The country’s new Finance Minister had better look soon, and possibly act, given what’s happening in soe of Canada’s hot housing markets, the chief economist at HSBC Bank Canada warns.
David Watt studied the numbers and “I don’t like some recent trends in housing.”
Mr. Watt believes Bill Morneau, the rookie Finance Minister named to the post just this week, may need to take a page from one of his predecessors, the late Jim Flaherty, and move to cool down the market.
Certain regions, like Vancouver and Toronto, are oft cited for their frothy nature, though economists are not suggesting a meltdown. They are, though, keeping an eye on stability amid other questions about affordability.
Video: Morneau needs to watch house prices
“What is not clear is what the Liberal government will do regarding housing,” Mr. Watt said this week in a report on Prime Minister Justin Trudeau’s new cabinet.
“In our view, there is a strong case for further macro-prudential measures to manage potential risks to economic growth and financial stability from the housing sector,” he added.
“We await Mr. Morneau’s comments on this issue.”
Mr. Watt provided me with several charts, notably the one below, suggesting I look at the trends and “try not to get just a little nervous.”
Mr. Watt looked at house prices, the ratio of prices to disposable income, and residential investment as a percentage of gross domestic product, the latter as a moving average.
“Can Canada sustain a rate of roughly 7 per cent of nominal GDP?” he said.
“If not, what level can be sustained, and how do we get there in an orderly fashion?” he added.
“Note that the rise in residential investment as a percentage of GDP between 2002 and 2008 was in the backdrop of a generally rising terms of trade ... With the terms of trade now worsening, it suggest that these trends should cool off, not accelerate.”
As Mr. Watt sees it, officials like Mr. Morneau may want to “tap the market on the shoulder.”