,485 units this year from 240,267 in 2023, the Canadian Mortgage and Housing Corporation (CMHC) forecast in its Housing Market Outlook document.
Groundbreaking is expected to be higher in 2025 and 2026 than this year's forecast level but stop short of the 2021 peak of 271,198.
"Purpose-built rental starts, fueled by unprecedented demand and government support, hit record levels in 2023, sustaining overall housing starts in Canada near historically high levels," said Bob Dugan, chief economist for CMHC in a statement.
"However, unfavorable financing conditions are expected to make it more difficult for homebuilders to start new rental projects in 2024."
Canada is facing a housing shortage due to historically high population growth. On Tuesday, Prime Minister Justin Trudeau launched a C$6 billion ($4.42 billion) Canada Housing Infrastructure Fund to accelerate the construction and upgrading of housing.
Investors expect the Bank of Canada to leave its benchmark interest rate at a 22-year high of 5% at a policy decision next Wednesday but to then begin a rate cutting campaign in June or July.
Lower borrowing costs could boost home sales and prices, CMHC said. It forecast the average price rising 5% this year before climbing 10% in 2025 and 5% in 2026.