Photo: James Bombales
The Canadian economy hit a bit of a slump in the first quarter of 2018, and according to one economist, it could be because the industry that had been propping it up for years has started to flag.
“[As] Canadian trade continues to struggle, the prior Canadian growth workhorse — housing — is showing further signs of fatigue,” writes BMO chief economist Douglas Porter, in a recent note.
According to Porter, home sales — which have been down year-over-year every month since January — are struggling under the weight of a new mortgage stress test, foreign buyer taxes in Toronto and Vancouver, and rising interest rates.
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“Calgary, Vancouver and Toronto reported a drop in sales of at least 20 per cent from year-ago levels in April, despite very different dynamics in each of the three markets,” writes Porter.
That could mean that after taking a bite out of Canada’s GDP in Q1, the housing market won’t add to growth at all in the coming months.
“With the slide in sales, we look for residential activity…to make no contribution at all in 2018,” writes Porter.
He is quick to note, however, that April’s poor weather likely contributed to the low sales numbers. What’s more, this year’s numbers were always going to appear low when compared to April 2017’s record-breaking highs.
“In two separate cases in recent weeks, I have heard a pundit decrying the measures taken a year ago to cool Toronto’s torrid market — because ‘we didn’t have enough data on non-resident buyers,’” writes Porter. “That’s akin to demanding, when your house is on fire, to first know whether it was Professor Plum in the Library with a butane lighter, or torch, or Colonel Mustard in the Kitchen with a blowtorch, before calling the fire department.”
According to Porter, the GTA foreign buyers tax implemented last April was the right call for the market, despite the potential blow to the Canadian economy.
“The subsequent deep cool-down [after the tax] suggests that the measures taken on that front were entirely appropriate, and effective,” he writes.