Declining housing starts and higher costs will see industry profits drop to an eight-year low this year, according to the Conference Board of Canada’s Canadian industrial outlook, Canada’s Residential Construction Industry-Winter 2013.

“A correction is occurring in the housing market,” said Maxim Armstrong, senior economist. “Strong building in recent years has exhausted demand. As well, the new mortgage rules implemented last summer are making it harder, especially for first-time buyers, to get access to credit.

“But there are still positive overall signs for the economy and the longer term prospects for the housing industry, including steady job gains, better consumer credit conditions and low interest rates,” he adds.

Key highlights of the Conference Board of Canada’s report include:

• Housing starts are expected to dip below 200,000 in each of the next two years.
• The market for multiple units such as condos has struggled in the past year.
• Renovation spending continues to be stable, which is cushioning the decline in overall industry spending.

Residential construction cooled sharply in the fourth quarter of 2012, and the trend is expected to continue this year and next. The condo market has struggled in major centres such as Toronto and Vancouver. Over the longer term, however, the multi-unit segment will continue to be the main driver of construction growth in Canada.

A revival in U.S. housing demand and non-residential construction activity is expected to push material costs such as lumber upward in the years to come.

Pre-tax industry profits came in at $3.9 billion in 2012, and are expected to dip to $3.3 billion in 2013. The industry should return to pre-recession profitability levels by the end of the forecast period in 2017.