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The Canadian Association of Accredited Mortgage Professionals, which represents brokers across the country, argues that while all the focus is on the resale market, ‘the adjustment of housing starts has just barely begun.’MARK BLINCH/Reuters

Canada's economy is highly vulnerable to a slowdown in home construction, according to two new reports that highlight the country's growing dependence on booming real estate markets.

Construction now represents 7.1 per cent of Canadian economic output, a sharp increase from the 5.2 per cent in 2000, Fitch Ratings said in a report to be released Tuesday. The high level of employment and individual wealth tied to housing means that a "housing downturn could have serious consequences for the overall economy," the ratings agency said.

Separately, the country's mortgage brokers are warning that the market is on the verge of a drop in housing starts – in part because of cooling demand for condos in large urban centres such as Toronto – that will cost thousands of construction jobs.

"If what's happening in Toronto is at all representative of the rest of the country, there is a big correction coming in construction starting about now and proceeding through the coming year," said Will Dunning, chief economist of the Canadian Association of Accredited Mortgage Professionals. "If we see a reduction of 30- or 40- or 50,000 housing starts, we're talking close to 100,000 jobs directly being impacted, and then ancillary jobs as well."

CAAMP's message, to be contained in a report to be released Tuesday, is that it's too soon to say the market has bounced back from changes to mortgage insurance that Finance Minister Jim Flaherty imposed in July, 2012, and that any further changes would hurt the economy.

Sales of existing homes have rebounded in recent months, in the wake of the slump that ensued following that last round of rule changes, the fourth in as many years. Those changes placed a cap of 25 years on the amortization period for insured mortgages.

"The onset of winter failed to chill Canada's housing market in November," Bank of Montreal economist Sal Guatieri wrote in a research note Monday. The number of existing homes that changed hands in the Greater Toronto Area during the first two weeks of November rose 21 per cent from a year ago, while average prices were "up a spicy 11 per cent" for both detached houses and condos, he noted. Calgary, meanwhile, has seen a 21-per-cent spike in sales so far this month, and a 6.3-per-cent increase in average prices.

But CAAMP, which represents brokers across the country, argues that while all the focus is on the resale market, "the adjustment of housing starts has just barely begun.

"Dampening effects in the new construction arena are probably just starting to develop now," the association stated in its report.

The market for newly built homes gets less attention than the resale market, in part because statistics outside of the Toronto area are hard to come by, Mr. Dunning told a meeting of The Globe and Mail's editorial board.

He acknowledged that new home sales are likely stronger in other parts of the country than the Greater Toronto Area, but he expects that much of Canada is nonetheless experiencing declining new-home sales. That decline takes time to translate into a dip in the construction of new homes, which he expects will affect both the detached home and condo markets.

Fitch noted that "across the country, but particularly in Vancouver and Toronto, high, or even record numbers of units, are currently under construction" and said that construction activity is often a response to higher real estate prices than to a population boom.

"While government policy has been successful in moderating increases in mortgage debt, home prices continue to rise," it says, although they are now rising at a slower pace.

Fitch estimates that national home prices are now about 21 per cent too high – the figure is 27 per cent in Quebec and 18 per cent in Alberta – but that they will fall by no more than 10 per cent over the next five years. Low unemployment, rising incomes and government awareness and policies are helping to decrease the chances of a serious downturn, it said.

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