When the mortgage rules went into effect last summer, it was known that it was going to have a negative effect on Canada’s overall growth. After all, housing was the mainstay that supported us through those awful recessionary years, and once the noose was tightened, it was no secret that it was going to spell trouble for the entire country. Now, it seems as though everyone’s fears are coming to realization. Not only do our recent economic numbers show a slowdown, but this time the housing market won’t be there to support it.
Economist Joshua Dennerlein believes that monthly job gains will drop to 15,000 in the next several months – a significant drop from the 27,000 where it’s been for the past six months. Last month alone, Canadian employers cut a total of 21,900 jobs; and the numbers for those in the workforce dropped to 57,500 – the lowest number we’ve seen since April 1995.
But how is housing to blame for any of this?
One reason is because many of those jobs were in the construction and public sectors, areas that housing quickly scoops up workers if it’s in a healthy position to do that. It’s this that economist at Bank of Montreal, Robert Kavcic, says will be a “clear drag” on the Canadian economy, and that its effects can already be seen.
Benjamin Tal, economist at CIBC, agrees saying, “I really think that we’re going to see very weak construction jobs over the next six months.”
And that can already be seen, too. According to CMHC, housing starts dropped in January to 160,577 – much less than where they stood before. That comes as developers are starting to push back or cancel projects – mostly in the condo sector – after mortgage rules went into place last year that made it much more difficult to obtain financing for these homes. With much less demand, and with the condos currently on the market seeing a drop in prices due to oversupply, developers simply have no reason to think about starting new projects. Or even going forward with ones already in the works.
The good news, if any, might be that the downturn won’t last forever. Toronto realtors are already predicting a very busy spring season, and in fact have been saying that the spring market has already hit in Toronto. If that market, as well as others in the country, can become robust once again, those construction and trade jobs will once again pick up and help support the Canadian economy once again.
However, with household debt levels where they’re at (and the actual reason those rules went into effect in the first place,) you have to ask yourself whether a busy housing market would really be a good thing for Canada or not. It is a delicate balance, indeed.