More evidence is piling up that house prices in Canada are cooling, but that might not be a bad thing for everyone.
Avery Shenfeld, chief economist at CIBC World Markets, said in a report issued on Thursday there are winners and losers when it comes to softer house prices.
The good news
A prospective first-time home buyer saving for that first down payment will not need to set aside as much if houses are cheaper to obtain.
Shenfeld's view comes as Canadians have dealt with record household debt levels and as government measures to tighten mortgage standards appear to have calmed a frothy housing market.
"A a retreat today could be the preferred alternative to a harder landing from even higher prices down the road," said Shenfeld.
The bad news
On the flip side, lower house prices could mean lower retail buying power for the home owner who was planning to downsize to a smaller home and spend the money they take out of housing. Namely someone counting on a house sale for retirement spending.
Shenfeld says the evident slowing in Canadian home sales will dent economic growth. Fewer houses built and slower turnover to drive related sales of furniture and appliances could chop growth by nearly one percentage point, he added.
A string of reports in recent weeks suggests that the steady, steep ascent in house sales and prices may be coming to an end. Now the question is whether the slowdown will be a softer landing or crash like the experienced in the United States.
"Canada hasn't lent as aggressively to its lower-income home buyers, and a correction in house prices caused by a tighter regulatory environment and earlier price overshooting, rather than by defaults, would not on its own generate that same banking system shock," said Shenfeld.
He added most historic wealth declines coincided with other sources of economic weakness, including rising unemployment or high interest rates that hit consumption.