Cooling house prices in parts of Canada not negative for economy

BY MARIO TONEGUZZI, CALGARY HERALD.- A cooling in house prices in some parts of Canada may not be all bad news for the country’s economy as cheaper real estate may free up retail spending power for prospective first-time home buyers, finds a new report from CIBC World Markets. The report, released Nov 29 2012, said that while the evident slowing in Canadian home sales will take a bite out of domestic economic growth by reducing new housing starts and related sales of furniture and appliances, a gradual retreat in prices may be beneficial for parts of the economy and for some Canadians.   “For one, a retreat today could be the preferred alternative to a harder landing from even higher prices down the road,” said Avery Shenfeld, chief economist at CIBC. “Less understood is that cheaper home prices could bring winners as well as losers across the economy. “What of the young newlyweds scraping by on mac and cheese to save for their first home? A slip in prices could ease that task, freeing up spending power in the process.”   Shenfeld said increases in Calgary house prices have trailed the Canadian average over the past five years, including a near-15 per cent dip in 2008, yet retail spending in the city has outperformed the national average. According to the Calgary Real Estate Board, month-to-date from November 1-28, total MLS sales in the city of 1,346 are up 6.49 per cent compared with the same period last year while the average sale price has risen by 5.16 per cent to $434,839. The latest Statistics Canada data indicated Alberta led the country in retail sales growth in September with a 8.5 per cent year-over-year hike to close to $5.9 billion in sales. Nationally, annual sales growth was 1.8 per cent to $39.1 billion.   “British Columbia house prices led on the way up and now down,” he said. “But affordability issues have been a drag on B.C. growth; the rapid run-up in prices was one factor turning the province from a beneficiary of in-migration to a net source of emigration. Dreams of retiring in B.C., and taking one’s spending money to that province, might be back in vogue if relative prices of housing are better in line with other provinces.”  

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