This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Cooling House Prices Are Not Entirely A Negative For The Canadian Economy: CIBC

Lower real estate costs could trigger increased retail spending by some Canadians

TORONTO, Nov. 29, 2012 /CNW/ - A cooling in Canadian house prices may not be all bad news for the country's economy as cheaper real estate may free up retail spending power for prospective first time home buyers, finds a new report from CIBC World Markets.

The report notes that while the evident slowing in Canadian home sales will take a bite out of domestic economic growth by reducing new housing starts and related sales of furniture and appliances, a gradual retreat in prices may be beneficial for parts of the economy and for some Canadians.

"For one, a retreat today could be the preferred alternative to a harder landing from even higher prices down the road," says Avery Shenfeld, chief economist at CIBC. "Less understood is that cheaper home prices could bring winners as well as losers across the economy.

"What of the young newlyweds scraping by on mac and cheese in order to save for their first home? A slip in prices could ease that task, freeing up spending power in the process."

Mr. Shenfeld notes that increases in Calgary house prices have trailed the Canadian average over the past five years, including a near-15 per cent dip in 2008, yet retail spending in the city has outperformed the national average.

" British Columbia house prices led on the way up and now down," he adds. "But affordability issues have been a drag on B.C. growth; the rapid run-up in prices was one factor turning the province from a beneficiary of in-migration to a net source of emigration. Dreams of retiring in B.C., and taking one's spending money to that province, might be back in vogue if relative prices of housing are better in line with other provinces."

While deflation in housing prices has widely been cited as the cause of the economic woes in jurisdictions like the U.S. and Ireland, Mr. Shenfeld argues that it wasn't the falling prices that caused the core problems in these economies but rather the accompanying wave of defaults that devastated their financial systems.

He notes that, while a Canadian home owner that counted on downsizing to fund her retirement might have to pare spending plans, Canada is not in danger of a similar crash.

" Canada hasn't lent as aggressively to its lower-income home buyers, and a correction in house prices caused by a tighter regulatory environment and earlier price overshooting, rather than by defaults, would not on its own generate that same banking system shock. Most historic wealth declines coincided with other sources of economic weakness, including rising unemployment or high interest rates that depress consumption.

"As a home owner, I'd prefer that one particular Toronto street stays insulated from any house price declines. But to look on the bright side, a gradual cooling in house prices, one early enough to avoid a larger financial sector shock, will look good in hindsight if Canada gets more support from global growth in the next two years."

The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/einov12.pdf.

CIBC's wholesale banking business provides a range of integrated credit and capital markets products, investment banking, and merchant banking to clients in key financial markets in North America and around the world. We provide innovative capital solutions and advisory expertise across a wide range of industries as well as top-ranked research for our corporate, government and institutional clients.

SOURCE CIBC World Markets

Copyright 2011 PR Newswire. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs