The housing sector is already top-heavy as it is, observers warn
Despite the recent recovery and newfound strength of the Canadian economy, persistent housing problems and other economic factors are contributing towards an increased danger of prolonged weak GDP growth.
The manufacturing segment’s weakness will not help matters, according to David Doyle, Macquarie Group’s Canadian market strategist and NA economist.
“Canada’s economy, we think, is at this critical juncture, and it’s confronting several headwinds – that includes challenged demographics, low productivity, structural imbalances like the housing situation and our trade deficit,” Doyle said in an interview with BNN Bloomberg.
“And we see a real absence of growth drivers.”
In the meantime, the resurgent oil and gas sector will likely hold the fort and keep further economic weakness at bay.
“Even in this period of subdued growth in the energy sector, it’s still a major contributor to Canada’s economy and a major contributor to the well-being of households across the country,” Doyle explained.
Read more: Volatility, not outright recession, will characterize 2019 – BoC
Earlier this month, BMO senior economist Sal Guatieri noted that the “sharp rise in home values” in red-hot Toronto and Vancouver over the past decade has contributed towards the top-heavy structure of the Canadian housing market.
Guatieri cautioned that the proportion represented by real estate in the national economy might prove to be an existential risk during a “sharp, sustained correction in house prices given the wealth effect on spending.”
The warning came in the wake of Statistics Canada’ report released in late December, which covered the “value of non-financial assets” during Q3 2018. The study found that of the $11.415 trillion in total national wealth during that quarter, real estate accounted for around 76% ($8.752 trillion).
