© BigStockPhoto.com

The Conference Board of Canada predicts residential construction profits will drop to $3.2 billion in 2009, falling further in 2010 to below $3 billion.

Homebuilders' profits will fall by almost 20 per cent to $3.2 billion this year, according to the Conference Board of Canada's Canadian Industrial Outlook: Canada's Residential Construction Industry—Winter 2009.

This drop in industry revenues can be partially attributed to a small price reduction, but the primary cause is declining housing starts. According to the report, extremely low consumer confidence will lead to postponed home purchases and renovations—the consumer confidence index (CCI) has plummeted to levels last recorded during the recession of the early 1990s.

With Canadian banks reluctant to lend money amidst rising loan losses and a deteriorating economy, tighter credit conditions are further diminishing new home demand. Additionally, the federal government's budget measures to stimulate the industry are not anticipated to have a significant long-term impact.

"To prevent the U.S. mistakes from being repeated here, the Canadian Department of Finance announced in October 2008 a series of measures to tighten up mortgages-lending practices," the report says. "But since Canadian lending practices are already conservative, the effect of these regulations is expected to be mild."