Letting air out slowly lessens consumer shock
Province
More moderate pace in housing starts is ‘a good sign,’ an economist says. Photograph by : Wayne Leidenfrost file, The Province
TORONTO — A gradual slowing of growth in Canada’s “unsustainable” housing is good for the economy since it helps avert the kind of bubble burst that sent housing starts plummeting by one-fifth in the U. S., an economist says.
Housing starts in March rose 7.6 per cent but the first quarter overall was down 10 per cent from last year, Canada Mortgage and Housing Corp. reported yesterday.
Canada also experienced a 6.4-per-cent increase in consumer spending last year. Shoppers spent $392.4 billion in retail stores in 2006, Statistics Canada said yesterday.
This country, which is set to outperform the U.S. this year again with positive outlooks for employment and economic growth, is on track to retain a healthy housing market despite the sluggish first-quarter results, Beata Caranci, a senior economist for TD Bank, said.
The housing agency reported a rise in the seasonally adjusted annual rate of housing starts to 210,900 units in March, up from 196,000 units in February. But the quarter was down about 10 per cent from the same quarter in 2006, Caranci said.
Housing starts in the U.S. have been down by about one-fifth during the last three quarters, she said.
“Here in Canada, you know it’s not a bubble because it’s not burst,” Caranci said. “The air is being let out of it slowly, whereas in the U.S., you actually heard the pop.
“I think it’s comforting — while we’re seeing a little bit of a more moderate pace in housing starts, it’s a good sign,” she said. “It’s less shocking to consumers and confidence.”
The mild slowdown means there won’t be a meaningful impact on consumer spending related to a slower housing market, such as a drop in sales in furniture and appliances, Caranci said.
The positive consumer-spending trend seen in 2006 should continue, given the lack of shocks in the housing market and positive forecasts in employment and economic growth.
Canada’s domestic demand, which has outperformed the U.S. for the past two years, is expected to do so again this year and next.
TD Bank is forecasting 3.3-per-cent growth this year in Canada’s domestic demand, not including exports, and 3.4-per-cent growth in 2008. For the U.S., the forecast is two per cent in 2007 and 2.7 per cent in 2008.
Slowdowns in housing take up to 18 months to seep through to consumer spending patterns, since people take months to furnish new homes. In the U.S., spending actually increased in 2006, in the midst of the housing-market correction.
© The Vancouver Province 2007
