Canada?s housing ?bubble? is more likely to develop a slow leak than actually burst, some of Canada?s top chief economists predict.
But a cooler residential real estate market poses other kinds of risks to the economy, the Economic Club of Canada heard Friday.
Slowing residential sales means fewer jobs in construction and lower prices will cut the value of most households? key retirement asset, the club heard.
?It?s not a trivial matter,? Avery Shenfeld, chief economist with CIBC, told a packed ballroom at The Sheraton Hotel in Toronto during the club?s annual economic outlook.
The club invited the chief economists from Canada?s five largest banks plus the New York-based chief economist for European bank BNP Paribas to share their views.
Even if Canada doesn?t see a U.S.-style wave of mortgage defaults, which few economists are predicting, a slowdown in sales will mean a slowdown in new residential construction, the club heard.
That could shave up to half a percentage point off Canada?s already tepid 2 per cent economic growth rate in 2013, Shenfeld said.
The construction slowdown could come as soon as mid-summer, said Warren Jestin, chief economist with Scotiabank. It hasn?t shown up yet because so many condos are presold, he said.
?By the time we get into the second half of this year you?re likely to see housing construction down very substantially,? Jestin predicted.
Lower house sales also mean lower sales of new couches and other house-related items, Shenfeld added. ?When you throw that all in, that?s quite a hole in the GDP growth rate,? he said.
Canada?s residential real estate market began cooling last spring as affordability soared out of reach. Fears of a housing ?bubble? caused Ottawa to tighten mortgage lending rules.
That?s why most of Canada?s leading economists are hoping for an upturn in global economic activity, which would create greater demand for Canada?s exports.
A prolonged period of little or no growth in house prices could also hurt Canadians? retirement savings, especially if interest rates also remain relatively low, Jestin cautioned.
?Low interest rates are a gift to borrowers, but they?re a penalty to people trying to save for retirement,? Jestin said.
It?s one of the unintended consequences of an unprecedented period of record low interest rates, the panel said.
While the Bank of Canada?s decision to lower its trendsetting rate helped the country survive the worst of the financial crisis of 2008 and the Great Recession that followed, it may have also created other more far-reaching problems down the road, Jestin cautioned.
The central bank?s benchmark rate has been at 1 per cent for more than two years, fuelling a borrowing binge that has left households with record high debt levels.
BNP Paribas economist for the Americas, Julia Coronado, sounded the lone negative note on future U.S. economic growth during the breakfast panel.
The U.S. economy slowed to 1.5 per cent during the final three months and Americans are facing tax hikes that lock in a weak start to the year, she said
The fiscal cliff compromise, reached Jan. 2 after months of political gridlock, raises U.S. payroll taxes by 2 per cent, taking roughly $1,000 out of every working Americans? pocket this year.
Most of the panelists are predicting a relatively weak first half for Canada?s economy, but a stronger finish once the U.S. deals with the two remaining fiscal cliff issues ? $110 million in automatic spending cuts that were delayed to March 1 and the need to raise the U.S. debt ceiling.
The fiscal cliff refers to a combination of automatic tax hikes and spending cuts that were to come into effect Jan. 1 that, if left unchanged, threatened to throw the U.S. economy back into recession.
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