Photo: James Bombales

Canada’s economy had a great year in 2017, thanks in no small part to its booming housing market. But according to one economist, industry watchers shouldn’t count on a real estate market GDP boost in 2018.

“Don’t look to the housing market to carry the team,” writes BMO senior economist Sal Guatieri, in a recent note. “It still needs to work off the speculative fervour that gripped much of Southern Ontario a year ago.”

The comment comes at a time when Guatieri says the Canadian economy is facing some strong headwinds.

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“After last year’s gold-medal performance, Canada’s economy is struggling to reach the podium,” he writes. “A recent BMO survey found that more people are withdrawing from their RRSPs to cover expenses and reduce debt. Meantime, housing markets will have a harder time clearing hurdles under new mortgage rules.”

According to Guatieri, the new mortgage stress test on that came into effect on January 1 is to blame for a steep drop in sales last month (national sales were down 14.5 per cent month-over-month.)

“Existing house sales plunged in January, payback after buyers rushed to borrow before a…jump in qualifying rates on uninsured mortgages,” he writes. “The pullback returned sales to the average of the past decade amid still supportive demographics.”

When it comes to Toronto, one of the country’s hottest markets, Guatieri says that things will continue to correct until it hits balanced territory.

“While air continues to leak out of Toronto’s detached segment, a 12 per cent correction (after a 32 per cent year-over-year surge last spring) appears to be slowing,” he writes.

The bottom line? While Canada’s housing market won’t actively hurt the country’s economy in 2018, it won’t help it much either.

“Facing higher interest rates and tougher mortgage rules, Canada’s housing market will more reflect the economy’s performance than lead it this year,” writes Guatieri.

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