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Declining home sales could hurt Canada’s recovery

May 07, 2021

Photo: Tierra Mallorca/Unsplash

Sean MacKay - Livabl.com

The Canadian housing market’s rapid resurgence in summer 2020 and sustained strength through the fall and winter has been a major driver of the country’s early economic recovery following its initial crash last spring.

This strength has been accompanied by concerns over affordability, speculation and overheated markets. But now that April data has shown that some of the heat has come off of Canadian housing, market experts are beginning to contend with the potential impacts of a prolonged cooldown in buyer activity.

In commentary published today, Capital Economics’ Stephen Brown wrote that April’s national drop in home sales could “act as a headwind to the [economic] recovery over the rest of the year” if the declines continue.

While full national data for April isn’t available yet, Brown pointed to substantial monthly decreases in sales activity in both Toronto and Vancouver as indicative of a broader decline in sales across the country.

“Signs of a slowdown always cause commentators to question whether prices could go into reverse. We see that as a risk in the future, but for now the bigger risk is the potential negative effect that further falls in sales could have on GDP,” wrote Brown.

Even prior to Canada’s first quarter leap in home sales, Brown said that ownership transfer costs related to residential investment had soared to 2.7 percent of Canada’s GDP. Pre-pandemic, it made up about 1.5 percent of the country’s GDP.

“If sales were to quickly revert to pre-pandemic levels, then it would be a meaningful headwind for the recovery,” he wrote.

According to the Capital Economics team, while mostly anecdotal, commentary from real estate agents on the ground in hot markets suggests prices are levelling off and there are fewer bidding wars taking place.

But even with sales cooling compared to the early months of the year, activity across Canada’s housing markets remains elevated and is likely to continue on this path thanks to what Brown describes as “structural changes that the pandemic has brought about.”

“For example, it is only this week that many major firms offered clarity on the permanence of their employees working from home after the pandemic has faded from view,” he wrote.

The firm is forecasting a gradual decline in sales that won’t materially impact the country’s pandemic recovery.

This article was originally published on Livabl.com


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