Canada Is In Recession & “Overvalued” Real Estate Will Be Hard Hit: Oxford Econ

Canada’s overstimulated economy is experiencing withdrawal from the end of low rates. Oxford Economics‘ warned investors the country is already in recession. It’s expected to spend most of 2023 in recession, and will be hit harder than its G7 peers. Highly indebted households and overpriced real estate shouldn’t expect much relief either. Elevated inflation will limit stimulus and prevent cuts to interest rates in 2023.

Canada Is Already In A Recession, To Be Worse Than G7 Peers Due To Debt & Housing

Canada is expected to see a moderate recession, and it’s already kicked off, says the firm. They forecast real gross domestic product (GDP) will contract 1.3% in 2023, below consensus. Recession is expected throughout next year, with real GDP falling 2.3% from Q4 2022 to Q3 2023. It might not sound like much, but keep in mind that’s after a substantial inflation adjustment. 

Canada’s Consumers and Housing Will Drive A Recession

Canadian gross domestic product (GDP) historic and forecast, showing households will drive the upcoming recession.

Source: Oxford Economics.

High inflation and aggressive monetary tightening required to cool it, are the causes. Lower household spending, and a real estate slump provide additional pressure lower. More leverage means amplified gains in a bull market, and amplified losses in a downturn. 

“Prevailing household debt and housing imbalances will mix with pandemic and geopolitical forces to make Canada’s recession deeper than most advanced economies,” said Tony Stillo, OxEcon’s director of economics. 

Canada’s “Overvalued” Housing & Highly Indebted Households To Be Hit Hardest

Canada’s overvalued housing and highly indebted borrowers will see the biggest hit. Stillo’s firm has previously called a 30% drop for home prices from peak-to-trough. He warns prices will continue to fall through mid-2023. In addition to a negative wealth effect that will cool spending, it’s also less leverage.

Canadian Real Estate Prices and Residential Investment Forecast

Source: Oxford Economics; Haver Analytics.

Higher debt service costs and lower real incomes will also squeeze household budgets. This will prompt deleveraging, according to Stillo. That can complicate Canada’s housing market further, since many mom & pop investors leveraged their existing home and helped drive excess demand. They’ll have to sit the next leg of this market out, potentially facing losses themselves. 

Employment is a wildcard that can work in either direction. The firm acknowledges a tight labor market, and sees robust immigration helping. That’s expected to soften the blow Canada might otherwise expect during a recession. Still, the unemployment rate is seen climbing nearly 3 points to 8.1% next year. That’s roughly 1 in 13 working adults ready and able, unable to find a job. A robust immigration inflow at this time can also make this worse.

Like they said—it’s a wildcard.

Canadian Interest Rates Won’t See Any Cuts In 2023

High inflation will limit Canada’s ability to respond like many likely expect. The firm’s forecast sees inflation coming down, but remaining above the 2 point target. Falling energy & commodity prices, and lower home prices are amongst the factors working to bring inflation down. However, due to inflation remaining elevated, they don’t see any interest rate cuts.

“We expect the BoC to keep the policy rate at 4.25% through 2023 as it assesses the economy and inflation,” says Stillo. Adding, “The BoC is unlikely to begin lowering the policy rate to a neutral setting until 2024—once it’s convinced that inflation is on a sustainable path back to the 2% target.”

Stillo isn’t alone in this call. BMO recently reiterated their recession expectations, also seeing no interest rate cut. Inflation is just too high to expect a cut, and they see the central bank erring on the side of too tight until then. Cutting too early risks re-igniting inflation, causing a 70s/80s-style inflation spiral. No central bank wants that.



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  • Mark Bayly 2 years ago

    Moderate?? Not likely Canadian governments still print and spend money like water. Inflation ain’t going away ever

  • Mike 2 years ago

    Buckle up!

    – “The BoC is unlikely to begin lowering the policy rate to a neutral setting until 2024—once it’s convinced that inflation is on a sustainable path back to the 2% target.”

    -“Inflation is just too high to expect a cut, and they see the central bank erring on the side of too tight until then. Cutting too early risks re-igniting inflation, causing a 70s/80s-style inflation spiral. No central bank wants that.”

  • Mark Bayly 2 years ago

    Governments printing and spending money like water will keep inflation high even if interest rates go to 10 per cent Canadians whatever a Canadian is think the government can pay for all their government services with printed money forever.

  • Jan Cerny 2 years ago

    Can you please stop to use this nonsense CANADA !!
    Alberta is NOT in recession, properties are actually up.
    GTE is NOT Canada!
    Thanx Jan

    • Mark Bayly 2 years ago

      Alberta might be in recession if Trudeau keeps taking all your oil money

    • Dave Pelgrims 2 years ago

      Exactly, island Toronto is not Canada!!

