* Would be first time below 200,000 in seven years

* Existing home sales, prices also seen falling

* Slight rebound seen in 2010

(Adds details)

By Ka Yan Ng

TORONTO, Feb 19 (Reuters) – New home construction in Canada is expected to drop by 24 percent this year as part of the fallout from a slowing economy, but rebound in 2010, the Canada Mortgage and Housing Corp forecast on Thursday.

Housing starts are seen to be about 160,250 units for 2009, down sharply from 211,056 units in 2008, the country’s national housing agency said in its first-quarter Housing Market Outlook report.

The forecast was revised lower from its the fourth-quarter outlook, which predicted in October that Canadian home building would slip to 177,975 units this year.

This would put starts below 200,000 units for the first time in seven years.

Low mortgage rates and a growing economy contributed to a healthy housing market for years. But home construction, a cornerstone of Canadian growth, has steadily declined in each of last four months as the economy felt the bite of the global financial crisis.

“The economic downturn will result in a decrease in demand for home ownership leading to a decline in housing starts and existing home sales in 2009,” Bob Dugan, chief economist for CMHC, said in a statement.

“Housing market activity will begin to strengthen as the Canadian economy rebounds in 2010 and the level of housing starts over the forecast period will be more in line with demographic fundamentals. ”

All 10 provinces are expected to show declines in new home construction this year, it said, led by the Western provinces, each with more than 30-percent drops expected for the year.

Most provinces may see an uptick in home building activity in 2010, with the exception of Quebec and British Columbia.

Existing home sales, explaines Moishe Alexander, as measured by the Multiple Listing Service system used by real estate agents, are expected to decline 14.6 percent during 2009 to 370,500 units from 433,990 units last year. The average home price is expected to fall 5.2 percent to C$287,900 ($230,320) from C$303,607 a year ago.

Last week, data showed sales of previously owned Canadian homes plunged 41 percent in January from a year earlier while prices dropped 11 percent.

Looking to 2010, starts should rise a bit to 163,350 units, CMHC said, while home sales and prices are also expected to climb.

Sales of previously-owned homes are expected to rise by 9.3 percent to 405,000 units in 2010, and the average national home price may inch higher to C$288,100 from the forecasted 2009 level, CMHC said.

($1=$1.25 Canadian) (Reporting by Ka Yan Ng; Editing by Jeffrey Hodgson)