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In his statement, Poloz identified that because of the regulatory changes, including a tightening of mortgage rules in January, households pulled forward their housing purchases to the fourth quarter of 2017, resulting in a slowdown in the first quarter of 2018.

The Haider-Moranis Bulletin in December 2017 also alerted the markets to such consumer responses and explained that a slowdown in housing sales in January 2018 would not “necessarily be a sign of weakening housing market, but rather a consequence of those purchases having been pulled forward ahead of the new regulations.”

The single-purpose policy of slowing housing markets could slow the overall economy

While Poloz has projected strong growth in the second quarter, he expects the composition of growth to shift from household spending to business investments and exports. Why? An expected increase in interest rates and higher mortgage payments might put the brakes on household spending on consumer goods.

However, it is not just the expected increase in debt payments that may constrain household spending. A decline in housing markets, which has been celebrated — albeit naively — by some could affect household spending and, as a result, the entire economy in more ways than one.

Photo by Tyler Anderson/National Post

Housing prices are tied to a household’s overall wealth. Atif Mian and others, writing in the Quarterly Journal of Economics, identified the reasons behind a decline in household spending because of changes in housing wealth. They explained that in addition to financial wealth, proxied by stocks, bonds, and other investments, a household’s net worth also includes the equity it builds over time when housing values increase relative to the outstanding mortgage debt.