5 Factors Threatening the Canadian Economy: Housing Slowdown
At the end of every year we take a look back at the biggest things that helped the Canadian economy in that year, and the factors that were the biggest drag on it. This year we thought we’d get a jump on things and take inventory a little early, and maybe compare it with where we are when it comes time for that year-end review. This week we’ll get the negatives out of the way first and look at the five biggest things threatening Canada’s economy. The first, not surprisingly, is the housing slowdown.
There’s no question that if you listen to the doom and gloom stories surrounding the current housing market, it’s enough to make any homeowner (or buyer) want to just pack it all up and head for sunnier shores (like Phoenix maybe, where the market right now is super hot and prices super cheap.)
The Organisation for Economic Corporation and Development has said that Canadian homes are currently overvalued by 30 per cent, and that prices are only going to continue to get higher. And the Canada Mortgage and Housing Corporation has predicted that construction is going to fall by 11 per cent this year. And CAAMP has been very public with their harsh criticism of the current market, saying that the new rules imposed last year won’t only bring a chilly blast of icy air to it, but also that the country will lose 150,000 jobs because of it.
However, it’s important not to get too caught up in the negativity. Yes, the FIRE industries (finance, insurance, and real estate) do make up 27 per cent of the entire economy, and a slowdown will have an affect on those jobs. However, the OECD has been heavily criticized for that 30 per cent overvaluation, with the Conference Board of Canada calling their formula for that percentage “a little too simplistic.” And, according to the Canadian Real Estate Association, sales have been much better than expected this year, and they also expect to see continued growth throughout next year.
But that doesn’t mean we’re out of the woods yet, or that Canada’s housing market doesn’t bear close watching. There’s no doubt that a year ago, before Flaherty’s fourth round of mortgage rules was enforced, that our housing market had gotten out of hand, and was in trouble. And there could be a strong argument that in some areas such as Vancouver and Toronto, it’s still very much in trouble indeed.
Canada’s housing market will most likely rebound the way it has every other time before in recent history. To say that it’s going to be the boat that sinks us, or that we’re immune to any kind of crash are both extreme predictions and neither one is going to come to fruition. But there’s one truth you can bank on. The Canadian housing market right now is indeed a threat. And just like any threat, it’s not a bad idea to keep a very close eye on it.