Bank Of Canada Still Shaky About Housing Forecast

In the face of the prediction made in the Bank of Canada’s Monetary Policy Report, they’re still not certain on how badly the new mortgage rules will affect the performance and activity of the real estate market. The Central Bank is not as optimistic about the growth of the country’s economy, as the Bank expects the 10 basis point diminishing to GDP this year and 30 basis points in 2017.

Stephen Poloz, Governor of the Bank of Canada said in an initial statement; “The second major issue in our deliberations was the federal government’s recent move to strengthen mortgage markets. This is a welcome development, as it will mitigate financial vulnerabilities over time. We expect it to reduce housing resales in the near term, and perhaps cause a shift toward the construction of smaller homes, which together will save some spending in the economy. Although this effect is very uncertain, we have incorporated a shock of minus 0.3 per cent by the end of 2018, which is about half of our revision to the export outlook.”

Poloz did confess that the effect could be much more intense. “It’s a highly uncertain figure … our best guess is that it will slow down housing resales, but it may not,” he told reporters on a conference call, following the release of the report. “(The impact) could be bigger but it could also be smaller.”  The initiatives on real estate will greatly affect the re-sales of homes according to a chief economist at Dominion Lending Centres, Dr. Sherry Cooper.

She mentioned in a research note; “Government sources say they expect the growth in housing re-sales to decline 8 percentage points in 2017 from the forecasted 6.0 percent growth pace this year. Private estimates of the negative impact of the new housing measures on overall economic growth vary, but most expect the contractionary effect to be roughly a 30-to-50 basis point reduction in growth over the next twelve months. Given that baseline potential growth is less than 2 percent, this is a very material dampener.”

The expansion of the country’s economy was reviewed from 1.3% in July to 1.1%. The growth for 2017 was revised down to 2% from 2.2%.