Declining housing costs might improve Canada’s economy

| December 5, 2012 | 0 Comments

Housing slowdown will have positive impact on country’s economy

Beacon Staff Reporter

housingDeclining housing costs will help those dreaming of owning their own home and help the economy at the same time.

After witnessing a multi-year run-up, the price gains have slowed down and even started falling in many cities across Canada. However, this slowdown is not predicted to reflect on Canada’s economy in a negative manner.

According to the Canadian Real Estate Association, the average price of a Canadian home was $361,516 in October, virtually unchanged from a year ago. Real estate watchers feel that a modest price correction was likely.

The drop in the cost of homes might give people more spending power as their incomes rise but housing costs drop. The amount saved due to the reduction will in turn be spent in other sectors, pushing the pace of country’s economy.

For instance, the house prices in Calgary have been less than the Canadian average since 2007 including a drop of almost 15 per cent in 2008, while many markets were seeing outside gains.

Lowering of the prices also encourages more people to invest in the sector, which will spur the growth of other sectors like employment and industrial production.

According to Housing Market Outlook report for the fourth quarter of 2012, published by Canada Mortgage and Housing Corporation, in the 12 months up to September 2012 employment grew by 1 per cent (+174,500), while the unemployment rate stood at 7.4 per cent.

Over this period, full-time employment rose 1.1 per cent (+156,800), and part-time rose 0.5 per cent (+17,700). Employment is forecast to grow 1.1 per cent in 2012 and 1.9 per cent in 2013, which is expected to support Canada’s housing sector.

The report also said that the growth in incomes was expected to continue, albeit at a moderate pace due to modest economic growth both in Canada and in global markets. As a result, income is predicted to grow slowly in 2012 and 2013, but still support the housing demand.

Canada’s home buyers market is cooling rapidly in the wake of government changes to mortgage insurance rules, amid suggestions that many potential first-time buyers are opting to remain tenants.

The real estate sector in Canada was lucky enough to avoid a bubble burst akin to that experienced by US in 2008 through an adjustment of lending regulations, and Canada is now seeing the prices of its properties fall.

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Category: Canada

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