"Many months could tick by before it’s clear that the slowdown is more severe than intended"
Multiple emerging signs are indicating that any slowdown in housing markets and the economy in general “might not be a very short-lived downturn,” according to CIBC Capital Markets.
“There’s a band of uncertainty on how the economy will respond to a given level of interest rates, and room for new shocks to emerge; one certainly can’t rule out that the combination of monetary tightening here and abroad ends up in an unintended recession,” said Avery Shenfeld, chief economist at CIBC.
Such a slowdown right now could end up being a prolonged crisis as the Bank of Canada will not be in a rush to cut rates at the first sign of trouble, Shenfeld warned.
“Economic data are reported with a lag, and a stall in growth might not look that different from an outright recession at first,” he said. “As a result, many months could tick by before it’s clear that the slowdown is more severe than intended, and that inflation is set to tumble below the bank’s 2% target.”
Read more: Homebuilder’s orders plunge 65%
However, Shenfeld pointed at the silver lining brought about by the pent-up demand for housing, which is being driven by strong immigration and scarce housing inventory.
“That sector could turn from bust to boom again should we need a monetary easing to dig us out of a bigger economic hole than was intended to battle inflation,” Shenfeld said. “So while housing is feeling a disproportionate share of the pain from monetary tightening, it’s waiting in the wings as the key to preventing what might be a protracted recession from turning into a very deep one.”
