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David Rosenberg: Vancouver and Toronto real estate won't topple Canada's economy

Charting the soaring cost of housing in Vancouver and Toronto bears a striking resemblance to overbought tech stocks in 1999, but the risk those real estate markets pose to the broader Canadian economy isn’t as serious as some have suggested, according to influential economist David Rosenberg.

“This isn’t the U.S. circa 2007,” said the chief economist and strategist at Gluskin Sheff + Associates in an interview with BNN. “That wasn’t just a regional housing affordability issue. It was national. When you take a look at home prices outside of Vancouver and Toronto, home prices are flat year-over-year.”

Rosenberg’s comments follow reports from the Royal Bank of Canada and National Bank released Monday highlighting skyrocketing prices in both cities. Shortly after taking office, Federal Finance Minister Bill Morneau singled out Toronto and Vancouver as “pockets of risk” that could threaten Canada’s economy.

“You’d really have to have a calamitous decline in home prices to cause a real second round negative impact on the economy and financial conditions,” said Rosenberg.

He says the economic fallout of a real estate correction in Vancouver and Toronto would have a mixed impact, since it would erase a significant amount of equity for homeowners, while encouraging many who have been priced out of the market to buy.

“If home prices go down it means affordability improves. The big risk is how far they would come down. That’s more of a risk for the people that bought a home in the last couple of months and leveraged up,” said Rosenberg.

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