Loonie weakness could stimulate home price growth this year

by Ephraim Vecina04 Jan 2017
The sustained weakness of the loonie-greenback exchange rate might prove most helpful for the Canadian housing sector in 2017, according to an analyst.
Vestcap Investment Management senior portfolio manager Lyle Stein argued that the low Canadian dollar could magnetize a greater inbound volume of foreign this year.
“When your dollar is low you become on sale and smart investors with all this liquidity that is coming out of the bond market and looking for a home, why not own a home in Toronto, a home in Vancouver or a home in Ottawa as an alternative asset -- and that is what we are seeing,” Stein said in a recent interview with BNN.
However, gnawing fears of a housing crash in the near future might prove harmful to the already struggling loonie.
“When you look at the Canadian economy I was stunned that seven per cent of the economy is related to housing and housing-related activity and it has been like that for the past seven or eight years; if that starts to slow we are losing one of the key growth drivers in our economy and I think that is also coming into the fray,” Stein explained.
In particular, a dire warning from Royal LePage—which predicted major double-digit decreases in Vancouver home prices this year—emphasized the crucial role that recent government interventions are having on this vital pillar of the economy.
The B.C. government imposed its 15 per cent foreign buyers’ tax in mid-2016. Combined with far-reaching revisions to federal mortgage rules late last year, a growing number of observers and industry professionals are voicing out concerns that the Canadian residential real estate sector is poised for a significant fall.
“We are putting a lot of responsibility on a very narrow sector and that to me is the bigger problem,” Stein concluded.
“Twenty years ago we were talking about a low loonie and how great it was for manufacturing. We actually had a manufacturing economy back then and we do not have that today [and] what replaced manufacturing, particularly in Ontario, has been the strength in our housing market. If we lose strength… we could really pull the rug out from under the only pillar that is working in Ontario right now.”

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