Canada’s housing markets likely to remain robust, housing to add 0.3 ppts to GDP growth in 2017

Canada’s housing demand continues to be strong and the possibilities of a correction continue to be limited in the face of still-constrained supply in Toronto and Vancouver. There are indications that excess demand is spilling over into other markets. Housing demand in the nation’s major cities continues to be underpinned by high rates of international migration, intra and inter-provincial migration, solid growth, foreign capital inflows and still-low interest rates, stated Scotiabank in a research report.

The hike in rates that is expected in 2017-2018 will not significantly change this picture. Housing starts are expected to total around 200,000 units in 2017 given the strength of permit demand and the comparatively low level of unsold inventory. The attempts to dampen high-end and foreign demand in British Columbia’s Lower Mainland seem to have had just a temporary effect, while it is too early to assess if Ontario’s Fair Housing Plan would durably subdue price momentum in Toronto’s market without additional measures to increase supply, noted Scotiabank.

“Overall, we still expect housing to add some 0.3 ppts to GDP growth this year, its largest contribution since 2012”, added Scotiabank.

Strong job growth, low borrowing and strong household formation strengthened by high immigration figures should continue to underpin housing demand till next year. However, the combination of higher borrowing costs, strained affordability, macroprudential tightening are likely to lead to some deceleration in home sales and house price appreciation in the year ahead.

“We expect 2018 to mark the first year since 2009 in which residential investment provides a drag on growth”, added Scotiabank.

At 22:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was highly bullish at 112.625, while the FxWirePro's Hourly Strength Index US Dollar was neutral at 28.4229. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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