The recent dramatic drop in home sales across the Greater Toronto Area is good for Canada’s economy -- and may show the economy is finally moving away from a dependence on the real estate sector, according to Gluskin Sheff Chief Economist David Rosenberg.

“We are going through a natural correction in Toronto real estate. I don’t think it’s going to have a deleterious impact on the national economy.  I think it’s actually going to be a positive development,” Rosenberg told BNN in an interview Tuesday.

Home sales across the GTA plunged 40.4 per cent year-over-year in July, according to the most recent data released from the Toronto Real Estate Board. The average selling price across the GTA was $746,218 – almost 19 per cent below the April peak of $920,791 -- but still five per cent above year-ago levels.

The Toronto housing market had been in “bubble territory” prior to the drop and was making the city unaffordable to many, said Rosenberg. It was also diverting capital away from more productive parts of Canada’s economy, he said.

“For years the Bank of Canada has been seeking this ‘Holy Grail’ in the Canadian economy away from housing and towards capital investment” said Rosenberg. “When you really think about it, housing is a consumption good, but it doesn’t really add to the productive capacity of the economy.”

Expected rate hikes won't burst housing bubble, but will have an impact: Rosenberg

David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, joins BNN to provide his perspective on the possibility of a BoC rate hike in July.

If the Canadian economy can continue on this path, it is on track to outperform the U.S., he said. “I think the fundamentals in Canada are pretty decent. When I tell people about that they just roll their eyes.” Rosenberg told BNN. “Everybody seems to think that things are much better in the U.S. – but they are not.”

Rosenberg said he is encouraged by Canada’s strong economic growth compared to the U.S., the Bank of Canada’s bullish outlook and its decision last month to raise interest rates. Those strong economic fundamentals are likely to help the Canadian dollar rise to close to 80-cents versus the U.S. dollar in the coming months, he said.   

And policy differences between U.S. President Donald Trump and Canada – particularly when it comes to immigration – could add to this country’s strong outlook, according to Rosenberg.  Last week Trump unveiled a new immigration proposal that would cut legal immigration levels; Rosenberg noted Canada is taking a markedly different approach that should help boost growth.

“[Trump is] cutting back on legal immigration… as soon as Canada is embarking on a very pro-growth immigration policy – and not just aimed at refugees, but high-skilled entrepreneurs,” he said. “And that is going to put a very firm underpinning into not just population inflows but what that means for spending and investment in the economy – especially in the GTA.”