The latest data from Statistics Canada shows that GDP has actually fallen in four of the past six months, suggesting that, after the longest (if one of the weakest) recoveries ever, we are heading toward a recession within the next year or so.
This is why the Bank of Canada is unlikely to increase interest rates this year, and also suggests that the Bank’s forecast that we will return to stronger growth later this year and next year is overly optimistic. Not only are interest rates unlikely to rise, they may, in fact, go lower over the next couple of years.
For real estate this is good news and bad news. The good news is that, along with flat or declining interest rates, prices for real estate will probably continue to moderate, so affordability will improve as long as incomes continue to rise. The bad news is that, as the economy weakens, incomes will probably level off as well, so affordability may remain stuck at the present (low) levels.
All of this suggests that the government need not worry any longer about escalating real estate prices, and should seriously consider moderating the mortgage ‘stress test’ legislation that was introduced at the beginning of 2018. This legislation has contributed significantly to falling real estate sales which, in turn, are contributing to the weakening economy because of the huge ‘knock-on’ impact of home sales on related economic activity (renovations, moving, appliance & furniture purchases, etc).
How ironic that legislation intended to corral runaway real estate prices could end up being a major cause of the next recession. And how unsurprising that the government seems, as yet, uninterested in doing anything about it.