Affordability is not likely to reach more reasonable levels any time soon
Canada’s largest cities — in turn potentially sabotaging the country’s long-term economic stability, according to Stephen Brown, senior Canada economist at Capital Economics.
“When housing becomes unaffordable, people are forced to move further from larger Canadian cities and this often has a direct impact the success of those economies,” Brown said in an interview with BNN Bloomberg.
The near future does not appear to hold much promise on the affordability front. While the Canadian Real Estate Association is anticipating average home sales costs to tick down by 0.2% annually to $702,409 by the end of 2023, prices are expected to surge to $723,243 next year.
“Companies can choose to locate their headquarters into smaller Canadian markets, but it’s not guaranteed that they will get the highly skilled employees they are looking for — this has an overall drag competition,” Brown said.
And while immigration-propelled population growth is expected to remain robust for the foreseeable future, the current economic trends might make it more difficult for new arrivals to participate in the Canadian housing market.
“Should immigrants choose to leave, or not come to Canada, because of the living expenses then that will have long lasting consequences on the country's economic future,” Brown said.
In a recent analysis, the International Monetary Fund (IMF) warned that expensive homes and elevated household debt levels represent a volatile mix that is “particularly vulnerable to monetary policy tightening.”
“With central banks raising interest rates to contain inflation, the average mortgage rate reached 6.8% in advanced economies in late 2022, more than doubling from the start of last year,” the IMF said. “If borrowing costs keep rising or remain elevated for longer, demand and prices are likely to weaken further.”
