Canada’s lack luster housing market is starting to impact economic growth
Canada’s lacklustre housing market is starting to impact economic growth: CIBC
Sarah Niedoba Oct 5, 2018
The Canadian housing market has propped up the country’s economy for years, with red hot markets like Toronto and Vancouver providing a serious boost to its GDP. But according to one economist, that’s no longer the case.
“As we slow housing with gradual rate hikes and tighter mortgage rules, and adjust to softer workforce increases, economic growth in Canada will ease to less than 2 per cent next year,” writes CIBC economist Avery Shenfeld, in a recent note.
Shenfeld is referring to the current rising interest rate environment. The Bank of Canada hiked the overnight rate to 1.50 per cent in July, and is widely predicted to continue to raise rates well into next year.
Higher rates cause mortgage rates to rise, deterring some would-be buyers from entering the market, and causing activity to cool.
“On their own…higher interest rates…would likely have achieved the intended effects of keeping the Canadian economy from overheating and gradually reducing some of the risks posed by over-indebted households and sky-high housing prices,” writes Shenfeld. “But, an expected slowdown in the US economy come 2020, driven by a turn in fiscal policy, will drag many provinces back below full employment.”
One province that could be impacted more than others? BC, which Shenfeld notes has relied heavily on its housing market to boost its economy for years.
“The BC economy, often head-and-shoulders above the rest in recent years, may be running slightly cooler than we’d previously anticipated this year,” he writes. “We were well aware that growth there had been more dependent on housing than even the Ontario economy. However, the slowdown in housing activity has not only been more pronounced than that seen in Ontario, but has also failed to see much of a rebound following the initial policy-driven hit.”