World Economy

Housing Slump Hurts Canada Economy

Housing Slump Hurts Canada EconomyHousing Slump Hurts Canada Economy

Nearly 15% of Canada’s economy is vulnerable to a housing slump, according to a new report by the Royal Bank of Canada.

If several housing markets across the country were to see a 30% decrease in home sales—a scenario similar to what recently happened in Vancouver after the introduction of a foreign homebuyers’ tax—Canada’s GDP could shrink by 1% to 2%, RBC noted, Globalnews reported.

Whether a housing downturn means a recession would depend on what triggers the plunge in home sales, RBC economist Laura Cooper, who authored the report, said. “If we had relatively stable economic growth and (home) resale activity fell, like we saw in Vancouver, then the economic impact would be muted,” Cooper said.

However, “if we were to have a sharp rise in unemployment and an increase in interest rates that then spurred a more severe downturn, then that certainly would play out in a different fashion.”

Homebuilders, real estate agents and real estate lawyers are among the groups that would take the hardest hit from a fall in home sales, the report suggests.

When homes sales plummeted by 30% in 1990, new-home construction also fell by around 30% over the following months, shaving nearly $10 billion off GDP, Cooper wrote.

Business generated by the buying and selling of homes dropped even more, by over 40%, in the housing correction of 1990, she noted.

The funding crisis at mortgage lender Home Capital may spark a welcome cooling in Canada’s housing market and take pressure off policymakers confounded by the hot market–as long as the crisis does not turn into contagion, analysts said on Tuesday.


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