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On the up and up: Outlook good for economy, rental sector
February 2011
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Benjamin Tal, Deputy Chief Economist,
CIBC World Markets Inc.
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By Clare Tattersall
Canada’s economic growth this year will look a lot like it did in 2010. While it has lost much of its vigour, it will continue to advance.
“We expect the Canadian economy to rise by roughly 2.6% to 2.7% in 2011, (which) is not bad,” says Benjamin Tal, Deputy Chief Economist with CIBC World Markets Inc.
However, growth will be strongest in the first half of the year followed by a softening of the economy in the third and fourth quarters, he adds. Tal forecasts that a rise in interest rates, a reduction in debt-financed government spending (due to its long-term costliness) and a slowdown in the U.S. economy will influence the downward trend in the second half of 2011.
But how will this affect the rental market?
Tal says that as interest rates shoot up, so too will mortgage rates. This will cause the resale housing market to begin to level off, particularly following the introduction of tighter federal mortgage rules in mid-March, which will reduce the maximum amortization period to 30 years from 35 years – a move that is sure to hurt many first-time homebuyers and squeeze them out of the housing market. As a result, the rental market will fair well.
“In fact, I believe the rental market will outperform the resale market over the next decade because, given where (housing) prices are and income is, we will see the housing market stagnate, maybe (even) slow,” says Tal, who readily admits he’s much more positive about the rental segment of the market than he’s been in years.
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