Canada

Canadian Real Estate Grows Almost 5x GDP, Economy Hits Record High Dependency

Canada’s gross domestic product (GDP) is increasingly being driven by real estate. Statistics Canada (Stat Can) data shows the FIRE sector was a huge contributor to GDP growth in Q4 2019. In fact, the industry now represents a new record for its size of GDP, beating out the 2016 record.

Finance, Real Estate and Insurance Now At Highest Level of GDP In Years

First, a quick dive through this morning’s GDP numbers. GDP reached $1.98 trillion in Q4 at annual rates, up 0.13% from the previous quarter. Compared to the same quarter last year, this is 1.61% higher. That’s a weaker 2019 than the government was forecasting in 2018, but growth is still growth. This growth is starting to lean on real estate once again.

Canadian FIRE As A Percent of GDP

The perent of gross domestic product (GDP) represented by the finance, insurance, and real estate sectors in Canada.

Source: Stat Can, Better Dwelling.

The FIRE industry has beat the record for the portion of the economy it set a few years ago. The industry grew to $386.73 billion in Q4, up 2.89% from a year before. This is now 19.53% the size of GDP, the highest rate in at least a few decades. FIRE finally blew past the Q2 2016 record percentage.

FIRE Sectors Grew Over 5x Faster Than GDP

Breaking down the numbers, finance and insurance (the FI in FIRE), made big gains. The sector represented $132.86 billion in Q4, up 0.85% from the previous quarter. Compared to last year, this is a 2.57% increase. Quarterly growth is nearly 6x faster than the growth seen in GDP.

Real estate, rental, and leasing (a.k.a. the RE in FIRE), showed big growth. The sector represented $253.87 billion in Q4, up 0.63% from the previous quarter. Compared to last year, this is up 3.06% from the same quarter. The quarterly rate of growth was over 5x larger than general GPD at year end.

FIRE sectors represented a new record high as a percentage of GDP growth. It was also growing significantly faster than the general economy at the end of the year. This indicates the economy is once again leaning on FIRE, after taking just a brief break. Since this is largely a credit driven segment, it’ll be interesting to see what lengths the government will go to, to increase household debt. Canadians are already some of the most indebted in the world.

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14 Comments

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  • MK 7 months ago

    If Canada drops into the flucession, they’re going to raise immigration targets to prop up housing. That’s almost guaranteed. They’ve demonstrated it’s the only thing left in the Canadian economy.

  • Ben Olsen 7 months ago

    Rate cut is going to be some relief for insolvencies, but that inflation is going to hurt. Canada is already back to negative real interest rates.

  • Holton 7 months ago

    A recession is triggered by:
    External Trade Shock – Checked
    Adverse Supply Shock – Checked
    Burst of Economic Bubble – Canadian Real Estate – Soon

    A financial Crisis is coming, idiots still think their 200k house is worth over a million? Canada is so screwed.

    Tine to hold Cash and buy the dip in a year.

    • Brad 7 months ago

      If you honestly think prices are going to pull back by 80% I feel bad for you

      • neo 7 months ago

        Ya, more like those current million dollar suburban cookie cutter detaches will get back to 2015 pre parabolic moves and be around $700,000.

      • Conor 7 months ago

        There’s no need for fake “I feel bad for you”, trying to shame posters for their comments. State your actual point instead.

      • ThinkMannn 7 months ago

        The thing is if prices go back to 2015, that is a million dollar home goes back to a value of 700,000 then there is already a problem. Because when you try to reup from the bank, the bank will only give you funds for the current value, the homeowner still owes 1mill…how many people do you think has 300k in cash to cover the cost?

  • Enigmatic Lips 7 months ago

    “… idiots still think their 200k house is worth over a million? Canada is so screwed.”

    Isn’t the value of housing primarily psychological? At the end of the day, I’m still going to need a home for me and my family to live, so I’m unlikely to sell my house regardless of what it’s ‘worth’. For the most part, my home is an illiquid asset until the times comes for me to move into a nursing home.

    Of course, it’s a completely different story for the banks. If real estate prices fall too far, our ‘rock solid’ Canadian banks could be forced into insolvency as banks are required to have:
    assets-liabilities>0

    • alvi 7 months ago

      The value of anything is “psychological”, it is what the last person is willing to pay for something not just real estate, it is called a market economy. Look at what Entertainers are being paid!
      As for the Canadian banks collapsing this has been predicted for decades and besides the housing risk is off-loaded to CMHC and others, who have been collecting premiums for decades and still remain solvent even in 1980,1990,2008. You know how many hedge funs have bet against the Canadian banks and lost over the years? Remeber short-sellers have to carry the dividend
      I am not saying that is impossible but it also assumes that everybody in the economy gives up and governments stand by and do nothing.
      Betting against the global economy has been a losing proposition over the long-term ,

  • alvi 7 months ago

    Well it is not happening in Februray from what I can see. I would not be surprised if single family detached homes is actually the strongest segment.

    Negatives: slower economy and indebted consumer the question is whether it is a profit recession like in early 2000s or involve significant jobs losses in which case i think the condo market is more vulnerable than SFD

    Positives: Lower interest rates are imminment, high mmigration in desirabe country and the stress test that deflated the market for SFDs especially in 2017.
    The irony is the stress test may have increased the floor(condos) in the market but decrease the ceiling(SFD)

  • DWAYNE NEWMAN 7 months ago

    The real estate growth play is over. Also factor in the coming storm from the coronavirus and the fact that so much real-estate is owned by Chinese nationals (Canadian real-estate as well) who may need to get some of that investment back to pay their bills.

  • ThinkMannn 7 months ago

    The thing is if prices go back to 2015, that is a million dollar home goes back to a value of 700,000 then there is already a problem. Because when you try to reup from the bank, the bank will only give you funds for the current value, the homeowner still owes 1mill…how many people do you think has 300k in cash to cover the cost?

  • I am reasonable 7 months ago

    If anyone in there right mind think that people making on average 80-140k total household income before 32-38% taxes…..which is 50-100k after taxes, can afford a home that cost over 1mil is sustainable then I have a bridge to sell you on Mars.

    You guys in Canada are pretty screwed

  • HelloWorld 7 months ago

    If there is a drop in home prices, a lot of people will owe a lot of money…one report said a drop in 10-15 % means people will owe the banks between 90-200k before getting a loan from the bank.

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