Analyst fears Canada housing crash will drag economy down

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Speaking to the audience at the World MoneyShow held in Vancouver, prominent analyst and strategist Ben Rabidoux (currently working with U.S. research firm Hanson Advisors) claimed that the slump in Canada’s housing market could very well drag the entire economy down with it. Canada’s economy is largely dependent on its housing market, and with the latter falling in all the major cities of the country, the entire economy could be in trouble.

“At this point, the consensus is that we’re in for what they call a soft landing,” he said, going against the general trend of thought.”I would say we’re in for something that’s significantly worse than that.”

Housing sales in the country have taken a steady downward turn every since the mortgage rules were tightened by the federal government. Toronto and Montreal have been suffering year-over-year declines (19.9 per cent in the former, and 17 per cent in the latter), while in Vancouver, sales have dropped 43 per cent since 2011.

The problem becomes apparent when the dropping sales are viewed in the context of the fact that MLS listings in Canadian cities are soaring through the roof – in fact, they are currently at their highest since 2005. In Montreal, sales dropped close to the 2009 levels, while the listings were close to 33,000 in number during March. Vancouver is a similar story – MLS listings are steadily rising while home sales are worse than they were in 2005.

“If you’re a developer, you’re looking at an all-time high number of units being built, and you’re looking at very high listings for sale, and you’re looking at sales that are very low, is that a recipe for a successful project launch?” questioned Rabidoux.

Given the dependence of Canada’s economy on real estate, this could spell tough financial times for the country. Since 2005, the housing industry and related industries have been responsible for close to half of the GDP growth in the country – the real estate, insurance, and finance sectors comprise around 27 per cent of Canada’s GDP.

With the increasing development of the housing industry, employment in construction grew – in 1998 around 5 per cent of the work force was employed in construction, and currently, that figure is at 7.4 per cent. In the current scenario, however, the economic threat isn’t limited solely to those working in construction – the dismal state of the market could also see appraisers, mortgage lenders, and realtors suffering a drop in earnings.

Housing starts have been dropping steadily – in 2012 they were 250,000, and then fell to approximately 180,000 early this year in January. Rabidoux hit home by pointing out that 250,000 people in the housing industry could end up jobless if the housing starts fall to 150,000 – far from the soft landing many have been hoping for.

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