Changes to Canadian mortgage rules, anticipation of interest rate hikes, and the introduction of the harmonized Sales Tax has led to a cooling housing market. In turn, reports the Toronto Star, a slower housing market in July led to a drop in household spending and a cooling in the overall Canadian economy as households have focused on debt consolidation and building their savings rates.
The Star reports that Statistics Canada’s most recent economic release predicts that, “Canada’s economy will continue to churn out growth, but [that] the pace is set to slow as the housing market cools and the S.S. economy falters.” StatsCan reports that their leading economic indictor – which gauges the direction of where the economy is headed, has “slowed to a 0.4 percent increase in July, after a gain of 0.7 per cent in June.”
July’s 0.4 per cent growth in the economy “is the smallest recorded in 13 months and follows five steady months of increases closer to one per cent,” notes the Star.
In comments from Sal Guatieri, the senior economist at BMO Capital Markets attributes the “downshifting” in the economy to slowing housing markets in Canada and a slowing U.S. economy that continues to sputter. “[There] are two areas we need to focus on going forward,” says Mr. Guatieri: first, “that Canada’s housing market will cool too rapidly because too much demand [was] pulled forward” earlier in the year, and secondly, “the U.S. situation because there is a higher-than-normal risk of a recession.”
Mr. Guatieri notes that the housing sector that led Canada out of recession is expected to contribute less to Canada’s GDP in the second half of 2010, and could even “become a drag on it.” He reports that, “consumer spending is cooling down as households focus on debt repayment or try to rebuild their savings rates.”
Indeed, the Star reports that, “(t)he slump in home sales was … reflected in falling sales of furniture and durable goods, and consumer spending on household goods is expected to continue to slow in the coming months.” For consumers concerned with ongoing strain on their household budget, a well-resourced mortgage broker can assist them with debt consolidation by leveraging the equity that built up in the last several years as housing prices soared.
