Scotiabank sees slow growth in housing; modest drag on economy

TORONTO — Scotiabank says Canada’s housing market is in the process of transitioning to slower growth and will remain on a “subdued trajectory” over the next several years, imposing a modest drag on output growth as the effects make their way through the broader economy.

TORONTO — Scotiabank says Canada’s housing market is in the process of transitioning to slower growth and will remain on a “subdued trajectory” over the next several years, imposing a modest drag on output growth as the effects make their way through the broader economy.

In a new report, bank senior economist Adrienne Warren says residential investment began to stall last year as affordability constraints tempered home sales and builders scaled back the number of new developments.

The bank says that it expects resale activity to edge lower in 2014-2015 as rising mortgage rates, combined with high home prices and stricter mortgage regulations strain affordability, especially for first-time buyers in major urban centres.

However, it says population growth and relatively healthy labour market conditions suggest sales should hold near their 10-year average.

Meanwhile, softer sales should in turn slow house price appreciation, with “greater downside price risk in the more amply supplied high-rise segment than for single-family homes.”

And it says a softer sales and the pricing environment is also expected to dampen renovation activity even as still expanding housing stock and high homeownership rates continue to support modest growth in renovation spending.

Scotiabank (TSX:BNS) predicts homebuilders will further slow the pace of new home construction in the face of weak growth in new home prices, rising building costs and increased unsold inventory, with the slowdown likely to remain focused on multi-unit construction due to growing concerns of oversupply and softening investor sentiment.

“From a regional perspective, Alberta is expected to outperform national trends, with sales and construction supported by relatively firmer employment and income gains and strong population inflows.”

The impact of a softening housing market will be felt broadly.

Apart from construction, the banks says industries most affected by a housing slowdown include manufacturing, retail and wholesale trade, finance, insurance and real estate and professional and technical services.

“The likelihood of smaller household wealth gains as house price growth slows — or adjusts lower — will reinforce a more cautious trend in consumer spending,” it added.

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