Economist Robert Hogue says that investors should not just weigh risk of price correction
With sales and prices high and the government’s housing agency chief admitting gloomy predictions were way off, it may seem like Canada’s housing market is bulletproof.
Not so, says a leading economist in a warning that investors and homebuyers should not be complacent to the risk the market poses.
RBC’s Robert Hogue warns that, while a price correction remains unlikely, there are some other potential pitfalls in the Canadian housing market.
Firstly, he notes that strong demand and tight supply presents the risk of the housing market overheating as prices escalate amid “self-reinforcing price trends.”
Secondly, interest rates. The historically low rates that borrowers are currently enjoying are extremely positive for the housing market but central banks globally are concerned about inflation. If the Canadian economy picks up better than expected, the Bank of Canada may be forced to raise rates faster than experts have forecast.
Regulatory pressures are also a risk. If the market does show signs of overheating, policymakers at a federal or provincial level may tighten lending criteria.
Then there is the reduction in immigration which has persisted during the pandemic. If this were to endure, then the housing market is likely to feel the impact.
Other risks include weakness in the labour market, poor affordability in the major markets, and of course, the uncertainty connected to the pandemic.
The full report is available at https://thoughtleadership.rbc.com/super-strong-housing-market-is-far-from-risk-free/.
Image credit: RBC
