Cooling house prices are not entirely a negative for the Canadian economy: CIBC

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 
financial systems. 
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 
similar crash. 
"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 
institutional clients. 
Avery Shenfeld, Chief Economist at 416-594-7356, or 
Kevin Dove, Head of External Communications at 
SOURCE: CIBC World Markets 
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CO: Canadian Imperial Bank of Commerce
ST: Ontario
-0- Nov/29/2012 12:20 GMT
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