It can no longer be denied that we’re in a cooling housing market. Sales activity has slowed considerably when compared with last year, and even though prices have yet to follow, there’s little doubt that at some point, they will. And while we so often think of the sellers in the market, who else does a cooling housing market hurt? That’s just what the top banking economists from Canada’s largest five banks answered during a recent economic outlook conference in Toronto.
Aside from sellers trying to unload properties in a market that’s not very receptive to them, the next group that is one of the more obvious are those in the construction industry. And this is where some of the first effects will be felt this year. While an oversupply has kept many construction industries throughout the country going, and even continuing projects at the beginning of the slowdown, this is not a trend that can last forever. And Warren Jestin, chief economist at Scotiabank, has an answer for when those effects are likely to be felt.
“By the time we get into the second half of this year you’re likely to see housing construction down very substantially,” he said during the conference.
Avery Shenfeld, chief economist with CIBC, then chimed in with another sector that’s not as often talked about when it comes to those that will feel the housing crunch – the retail industry. With fewer homes being snapped up and fewer people moving from one place to another, that has an effect on things such as furniture and electronic sales.
“When you throw that all in, that’s quite a hole in the GDP growth rate,” Shenfeld said, adding to his earlier point that the effects to the construction will cause a drop of half a percent point in Canada’s economic growth rate.
And to go along with the less-often talked about retail industry, those saving for retirement are another overlooked group when talking about where the effects of a cooling housing market will be felt.
Jestin summed up this point best when he said, “Low interest rates are a gift to borrowers, but they’re a penalty to people trying to save for retirement.”
That’s true enough, and those effects could be as far-reaching as seeing people struggling to make ends meet once they get to those retirement years further down the road.
The hope these economists all held was that the global economy would pick up, therefore supporting Canada’s export industry. Much of this hinges on the U.S., as 80 per cent of our exports are currently shipped there. Because the economy south of the border won’t be back on sure footing until at least the end of this year, all economists at the conference predicted a weaker economic output at the beginning of this year, with the hope that things pick up in the latter part of the year.