End of housing boom expected to trim growth

Economists see consumer spending drop

OTTAWA • Canada’s long housing boom has drawn thousands into the sector, from realtors and home stagers to construction workers, and a looming slowdown threatens to trigger an exodus that could wipe out many of those jobs and force the economy to shift down.

While housing has long been the main engine of Canadian growth, economists say a drop in home sales has already started to weigh on the economy and if price declines follow, consumer spending and jobs will suffer.

“To a lot of people, it is a get-rich-quick scheme,” Toronto realtor David Fleming said about the real estate market. “But history shows when the market turns, half of the agents leave.”

Realtors’ ranks in Canada’s largest city and hottest housing market have surged 77 per cent since 2008 to more than 48,000 — nearly 10 times the pace of Canadian job growth. Nationwide, that number has risen 26.9 per cent.

By comparison, there are over 13,500 realtors in Chicago, a city about the same size, according to the Chicago Association of Realtors.

With Canadian home construction jobs rising at nearly the same pace as real estate jobs, housing has become the top driver of employment and economic growth, accounting for the bulk of Canada’s economic growth last year.

As the nearly one million housing sector jobs now far outstrip those in oil and gas extraction and mining combined and approach the size of the manufacturing sector, economists brace for a painful reckoning if the housing slowdown turns into a long correction.

More than half of the analysts polled by Reuters in May said a sharp housing correction was somewhat or very likely in Toronto and Vancouver, but unlikely nationally.

Recent data showed nation-wide home resales fell 6.7 per cent in June, the largest monthly drop since 2010 and the third straight monthly decline as sales in Toronto tumbled, and sales are expected to slow further as interest rates rise.

While most housing bears have been focusing on how much home prices could drop, economists are also trying to work out how badly a resulting decline in consumer spending and housing jobs could hurt the broad economy.

Their forecasts range from 0.2 percentage points to 0.5 percentage points shaved off Canada’s economic growth per year, with the impact spread over a number of years.

“The jobs slowdown will not occur in a single month, but over a six-month to oneyear period,” said Frances Donald, senior economist at Manulife Asset Management. “And the hit to consumption may take up to two years to really be felt.”

The Bank of Canada has forecast the contribution of housing to economic growth will fall from 0.3 percentage points this year to zero in 2018 and a 0.1 percentage point subtraction in 2019. The Royal Bank of Canada and Canadian Imperial Bank of Commerce both expect housing to reduce next year’s growth by 0.2 percentage points.

David Madani, economist at Capital Economics in Toronto and a well-known housing bear who predicts prices will drop by as much as 40 per cent, expects the fallout will be deeper and last longer, reducing Canada’s annual growth rate by half a percentage point over the next five years.

SEAN KILPATRICK / THE CANADIAN PRESS The ranks of workers in housing construction have swelled during a multi-year boom of rising sales and prices, but employment is expected to drop sharply as prices and demand moderate under the influence of rising interest rates. Above, a housing site...