Will Canada's Cooling Housing Market Obliterate the Wealth Effect?
BNN.ca-Whenever home prices fall back to earth, Canada's economy could lose a key pillar that's helped drive consumer confidence.
It's called the wealth effect. Soaring home prices make us feel rich and we spend more money on that new television or other goods and services that help propel the country's economic growth.
And it's that consumer spending, fuelled by the housing boom, that's kept the economy moving since the Great Recession.
But when it comes to the wealth effect, if home prices simply level out it could evaporate-undercutting consumer spending in the process.
TD Economics says for every $1 increase in the value of your home you spend an extra 5 cents on consumer goods.
That's considered an "indirect" impact, over and above direct impacts such as new home construction and activity related to existing home sales.
Read the entire story by Greg Bonnell and John Gray here: