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Money Talks: Housing Market Slowdown Not Enough to Stop Canada’s Booming Economy

15 September 2017

Ontario’s cooling housing market has been no match for Canada’s booming economy. Canadian GDP surged more than expected in the second quarter, growing at the fastest pace since 2011. Recent data from housing starts to employment suggest the nation carried the momentum forward into the third quarter.

This is Money Talks for Sept. 14, 2017.

The Canadian economy expanded 4.5% annually in the second quarter, easily tops in the Group of 7 nations. It was the second quarter of above-potential growth, as the combination of household spending, exports and government outlays kept the momentum alive. Across-the-board growth in the past two quarters gave Canada its best start to a year since 2002.[1]

August housing starts also surprised to the upside, as builders in the Toronto region stepped up efforts to boost single-detached units. The Canada Mortgage and Housing Corporation (CMHC) reported last week that national housing starts rose to a seasonally adjusted annual rate of 223,232 units in August, from 221,974 the previous month.[2]

Personal Finance

Rising household debt hasn’t deterred Canadians from spending money this year. Household spending shot up 4.6% annually in the June quarter, followed by an even stronger 4.8% reading between January and March.

Although Canadians continue to struggle with even bigger debt burdens, a solid jobs recovery is helping to offset the higher costs. Employers added 22,200 jobs in August, the ninth consecutive monthly increase. In fact, Canada has added jobs in 11 of the past 12 months.

Moving forward, personal finances could take an even bigger hit as the government looks to place further controls on the housing market. The Bank of Canada (BOC) is also raising interest rates at a faster rate than expected. A recent report from RBC showed that Canadian households added between $10 and $12 billion to their consumer credit balances in each of the last four quarters.[3]

Real Estate

Ontario’s housing market has shown constraint in the wake of a major initiative by the provincial government to cool Toronto real estate. The Toronto Real Estate Board (TREB) said annual home sales in the Greater Toronto Area fell 34.8% in August. That followed a 40% year-over-year decrease in July. The number of new home listings also fell by 6.8%.[4]

A new study from DBRS says that Ontario and British Columbia could survive a major housing correction as other sectors absorb the loss of housing-related jobs. The presence of strong economic growth and steady population gains should minimize the impact of an unexpected drop in housing activity.[5]


Canadians are rushing to lock-in fixed-rate mortgages after the BOC hiked interest rates for the second time in as many months. Although many Canadians have gone with a variable-rate mortgage since 2014, the tide is quickly shifting following the latest policy move.

Although the BOC doesn’t impact mortgage rates directly, banks usually pass on the higher cost to their consumers. The nation’s top banks have already hiked mortgage rates this month, with RBC raising its prime rate to 3.2% from 2.95%.

Interest Rates

Analysts continue to expect a third interest rate hike by the BOC this year, with some speculating that it could happen as early as next month.

After not raising the benchmark rate for nearly seven years, the central bank is playing catch-up as the economy catches fire. Recent jobs data also showed that wages are starting to pick up the pace, which is a positive sign for underlying inflation.

The benchmark rate currently sits at 1%.


[1] Andy Blatchford (August 31, 2017). “Household spending, exports stand out amid growth in Canada’s economy.” The Star.

[2] CBC News (September 11, 2017). “Pace of Canadian housing starts surprise with August increase.”

[3] CBC News (September 6, 2017). “Big banks hike prime rates after Bank of Canada tightens monetary policy.”

[4] Kate McGillivray (September 6, 2017). “Toronto home sales soften in August, but fall could see market warm up.” CBC News.

[5] The Canadian Press (September 12, 2017). “Toronto, B.C. job markets will survive a housing correction: report.” The Star.

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