The Canadian economy was firing on all cylinders in January, posting its strongest monthly growth in the better part of a year – but that’s not likely to continue, says one economist.
The culprit? The country’s housing market, which has seen a marked decline in sales and prices over the past year following the introduction of tougher mortgage rules.
“Ultimately, January managed its solid gain thanks to gains in manufacturing and construction,” writes Eric Lascelles, RBC Global Asset Management’s chief economist, in his latest instalment of the #MacroMemo series.
“The latter, in particular, doesn’t seem likely to persist given broad-based weakness in residential real estate,” Lascelles continues.
According to a recent Statistics Canada release, Canadian GDP increased by 0.3 percent in January compared to the previous month. This wiped out the combined declines recorded in the last two months of 2018.
“The rise was widespread as 18 of 20 industrial sectors were up,” the Statistics Canada release reports.
Residential construction soared 3.1 percent, building on gains in December 2018. “There was continued growth in home alterations and improvements, multi-unit housing construction and a pick-up in single and semi-detached housing construction,” the national statistical agency explains.
At least partly due to mortgage stress testing that was introduced last January, renos are on the rise in Ontario, an economist with Central 1 Credit Union recently told Livabl.
Instead of facing the test, which requires uninsured mortgage applicants to qualify at a rate 200 basis points above their contact rate, some are opting to renovate the homes they already own.
“They’re looking to renovate it either to stay in it a little bit longer, or, they’re looking to renovate it so when the economy picks up again, they have a home that’s competitive on the market — that’s part of it,” Edgard Navarrete, Central 1’s Ontario regional economist said in an interview last week.
Lascelles notes January’s overall economic expansion occurred at the fastest rate in eight months. “The performance was all the more impressive given that the mining/energy sector was down substantially, in part due to mandated oil production cuts in Alberta,” he says.
“To the extent those cuts have since lessened, it stands to reason that the sector’s drag should diminish in the coming months,” Lascelles adds.
That could be good news for Calgary’s housing market, which has remained depressed since a considerable collapse in oil prices in 2014.
The local economy needs to pick up before recent federal government announcement of measures to help first-time homebuyers — including increasing the amount that can be withdrawn from RRSPs and a shared-equity mortgage program — can take root, suggests Ann-Marie Lurie, chief economist of the Calgary Real Estate Board.
“The problem in Calgary is the fact that we’ve been struggling with a weak job market,” Lurie tells Livabl. “We need to see the shift in the economist climate first.”
The Housing Market Slowdown is About to Take a Bite Out of Canada’s Rebounding Economy by Josh Sherman | Livabl
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