New property starts in Canada are experiencing a steep decline in 2009 due to economic uncertainty but are expected to increase again in 2010, according to a new report from the Canada Mortgage and Housing Corporation.

The market is moderating due to three key factors. First, strong house price growth between 2002 and 2007 has tempered home ownership demand particularly in Western Canada; second, the record high levels of new listings have increased the competition from the existing home market and reduced spill over demand, and, finally, uncertainty about the economic outlook is a contributing factor restraining demand for home ownership.

Overall in 2009, property starts will decline in all areas of Canada and more so in Western Canada and Ontario. By 2010, however, all provinces will see increases in property starts.

Analysts point out that strong sellers’ market conditions in recent years were reflected in strong upward pressure on the average price of residential properties, which increased in the +9-11% range between 2002 and 2007. The first half of 2008 saw an easing of sales and higher levels of new listings. This brought the Canadian resale market back into buyers’ market territory by the end of 2008.

The report said that in 2009, prices are expected to decrease by -6.8% to $283,100 and remain at that average in 2010.