The top economist at RBC’s investor division has estimated the chances of the three possible and very different outcomes for Canadian home prices.
Put simply, the options are “up, sideways, or down,” but Eric Lascelles, the chief economist for RBC Global Asset Management, gets more specific.
“The most likely outcome… is that home price gains slow to a snail’s pace or even go sideways,” writes Lascelles in his April 24-28 #MacroMemo published on professional social media site LinkedIn.
Lascelles estimates there’s a 40 per cent chance of this happening, and says “this is certainly what regulators desire,” nodding to Ontario’s Fair Housing Plan, unveiled last week.
In this scenario, the downturn in housing activity and prices would shave off a few percentage points from the national GDP over several years, Lascelles states.
As it stands, the housing market generates roughly 15 per cent of the Canadian GDP, whereas 10 per cent would be “normal.”
Policymakers have been busy trying to tamp down what many observers agree is unsustainable growth in Canada’s hottest housing markets.
The Fair Housing Plan is a 16-point policy, largely meant to calm housing markets around southern Ontario, including the Greater Toronto Area’s, the most active in the country.
Greater Toronto Area home prices averaged $916,567 in March, up 33.2 per cent annually, according to the Toronto Real Estate Board, a consistent opponent of intervention to curb demand.
Major steps set to impact the GTA market include the introduction of a Vancouver-esque foreign-buyer tax and a province-wide expansion of rent control.
These measures follow mortgage tightening last year from the federal government.
“However, regulators have made many efforts in the past and never managed to permanently slow Canada’s freight train of a housing market,” notes Lascelles.
Given this, and assuming interest rates stay low and unemployment rates decline, Lascelles says there’s a 30-per-cent chance “this boom continues” in Canadian real estate.
Then there’s the third choice: poor affordability and surprisingly effective government policy pulldown home prices “fairly far.”
Lascelles pegs the likelihood of this happen at 30 per cent as well and says “this would unleash a period of quite weak economic activity in Canada.”
Of course, Lascelles doesn’t claim to have a crystal ball. “Let us confess that forecasting housing has all the precision of handling a slippery eel,” he admits.