Housing slowdown could cut Canada’s growth warns Macquarie

Investment firm believes that GDP could be impacted as housing market eases from its red-hot recent run

Housing slowdown could cut Canada’s growth warns Macquarie
Steve Randall

The Canadian housing market remains a hot topic, not least with the three main parties setting out policies to tackle affordability as part of their election campaigns.

But the key role that the housing market plays in the wider Canadian economy means that a slowdown in home sales – and potentially decreasing prices – would likely impact the country’s economic growth.

That’s the warning from investment bank and financial services firm Macquarie Group, which says real GDP could be cut by 1 percentage point towards the end of 2021, because of the economy’s reliance on the housing market.

Speaking to BNN Bloomberg TV, the firm’s head of North America economics and strategy, David Doyle, said doesn’t see an imminent risk to house prices, instead he’s predicting a gradual decline when the BoC begins to hike interest rates.

“The bigger headwind comes from activity levels and we’re already seeing some retrenchment in existing home sales volumes,” he said. “Our math suggests that should subtract one percentage point alone from real GDP growth in both the second quarter and the third quarter, and we’re also seeing some moderation in renovation activity. So, I think this is introducing a headwind to Canada’s economy.”


Recent reports show that the Canadian housing market was already slowing over several months after reaching some record highs during the last year.

Price growth slowed for a second consecutive month in the latest Teranet-National Bank home price index (for July).

Meanwhile, the Canadian Real Estate Association reported that national home sales declined by 3.5% on a month-over-month basis in July, while actual (not seasonally adjusted) activity declined by 15.2% year-over-year.

“The slowdown we’ve seen in home sales over the last few months has not been surprising, given that the level of activity we were seeing back in March was unsustainable,” said Shaun Cathcart, CREA’s Senior Economist, noting that the easing of activity is heading towards pre-pandemic levels, which should not be considered “normal” in historic terms.

Policy changes?

With politicians talking of policies including restrictions on foreign buyers and speculative investments, together with ideas to shake up the buying and selling process, the real estate industry remains resolute that the main thing needed is boosted supply.

“The problem of high housing demand amid low supply has not gone anywhere – it’s arguably worse,” added Cathcart. “And after years of everyone agreeing that medium-density housing was the future, we are still referring to it as the ‘missing’ middle.”

With the important role that the housing market has played in Canada’s economic growth, especially in recent years, Macquarie’s Doyle is sceptical about election promises.

“We’ve seen the political parties talk about housing and affordable housing in the past and we haven’t seen many results in terms of what’s impacted or how it’s shaped the housing market,” he told BNN Bloomberg.