TD has just put out their forecast for a canadian housing market soft-landing that will be softer than the soft landing currently not being enjoyed in the USA.
The gloom and doom from down south:
An ever-deepening housing correction is scarring the economic landscape. A sharp backslide in residential investment shaved 1 percentage point off real GDP growth in the third quarter, which marked the largest drag from this sector in 16 years. TD Economics expects to see a repeat performance in the final quarter of this year given that housing starts plummeted 13 percent in October. Moreover American shoppers are already contributing about half a percentage point less to GDP growth. And, estimates show that it takes at least one year for the full impact of a change in real estate wealth to feed through to consumption behaviour.
Bah! That’s merely semantics. If we only look at the US market 1 month at a time it IS the soft landing that everyone was predicting there a year ago. Its only when you look at long stretches of time (several months in a row) that the US housing crash looks bad.
The Canadian market is doing pretty good so far though:
Any drag from cooling housing construction will be mild in comparison to the U.S. This is not to say that the Canadian economy is free of housing risks. For instance, residents in Vancouver dedicate an inordinate amount of pre-tax income (+50%) to housing costs, while Alberta’s double-digit price growth won’t be sustained. However, a boom-bust cycle can be avoided if price growth cools in the near-term, which seems quite possible given ongoing supportive fundamentals.
Some hopeful signs for a potential soft landing have already emerged. New listings are up substantially in Calgary (51% y/y), Edmonton (27% y/y) and Vancouver (19 y/y), which should help alleviate price pressures in time. If a hard landing were to befall the western provinces, it would likely be due to the ripple effect of an unexpected collapse in the U.S. economy, rather than a sharp reversal of domestic fundamentals.
So as TD sees it, the only real risk to the canadian market is the US economy. And hows that going so far again?
South of the border, however, the U.S. economy will fall short of its potential pace (3.3 percent) by a full percentage point, resulting in a greater degree of economic slack. Moreover the American slowdown has only reached its halfway mark.
I’m sure many Americans would be dissapointed to hear that they’ve only reached the halfway mark in their economic slowdown. That’s a strange thing to state as fact. Is the TD bank perhaps controlling the US market? Or else they’ve hired some new soothsayers.
Either way, you may find it useful to know that both ‘defuse anthropomorphic assets’ and ‘forecasts hide upon metaphors‘ are anagrams for ‘the prophesies of nostradamus‘