See how a housing downtown may help young buyers
A cooler housing market isn’t all bad news, a major Canadian bank says.
Lower prices could benefit young couples struggling to save for a down payment and also retirees who dream of moving to British Columbia, the report by CIBC World Markets predicts.
While slowing home sales will “take a bite” out of Canada’s economic growth, “less well understood” is the fact there will be winners and losers across the economy, the report released Thursday said.
“What of the young newlyweds scraping by on mac and cheese in order to save for their first home? A slip in prices could ease that task, freeing up spending power in the process,” CIBC chief economist Avery Shenfeld wrote in a note to clients.
It could also benefit cities like Toronto and Vancouver that have been priced out of many immigrants’ and retirees’ reach, the report said.
Overall, slowing home sales will have a negative impact on the economy, the report acknowledges, chopping nearly a percentage point from Canada’s already tepid economic growth.
Fewer housing starts and related sales of furniture and appliances will cause most of the drag, the report said. As well, Canadian home owners who were counting on selling their homes to fund their retirement might find themselves with less spending money, the report said.
But Canada is not in danger of the type of housing crash seen in the U.S. and Ireland, Shenfeld wrote.
Falling prices weren’t the cause of the problem in those economies; rather, it was the accompanying wave of mortgage defaults that was the issue, Shenfeld wrote.
“Canada hasn’t lent as aggressively to its lower-income home buyers,” he noted.
Historically, most declines in wealth coincided with other economic problems, such as rising unemployment or high interest rates, he noted.
A gradual retreat in home prices now is preferable to a harder landing from higher prices down the road, he added.
“As a home owner, I’d prefer that one particular Toronto street stays insulated from any house price declines,” Shenfeld joked, referring to his own address. “But to look on the bright side, a gradual cooling in house prices, one early enough to avoid a larger financial sector shock, will look good in hindsight if Canada gets more support from global growth in the next two years.”
The report is the latest in a series by CIBC to downplay the potential for Canada to experience a U.S.-style crash in residential real estate.
Source: The Star