    • Al Bertaisbraindead 2 years ago

      You sound like you got it all figured out with your excellent grammar, spelling. Please stay in Alberta and don’t breed.

      • Jan Cerny 2 years ago

        Dear Al,
        Thank you for revealing to the world that I am an immigrant to Canada.
        By the way, how is your Czech?
        I do not have it figured out, but Better Dwelling can at least divide it into Quebec, Atlantic Canada, Central Canada, Prairies, and BC. Because otherwise, the statistics are meaningless. My English might be bad, but I was 23 years in the Department of Mathematics and Statistics at UofC and have an MSC degree, so Canada should be happy if I breed. Unfortunately, I am 70 years old, so my breading is limited;-) Thank you for your conversation, and think about what I wrote again, please.

      • Garren Patric 2 years ago

        You’re totally right Al. People’s ability to breed should definatly be judged by spelling and grammar .
        People have a better shot at owning a house worth 500k and having a life where in the GTA a 2 hour commute to a two bedroom box a 100 k above that same Alberta house will make a lot of people stay in Alberta Al.
        How was my talkin and gramer …was it good

    • aBC 2 years ago

      Properties in Alberta are going up because people from other provinces are snapping up the pathetically cheap real estate for speculation.

      That doesn’t speak to the recession.

    • Garren Patric 2 years ago

      I agree Jan
      If we can maximize the marketing of our resourses I think Alberta will be the place people will continue to move to.

      And it’s totally unfair for draconian bank policies designed to cool the price of a 600k one bedroom in downtown Vancouver effect the qualifying for mortgages for people in Edmonton and Calgary who are not paying these insane housing prices.

  • Ellyn D'Uva 2 years ago

    Canada MUST do well and housing must succeed.
    It is Canada’s economic “miracle” and if it needs to be bailed out so be it.

    • JCH 2 years ago

      No – massive dangerous bubbles must be deflated, and the longer the wait the worse the eventual crisis.
      It’s already too late to avoid bad impacts, but if we further increase housing debt loads we’ll be like Japan – economy stumbling along for a generation or more, or we can be a developed country with a debt default.
      You can’t cure debt with more debt!

  • JCH 2 years ago

    Given the importance of the Canadian real estate market to GDP, why wouldn’t interest rates be lowered to support house prices, in spite of inflation? Does anyone really think the BoC will do the right thing here, and stand firm on interest rates in the face of massive pressure to prop up housing?

    • Jkw 2 years ago

      The BOC won’t do anything meaningful moving forward. They will just rely on tough talk to try and scare the public out of this inflation. They only way out of this is a whole lot of pain and not just tough talk. Housing needs to get crushed further so that the general psychology of housing as a no lose investment is destroyed. We need there to be a shift of investment dollars into other sectors of the economy for Canada to grow and become competitive. Now is the opportunity as globally we transition to a greener future. Canada is rich in natural resources required to complete this transition and yes oil is part of the transition. People forget that oil is not just used for fuel and heating. Sadly our central bank and policy makers will cave to the pressures, cut rates in likely by early 2024 and turn on the printing presses and let inflation soar again. If the BOC had the courage they should just give up on the stupid 2% inflation target and set it a more realistic and sustainable 4% while supply chains get sorted out. A good chunk of this inflation is supply driven which the BOC can not control anyway.

      • JCH 2 years ago

        If the BoC had courage, they would demand that Cdn govts return to balanced budgets, refuse to ever allow negative real rates again, and refuse to go back to QE.

        If they stood firm on interest rates around the current level, inflation would come down slowly as the higher rates start to bite the big spenders and speculators here. And yes, we’d have a recession but that’s a natural part of business cycles.

        But we all know that instead, housing will be propped up –no matter the cost to the rest of the economy…

    • J 2 years ago

      They can’t lower rates at all. People would lever up like crazy because it’s negative rates. Or rather, the industry encourages people to lever up because of FOMO.

      People love to be in on the hot trend. Just look at all the dumb TikTok challenges… except when the trend is losing hundreds of thousands of dollars in a matter of months.

      I think the lesson is learned, but deep pockets will lever up because they can. It’s the FTHB that always suffer.

    • David 2 years ago

      Housing prices are elevated to the point that residential investment and debt servicing costs are preventing investment in sides of the economy that have economically productive growth. The central bank sees the need to reduce those prices to rebalance and properly structure the economy. Cycles like these happen all the the time, roughly every decade or more.

      • Joe 2 years ago

        This. We need to redirect investment into productive assets.

    • Gerald 2 years ago


  • joblesscanadian 2 years ago

    it’s a good thing they imported so many workers who can now collect unemployment, the large corporations needed them so they could make even more profits.

  • Frank 2 years ago

    Newsflash! In 2023, 4.25% IS the neutral rate. Anything below that is inflationary!

Comments are closed.