Photo: Thank you for visiting my page/Flickr

Should the Canadian housing market slow down over the next two years the national economy will take a hit — but it will be a “glancing blow” not a “knock-out punch,” writes one economist.

In commentary released today, Brian DePratto, an economist with TD Bank, says the housing-market cool off that the financial institution expects to unfold in 2016 and 2017 will lead to a 0.2 percentage point slowdown in the Canadian economy’s growth.

However, this won’t be “a major headwind when balanced against the other drivers of economic growth,” DePratto writes.

DePratto identified the recovery in Canadian exports as a driver and forecast economic growth for Canadian to hover around 2 per cent in the years ahead.

Although Alberta, Saskatchewan and Newfoundland and Labrador were identified in the commentary as provinces where home prices are expected to drop considerably, DePratto says it would take more than that to have a serious impact on the national level.

“A scenario would have to play out where Alberta-style impacts occur simultaneously in the two ‘heavy hitter’ housing markets: Ontario and B.C.,” he writes, referring to the provincial market that’s suffered as a result of plummeting oil prices.

In Calgary, home sales have dropped 30 per cent from their peak, according to a recent Central 1 Credit Union report.

If Ontario and B.C. experienced such declines, Canada’s GDP would be pulled down by 0.7 percentage points, says DePratto.

“Significant price declines need a catalyst, however, and this is lacking at the national level, making the likelihood of a more significant decline very remote,” DePratto writes.

Citing examples of what could bring about such a decline, DePratto said it would take the unemployment rate reaching the 8 or 9 per cent mark or a recession like the one seen in 2008-2009 to lead to a serious drop in national home prices.

“Economic out-turns of these magnitudes are rare and are not in the cards in our forecast.”

Developments featured in this article

More Like This

Facebook Chatter