Celebrating a 'soft landing' might be premature

by Ephraim Vecina on 21 Nov 2018

Recent numbers might be showing the beginnings of slower price growth across Canada’s housing markets, but Royal Bank of Canada Global Asset Management chief economist Eric Lascelles warned that the sector should remain wary.

While interest rate hikes and tighter mortgage rules have certainly played a part in moderating prices, major risks continue to characterize much of the activity in the hottest markets.

Chief among these is the affordability crunch, which has pressured millennials and their younger kin – expected to become the largest buying demographic in less than a decade – to prefer rental housing and forego ownership altogether.

“There is no pre-ordained conclusion here,” Lascelles told Bloomberg.

Lascelles also stated, however, that the policies are certainly a step in the right direction.

“It’s a pretty good spot to be in, avoiding boom but avoiding bust as well,” he said. “The rule changes that have been made have been effective in cooling these markets down.”

Read more: Canadian household debt-to-income ratios are easing – BoC

“Overall, yes the medicine is working,” Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal agreed. “We are reaching some sort of landing, how soft it will be I don’t know, but we aren’t in a free-fall by any stretch of the imagination.”

“It looks like we’re settling into this environment in Canada where price growth is going to be flat in real terms,” Bank of Montreal senior economist Robert Kavcic stated, adding that the rate might go as low as they were during the relatively tranquil ‘90s.


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