Cooling House Prices May Help Economy

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    A cooling in Canadian house prices may not be all bad news for the country’s economy as cheaper real estate may free up retail spending power for prospective first-time home buyers, says a report from CIBC World Markets. It notes that while the slowing in Canadian home sales will affect domestic economic growth by reducing new housing starts and related sales of furniture and appliances, a gradual retreat in prices may be beneficial for parts of the economy and for some Canadians. “A retreat today could be the preferred alternative to a harder landing from even higher prices down the road,” says Avery Shenfeld, chief economist at CIBC. “Less understood is that cheaper home prices could bring winners as well as losers across the economy. While deflation in housing prices has widely been cited as the cause of the economic woes in jurisdictions such as the U.S. and Ireland, Shenfeld says that it wasn’t the falling prices that caused the core problems in these economies, but rather the accompanying wave of defaults that devastated their financial systems.