Cooling house prices are not entirely a negative for the Canadian economy: CIBC
Lower real estate costs could trigger increased retail spending by some
TORONTO, Nov. 29, 2012 /CNW/ - A cooling in Canadian house prices may not be
all bad news for the country's economy as cheaper real estate may free up
retail spending power for prospective first time home buyers, finds a new
report from CIBC World Markets.
The report notes that while the evident slowing in Canadian home sales will
take a bite out of domestic economic growth by reducing new housing starts and
related sales of furniture and appliances, a gradual retreat in prices may be
beneficial for parts of the economy and for some Canadians.
"For one, a retreat today could be the preferred alternative to a harder
landing from even higher prices down the road," says Avery Shenfeld, chief
economist at CIBC. "Less understood is that cheaper home prices could bring
winners as well as losers across the economy.
"What of the young newlyweds scraping by on mac and cheese in order to save
for their first home? A slip in prices could ease that task, freeing up
spending power in the process."
Mr. Shenfeld notes that increases in Calgary house prices have trailed the
Canadian average over the past five years, including a near-15 per cent dip in
2008, yet retail spending in the city has outperformed the national average.
"British Columbia house prices led on the way up and now down," he adds. "But
affordability issues have been a drag on B.C. growth; the rapid run-up in
prices was one factor turning the province from a beneficiary of in-migration
to a net source of emigration. Dreams of retiring in B.C., and taking one's
spending money to that province, might be back in vogue if relative prices of
housing are better in line with other provinces."
While deflation in housing prices has widely been cited as the cause of the
economic woes in jurisdictions like the U.S. and Ireland, Mr. Shenfeld argues
that it wasn't the falling prices that caused the core problems in these
economies but rather the accompanying wave of defaults that devastated their
He notes that, while a Canadian home owner that counted on downsizing to fund
her retirement might have to pare spending plans, Canada is not in danger of a
"Canada hasn't lent as aggressively to its lower-income home buyers, and a
correction in house prices caused by a tighter regulatory environment and
earlier price overshooting, rather than by defaults, would not on its own
generate that same banking system shock. Most historic wealth declines
coincided with other sources of economic weakness, including rising
unemployment or high interest rates that depress consumption.
"As a home owner, I'd prefer that one particular Toronto street stays
insulated from any house price declines. But to look on the bright side, a
gradual cooling in house prices, one early enough to avoid a larger financial
sector shock, will look good in hindsight if Canada gets more support from
global growth in the next two years."
The complete CIBC World Markets report is available at:
CIBC's wholesale banking business provides a range of integrated credit and
capital markets products, investment banking, and merchant banking to clients
in key financial markets in North America and around the world. We provide
innovative capital solutions and advisory expertise across a wide range of
industries as well as top-ranked research for our corporate, government and
Avery Shenfeld, Chief Economist at 416-594-7356,firstname.lastname@example.org or
Kevin Dove, Head of External Communications at
SOURCE: CIBC World Markets
To view this news release in HTML formatting, please use the following URL:
CO: Canadian Imperial Bank of Commerce
NI: FIN ECO
-0- Nov/29/2012 12:20 GMT
Press spacebar to pause and continue. Press esc to stop.