The slowdown in Canada’s housing market will worsen due to the huge amount of new houses that is about to flood the country, an economist has forecast.

"Canada has been undergoing a construction boom," Capital Economics senior economist Stephen Brown wrote in a report last week. "As has been typical of historic real estate cycles around the world, new supply will reach the market just as demand is falling."

2018 home sales in Toronto were 15% below their historical norm and 40% below the long-run average, according to a HuffPost report.

If the percentage of unsold new houses in Vancouver remains as it is, the number of unsold houses on the market will double in the metro area over the next two years as 40,000 new houses come to the market, Brown said. And although the situation is not that severe in Toronto, he expects Toronto to follow in Vancouver’s footsteps this year.

Brown also predicted that developers will react by cutting back on new housing starts. And even if Vancouver stops building new houses entirely, the oversupply in the next two years would be nearly as large as if construction continued.

All of these factors could have a negative impact on the economy, beginning with falling house prices.

Not everyone, however, is convinced that the increased level of home construction means there is an oversupply. Instead of oversupply, many in the industry see a higher chance of housing shortages.

"With an increasing number of gainfully employed people looking to put a roof over their heads, and the scarce availability of rental accommodation, policy makers in our major markets will once again be struggling with housing shortages," said realtor Royal LePage’s president Phil Soper in a market forecast in December.

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