Housing Investment: A Threat To Canada’s Economy?

UBS said the residential building explosion will culminate at practically all levels in the second half of this year, before falling the next.

The bank said its prognosis is backed up by an international crane count with the number of cranes on Australian high-rise towering sites leveling out at a pinnacle of 548, having surged 323 per cent since late 2013. This will impact on economic growth which has been pushed by the apartment building expansion and also on employment for construction workers. Still, UBS does not see prices dropping the same as the sharp drop in the building activity.

This will have a larger negative feedback loop for the labor market and economy as predicted by the investment bank.

Even being hopeful generally around the risk of a housing downtrend because of strong population increase and stable employment, UBS did warn there are elevated risks of something dubious due to Australia’s high housing prices and record household debt.

Likewise UBS, the bank of Canada says in its year-end-review that rising household debt is a risk to Canadian financial system in particular and economy at large. Related causes to that instability might be imbalances in the housing market across the country and frail fixed-income market liquidity.

In spite of the noticeable global economic expansion, Canadians continue to strive under record debt loads. The bank has implemented several federal measures aimed at lessening the housing market, but it will take some time to attain the expected changes in the system.

The bank’s new policies and rules are meant to drop down escalating home prices in Toronto, Vancouver and even the British Columbia’s land tax for foreign buyers and more draconian federal requirements to be eligible for insured loan agreements across the country.

The bank of Canada says that all these changes taken together should have the greatest effect on household indebtedness by improving the quality of future borrowing.

If such measures had been in place during the 12 months prior to September 2016, 31 per cent of high-ratio loan agreements issued nationally would not have qualified, according to the bank’s report. Currently, the national ratio of debt to available income is close to 170 per cent, exceeding growth in mortgage credit, and consumer credit. It is growing at or slightly above the incoming growth rate.