Economists warn booming markets have long-term effects
Vancouver bubble ‘has burst,’ expert says, leaving Toronto to drive the market
Those booming housing TORONTO markets may make some homeowners rich and provide a shortterm boost to the economy, but a Canadian economist is warning about the long-term impact on the country.
David Madani of Capital Economics said in a report Friday that while the housing boom supported the economy through the oil shock in 2016, a further deterioration in housing affordability will cost the economy over time.
“The abrupt slowdown in Vancouver’s housing market serves as a warning shot,” Madani writes.
“As things stand now, the performance of the economy this year could hinge on the direction of the much larger overheated Toronto housing market.
The report notes that Vancouver home sales have plummeted 40 per cent over the last 12 months and despite mortgage rates remaining very low, houses prices are also beginning to drop.
“Contrary to the conventional wisdom, there hasn’t been any macroeconomic catalyst or trigger for this abrupt slowdown.
“The new provincial foreign buyer tax also has little to do with this,” the report states, referring to an additional 15 per cent foreign property transfer tax the province brought in last August.
“The new foreign buyer tax announced by British Columbia’s government in July doesn’t tell the full story either. We simply think the housing bubble has burst. Housing bubbles are, of course, inherently unstable because they are largely driven by unpredictable investor mania.”
Madani says gains in the Toronto market continue to be fuelled by loosening credit standards, and points to research from the Bank of Canada that says the growing size of average home loans have ballooned as a proportion of household income, which he says makes mortgage lending increasingly riskier.