Bank of Canada Quietly Revised Its GDP Forecast To Show A Larger Housing Contraction

Despite Canadian real estate spiraling out of control, the central bank held rates. The Bank of Canada (BoC) attributed the decision to fears of economic risk, but glossed over that fear being a housing slowdown. The BoC’s latest gross domestic product (GDP) forecast shows housing will provide a big drag in 2022. A year ago, the central bank argued a raging housing market was needed for the economy, and was good. Now they’re seeing housing become a larger and larger risk to growth as inflation pressures them to raise rates. 

Canada’s GDP Is Already Being Dragged Lower By Housing

The Canadian economy is showing strong growth, just not when it comes to housing these days. Annualized quarterly GDP reached 5.4% growth for Q3 2021, a substantial increase. It would have been even higher if housing didn’t drag the growth 4% lower, according to the BoC data. It was somewhat expected, considering it’s hard to pull off record growth forever.

The BoC forecast shows a slight improvement last quarter, but official numbers won’t be in until March. The preliminary estimates for Q4 2021 show housing returned to a positive contribution. However, the central bank’s forecast shows that’s noise, with housing once again contracting in the next quarter. 

Bank of Canada Expects Housing To Slow GDP Growth In 2022

Canada’s economy is expected to continue to show high growth, but it was revised lower this month. Annual GDP growth is forecast at 4.0% for 2022, down from 4.3% in the previous forecast. The 7.0% trim is surprising and maybe even more so when you realize housing is one of the primary reasons. 

According to Canada’s central bank, housing will be a big drag on GDP this year. Their forecast shows -0.7 percentage points of GDP growth due to housing in 2022. In other words, if housing didn’t contract the way it’s expected, GDP would grow 4.7 points this year. Once again, a slowdown is reasonable to expect when a segment is performing at a record high. A slowdown so large it drags growth 15% lower is a sign the economy is dangerously concentrated in the segment.

Bank of Canada Has Been Forecasting Larger Housing Contractions

The BoC forecasts have been calling progressively larger contractions to GDP due to housing activity. In the previous estimates, they saw housing provide -0.4 points of growth in 2022. A year ago, they had forecast it would be flat in 2022. The closer the forecast is to the date, the less likely policy will be able to change the direction without increasing risk. 

In 2023, the BoC sees housing staying perfectly level with no change to the output. The “transitory” inflation, higher input costs, and higher interest rates? No change, positive or negative. Sure, why not?

Since the pandemic began, housing received a whack of stimulus to prop up growth. This has driven excess demand, according to experts. The disproportionate share of investors now in the market clearly demonstrates this.

Housing investment is expected to slow, since it can only cannibalize so much of the economy. Higher interest rates produce a less favorable environment for investors. It’s also difficult to scale housing beyond a fifth of the economy, with near-record output.  

However, it’s becoming more clear why the government is promoting inefficient housing policies that boost prices. Despite near record delivery maxing out supply chain and labor, they want more near-term projects started. One of the primary drivers of economic growth for half a decade is now turning into a drag. Of course you would try to grow the area to inflate GDP activity.



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  • Trevor 2 years ago

    If they think it’s bad now, imagine how bad it’s going to be in two months with home prices already rising 10% per month. Plenty of insane examples of home prices adding hundreds of thousands of dollars in one or two months.

    • Charlie Flynn 2 years ago

      The central banker (Tiff) is now in the hold with a bucket trying as fast as possible in a deep sweat to keep the Titanic, known as the Canadian overinflated economy, afloat with higher rates looming and oversupply sinking the housing market quicker than they can bail it out. We are listing and our GDP and the housing market will suffer for years due to this foolhardy short-term fix to a long-term problem.

  • Nassim 2 years ago

    This really is like watching a deer in the headlights. He knows he’s about to get crushed but he can’t seem to look away from the impending doom he’s about to face or move.

  • C.Rose 2 years ago

    Rising interest rates always affect real estate prices – I know what they keep saying is not this time because there is a supply shortage… that is a fabrication espoused by the industry itself for it’s own benefit. The speculation by investors has been rampant. We’ll see how committed they are- it’s easy to stay with a position when prices are rising.

  • Scott 2 years ago

    I believe I read somewhere ( likely right here) that there were over 1 million vacant homes in Canada. Seems to me some simple change in tax and ownership laws would be a lot easier, faster and cheaper than building anything…

  • RainCityRyan 2 years ago

    Whoa! Way to bury the lead.
    Did anyone else see the CPI numbers they’re forecasting? 3.4% this year then 4.2% in 2023???!
    I guess inflation doesn’t come down if you don’t raise rates.

  • Kate 2 years ago

    BoC and Tiff Macklem along with Trudeau did the worst damage in Canadian economy that has ever occurred for at least 4 decades.. They prefer to inflate the bubble more as long as they are not shown accountable for the risk and the downturn they have created .. This situation will effect at least 2 generation ..

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