Capital Economics released a bleak report on the future of the Canadian housing market and what that means for the economy. According to the study, analyzed in a recent Canadian Press article, the expanding housing market helped buoy the economy following the 2008 – 2009 recession and led to Canada outperforming the other G7 countries.
But to analyst David Madani, the author of the report, overbuilding will stifle growth in the years to come.
“I think people are really under-estimating the risks to the housing market,” said Madani, the firm’s chief economist in Canada.”Is no one worried about this?”
Projecting economic growth at 1.5 per cent, 2014 is expected to see an even softer boost of 1.0 per cent as the real estate market switches gears from a “soft to crash landing.”
Madani anticipates a correction of about 25 per cent that would dampen consumer confidence and spending and raise the unemployment rate from this year’s average of 7.3 per cent to 8.0 per cent in 2014 (though that would stabilize somewhere around 7.8 per cent in 2015).
“We’ve got a housing sector that’s over-extended, the government sector is cutting back, you’ve got businesses not feeling confident right now, so where is this growth going to come from?” he said.
Though the Bank of Canada sees growth ramping up in the July-September period of this year and continuing for the next two years, Capital Economics predicts the opposite, with slow growth extending all the way to 2014. However they both see the market as a risk, with the central bank calling the threat of oversupply a risk within the “elevated” category.
Less pessimistic in their analysis, Royal LePage’s second quarter report suggested that there was no hard fall on the horizon and the Bank of Montreal also recently outlined why the market was calming and not crashing,
Bank of Montreal chief economist Doug Porter also told the Canadian Press that the U.S. recovery will prevent Canada’s economy from sinking.