Photo: James Bomables

It was a good year for the Canadian labour market, with 78,600 jobs created in December marking 13 straight months of growth. But it’s not all good news — a strong job market could mean trouble for Canada’s housing market down the line.

Canada saw a 2.3 per cent increase in jobs created in 2017, marking the strongest labour market in 14 years. But as employment (and wages) go up, so too do inflationary pressures, which could cause the Bank of Canada to hike the overnight rate.

The Bank raised the overnight rate by 50 basis points in 2017, up from a historically low 0.5 per cent. A higher overnight rate influences lenders to hike mortgages, leading to larger monthly payments for homeowners, and a cooler housing market.

Housing Market News Alerts

Sign up now for news alerts on the Canadian housing market

“Higher mortgages, amid continued Bank of Canada interest rate hikes, will be a significant headwind on Canadian housing activity in 2018,” writes TD economist Michael Dolega, in a recent note.

The prediction is echoed by the National Bank economics team, who wrote in a recent report that rising interest rates would make the housing market “an area of particular concern” in 2018.

The team writes that, as interest rates rose over the course of 2017, mortgage payments came to make up an increasingly large share of homeowners monthly income in pricey markets like Toronto.

If mortgage rates continue to go up, some home buyers could be priced out of the market, cooling price gains in major markets for the first few months of 2018.

And a rate hike is almost certainly on the way. As of Monday, five of the six big banks predict the Bank while raise the overnight rate on January 17.

“While risks to the outlook remain and may temper the overall pace of rate hikes, another policy interest rate in the near term now seems almost certain,” writes TD senior economist Brian DePratto, in a recent note.

Developments featured in this article

More Like This

Facebook Chatter