Photo: James Bombales
If Canada’s soaring housing market were to come to an end this year, it will stunt economic growth — even if home prices don’t decline.
As national home sales soften across the country, Capital Economics says overall economic growth will take a hit in 2018.
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“Even a benign end to the decade-long housing boom, which doesn’t involve a decline in prices, would weigh on overall economic growth,” writes Chief North American Economist Paul Ashworth.
If sales continue to drop this year, Ashworth says it would cause the value of real estate commissions earned to drop, as well as reducing the amount of new construction and spending on home renovations.
Under these circumstances, the economist argues that it’s unlikely that the economy will grow by more than 1.5 per cent in 2018 — following record growth in 2017.
“As a result, housing will switch from being one of the biggest drivers of economic growth over the last few years to becoming a modest drag,” he writes.
With the introduction of stricter mortgage regulations on January 1, national home sales have declined throughout the first quarter of 2018 compared to a year ago.
Actual (not seasonally adjusted) activity in Canada was down roughly 23 per cent in March compared to the previous year, according to the Canadian Real Estate Association.
In Canada’s hottest markets — Toronto and Vancouver — Ashworth says that in seasonally adjusted terms, home sales remained “unusually depressed” last month.
“The bulls would argue that this is just a short-term disruption caused by the recently imposed tightening of mortgage standards and that sales and prices will bounce back once spring is finally here,” he writes.
Ashworth adds that if prices do fall during the end of Canada’s housing boom, then the negative wealth effects would weigh on economic consumption as well.