With the Bank of Canada’s aggressive rate-hiking cycle well underway despite a shaky residential real estate sector and high levels of household debt, it’s no secret that we believe the Canadian economy is headed for a more pronounced recession than many are calling for. But just how vulnerable is the overall economy to a collapse in the housing market?
In recent decades, the housing market’s share of GDP has been steadily gaining ground, with the combination of real estate-related consumption expenditures and residential investment rising to 11.4 per cent today from a trough of 7.7 per cent in 1995. And while the housing market nationwide has undergone an extended bull run, we believe the current rate-hiking cycle by the Bank of Canada combined with weak fundamentals are likely to take their toll in the coming months.