The housing market now accounts for a significant portion of GDP, industry observers say
A major driver of Canada’s second-quarter GDP contraction was a significant decline in housing sales and construction activity, according to BMO economist Sal Guatieri.
Residential construction slowed down by 12.4% annually during Q2, despite an upswing in home building and renovation spending.
“The segment fell due to a retreat in ownership transfer costs, as sales pulled back from record heights,” Guatieri said. “[This] is a timely reminder that the housing sector (or at least residential construction) is now such a large slice of GDP (10.1%, 4.2 ppts above the long-run mean), that it’s likely to act as a drag for some time.”
Guatieri said that the market should also anticipate this state of affairs to prevail for the foreseeable future.
“Towering nearly 21% above late 2019 levels, the sector is poised to contract in the year ahead as sales moderate in response to fading affordability and as activity corrects,” Guatieri said.
Jimmy Jean, chief economist at Desjardins Group, said that the residential slowdown was “normal expected payback (after strong growth).”
The national economy weakened by 1.1% on an annualized basis during the second quarter, and likely a 0.4% shrinkage in July following a 0.7% gain in June, Statistics Canada said.
Recent data from National Bank supported the thesis that housing-related activity now represents a significant chunk of Canada’s economic performance. National Bank said that mortgage payments take a disproportionate share of buyers’ incomes: 64% in Vancouver, 58% in Victoria, 56% in Toronto, and 34% in Hamilton.