Canadian real estate prices to fall 30%, early stages of recession are here: Ox Econ

The outlook for Canadian real estate and the economy in general is a little brighter. Oxford Economics warned customers this week that we are already seeing the early stages of recession. Higher rates to cool inflation are pushing home prices much lower and prolonging the downturn. High inflation also means no stimulus is unexpected, as it would run counter to cooling measures.

Canadian real estate prices will drop by 30%, wiping out most of the gains

Canadian real estate prices are expected to fall further, but the gains from the pandemic won’t be wiped out, although it will be close. The company sees prices falling 30% from their peak after rising more than 54% since March 2020. For those without a calculator handy, that would give March shoppers a compound annual growth rate (CAGR) of roughly 2.3%. It’s not quite as blessed as many think, especially when inflation rises.

Residential investment, as a share of new real estate gross domestic product (GDP), is also falling. The segment fell 10% from Q1 to Q3 this year as interest rates rose. The company sees a further 8% decline next year, which isn’t too difficult with slowing new construction sales.

Canada’s recession will be longer than normal but shallow

The first signs of recession have already appeared, and this coming recession is expected to be longer than usual. A drop in residential investment and already skeptical businesses are seen as limiting investment in this recession. The company forecasts a 2% decline in real GDP from Q4 2022 to Q3 2023. The effect will not be the same, as you guessed.

“This is a little longer but deeper than the average recession since 1970,” explained Tony Stillo, the company’s director of economics. “Heavily indebted Canadian households and still overvalued homes will be the hardest hit.”

Main stimulus Unlikely and counterproductive

Do you expect this recession to be a stimulus windfall? Don’t count on it, Stillo suggests. The recession won’t be particularly bad, and pre-planned infrastructure projects will help ease the recession. However, high inflation has become a limiting factor.

“Unless the recession is severe, it is unlikely to be the most important new fiscal stimulus to undermine the Bank of Canada’s efforts to tame inflation,” Stillo said.

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