People love Canada which could mean higher interest rates

by Steve Randall on 13 Aug 2018

Last year, a record 380,000 people moved to Canada, outpacing the federal government’s immigration target of 300,000 per year set in 2016.

But the positives of younger people joining the Canadian workforce as an aging population retires, are dampened by the rising demand for housing and the resulting upward pressure on home prices.

An analysis from BMO economists Doug Porter and Robert Kavcic cites population growth (which totalled 506,000 in Q2 2018) as part of the reason for a boom in house prices, especially in Vancouver and Toronto.

A rise in construction of housing is underway but follows a lag in supply even as the population increased to 37 million this year.

With forecasts for further increases, the BMO economists say that population growth may spur the BoC to conclude that the economy is growing faster and implement interest rate rises.

Sales have stabilized
BMO economist Robert Kavcic says that the policy changes, especially the mortgage stress tests, that were designed to cool the hottest markets, have made an impact along with rising interest rates.

"Sales and price activity got heated even beyond what those demographic fundamentals would suggest and now we're seeing a correction response," he told HuffPost Canada. But "we do think sales are going to stabilize and, in fact, they have stabilized in the Greater Toronto Area."

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