Canada’s long housing boom in condos and town homes has attracted thousands into the industry, from realtors to construction workers, and a looming downturn threatens to trigger an exodus that could wipe out many of these jobs and force the market to shift down.
While the condos and town homes purchase market has long been the primary engine of Canadian growth, economists say a drop in home sales has already begun to weigh in on the market, and when price declines follow, consumer spends and jobs will follow. “To lots of people, it’s a get-rich-quick scheme,” Toronto realtor David Fleming said about the housing market. “But history shows once the market turns, half of the representatives leave.”
Realtor positions in Canada’s biggest city and hottest housing market have soared 77 percent since 2008 to over 48,000 — almost ten times the rate of Canadian job growth. Nationwide, that number has climbed 26.9 percent.
With Canadian home building projects rising at nearly the same pace as property jobs, housing is now the top driver of economic and employment growth, accounting for the majority of Canada’s economic growth this past year.
As the almost one million home industry jobs now far outstrip those in oil and gas extraction and mining combined and approach the magnitude of the production industry, economists brace for a painful reckoning if the housing slowdown becomes an extended correction.
Over half of the analysts polled by Reuters in May reported a sharp housing correction was very or somewhat likely in Toronto and Vancouver, but improbable nationally.
Recent statistics revealed nation-wide condos and town homes resales fell 6.7 percent in June, the biggest monthly drop since 2010 and the third consecutive monthly decline in earnings in Toronto tumbled, and earnings are expected to slow further as interest rates increase.
While most home forecasts have been focusing on how much home prices could fall, economists are also attempting to work out how badly a consequent decline in consumer spending and housing jobs could hurt the broad economy.
Their forecasts vary from 0.2 percentage points to 0.5 percentage points shaved off Canada’s economic growth annually, with the effect spread over numerous years. One economist at Capital Economics in Toronto predicts prices will fall by up to 40 percent, anticipates the fallout will be deeper and last longer, reducing Canada’s yearly growth rate by half a percentage point over the next five decades. Together with the central bank forecasting GDP growth of just 2.0 percent in 2018 and 1.6 percent in 2019, this type of drag could bring the economy closer to a recession.
Experienced realtors who’ve seen the business swell with new agents don’t have any doubts that a recession will decimate their ranks. Already, many realtors are fighting in the crowded industry.
We have had a multiple-year expansion driven by property speculation, and we are probably going to have a multi-year headwind to expansion driven by a decline in condos and town home sales, said Manulife’s, Donald. Policy-makers at various levels within the government are monitoring the city’s real estate market closely as there are growing fears that the fallout from a potential crash in prices could have ramifications on the national economy.