“A slowdown in the housing market is also expected to be a drag on spending over the next two years. In the near-term, the impact of the prior decline in mortgage rates and a pick-up in listings after the severe winter should see existing home sales activity improve,” TD Bank’s quarterly economic forecast, released Monday states. “But, the acceleration should prove short-lived as higher fixed mortgage rates (reflecting higher bond yields) start to weigh on activity in home sales in 2015, constraining expenditures on housing-related purchases.”
Residential investment, on the other hand is expected to provide a short-term boost to the economy due to strong housing price increases.
“As for residential investment – which includes construction of new homes, renovations of existing homes and ownership transfer costs – positive knock-on effects from renewed momentum in the existing home market will likely lead to higher residential investment in the near term,” the report states. “Renovation spending will also likely provide a boost through the rest of 2014, due to the positive wealth affect from stronger- than-expected home price growth.”
Overall, Canada’s GDP growth is expected to be modest throughout the rest of the year.
“A particularly harsh winter held back growth in North America in Q1, and an inventory correction is likely to keep Canada’s rebound in the second quarter quite modest,” the report states. “As a result, Canada’s real GDP growth forecast has been downgraded slightly to 2.2 per cent this year.”
Another major bank has joined the chorus of pundits forecasting a cooling period for Canada’s housing market as well as a hike to record-low mortgage rates.