A large Canadian financial institution sees housing investment moderating soon. Desjardins has forecast residential investment will begin tapering in the second quarter of this year. They also see negative growth next year, as other segments of the economy start to draw in some dollars.
Canadian Residential Investment Grew 43%
Residential investment has seen obscene growth throughout the pandemic. The first quarter of 2021 saw annualized growth come in at 43.3%. This followed large growth last year, especially in Q3 (+181.9%), and Q4 (+11.9%). Keep in mind this is on top of Canada’s already very large residential investment.
Annual growth was impressive last year. The full-year average rate of growth was 4.1% for 2020. This is a very large number for any segment of GDP. It’s a mind-blowing amount when you consider it happened during a recession. It climbed, while real GDP fell 5.3% lower.
Falling GDP and rising residential investment means a greater dependence on real estate. Residential investment represented 10.3% of GDP, almost 50% more than the peak of the US bubble in 2006. If Canada‘s residential investment was high before the pandemic, you need a telescope to see it now.
Canadian Residential Investment Is Forecast To Fall
Residential investment is forecast to taper in the second quarter of this year. The second quarter is forecast to see a 25.1% decline in annualized growth. It’s expected to continue into Q3 (-3.3%), and Q4 (-4.6%). Falling activity is expected to taper full-year growth considerably.
The full-year growth for 2020 is forecast to taper from 43.3% seen in Q1, down to an average of 15.4% for the full year. Once again, absolutely monster growth for the year, but much cooler than the start of the year. Next year they see residential investment declining by an average of 4.4%, rolling back some of the gains to the sector.
Residential investment is forecast to slow this year and start falling next year. Though it will see declines, it’s still a very large portion of the economy. Even going back to 2019, the Canadian economy was overly dependent on building homes.
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Even if a million people come next year, it’s impossible to keep up this kind of residential investment.
You can’t sell a record amount of houses every year. The whole country would have to move every 3 years.
How does GDP grow if it’s going to lose a point from falling residential investment next year? Seems like we’re overshooting GDP, or underestimating inflation.
Well we know we’re underestimating inflation.
Imagine if it doesn’t fall. How funny would that be? Canada can just structure itself as a ponzi, where we need to keep fresh money in or it fails.