Housing has boomed across much of the country in recent years. In fact, the strong housing market helped Canada through the worst part of the global financial crisis. But analysts worry that property won’t be able to continue propping up the economy as many new households are overextending themselves to buy expensive homes, Reuters reported.
“We have relied on housing and housing investments to carry growth through most of the post-recession period, and it’s time for the housing market to put up its feet and take a rest,” HSBC Bank Canada chief economist David Watt told Reuters. “The footprint of the housing market and residential investment on the economy is just unsustainably high.”
Thirteen of 21 analysts in the Reuters poll predicted that the housing market would be a drag on the economy in the coming years, while eight predicted it would be a net contributor.
Home prices, meanwhile, are still rising. They’re projected to rise 5.5% this year, although most analysts predict that to slow down to 2% in 2016 and 1.5% in 2017, Reuters reported. But if prices should fall precipitously, it could mean trouble for the economy, Jean-Paul Lam, associate professor of economics at the University of Waterloo, told Reuters.
“The housing market remains one of the biggest downside risks to the Canadian economy,” Lam said. “With rising debt levels, a fall in housing prices would seriously impair the balance sheets of consumers, adversely affecting consumption and the Canadian economy going forward.”
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Analysts worry that Canada’s housing market is likely to be a drag on economic growth over the next few years, according to a Reuters poll.