Canadians aren’t ready to give up on real estate related economic growth. Statistics Canada released final Gross Domestic Product (GDP) numbers for 2017. The Canadian economy squeezed out a gain for the year. Nearly a fifth of those gains came from real estate related industries. Despite talk of a slowing real estate market, over a fifth of GDP still comes from real estate and related industries.
Real estate and related industries are commonly abbreviated as “FIRE.” The name comes from US’s bulking of Finance, Insurance, and Real Estate into a single category. Statistics Canada doesn’t combine them so we’re going to have to manually put that together, in between our butter churning. Canada’s FIRE industries would be Construction of Residential Structures, Real Estate and Rental and Leasing, and Finance and Insurance. CRSRERLFI isn’t all that snazzy, so we’re still going to say FIRE. Hope you don’t mind.
Over A Fifth of The Canadian Economy Is Real Estate Related
Slowing real estate activity, FIRE is a huge percentage of Canada’s GDP. FIRE industries represented 22.68% of total GDP at the end of December 2017. This is down slightly from the 22.79% the year before, and down quite a bit from the May 2016 peak of 22.93%. For context, FIRE’s rapid rise in the US peaked at 21.5% in 2009. Canada is very dependent on real estate for the sake of the economy.
Source: Statistics Canada. Better Dwelling.
Canadian Real Estate Is Driving A Fifth of All GDP Growth
Real estate played a huge roll in driving GDP growth over the past year. December’s numbers show a $55.96 billion increase from the year before. Breaking that number down, $10.73 billion of the increase was related to the FIRE segment. This means FIRE represented 19.18% of growth. StatsCan analysts noted the mortgage stress tests, but the ratio is actually lower than it has been recently. So we’re not seeing a large spike due to people squeezing in before stress testing became mandatory.
Source: Statistics Canada. Better Dwelling.
Despite the “slowing” market we’ve been hearing about, real estate continues to drive a huge percentage of the economy. Higher interest rates, and stress testing borrowers are anticipated to reduce demand. At nearly 20% of GDP growth, we’re going to have to see a big jump in other industries to continue to move the needle.
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What a mess we’re in. Q4 is also a huge retail quarter, and it wasn’t this year.
There’s no more money.
Can we all just take a look at that chart on real estate as a percentage of GDP, and note the vertical line between 2008 to 2009? While US real estate was crashing, we proper up our economy with an unsustainable industry.
This is why we’re in so much trouble. Not only did the govt. artificially prop up the economy, it used the stimulus to create massive real estate bubbles.
A decade ago we were in the middle of the ocean with a hurricane brewing, and the govt. says “hey, due to the fears of a pending disaster, we scored you a fabulous deal selling off the lifeboats.”
How to reward greed, drown the middle class, and bring down the economy in one easy lesson.
You hit a recession and have major reductions in both housing and oil, it’s not going be a pretty picture with regards to GDP in Canada. We are getting closer and closer to the longest period of time without a recession.
Even more reason for the government to preserve the industry. People wishing for a crash, and declining sales, are also hoping for the economy to crash.
No. Artificially inflating any aspect of the economy makes the natural correction worse.
Why should MY tax dollars keep YOUR over-inflated asset afloat?????
Its bad enough my kids and I are on the hook when you can no longer make the payments on the house you never could afford.
Oh yes let’s get the government to prop up overindulgence… that definitely corrects the problem. Recessions will always happen, and the coming one is going to wash out this mess and bring housing back to the median it should be sitting at.
They literally just wrote an article on Friday that explains why a high dependence on real estate is problematic for an economy.
TL;DR The country would likely be better off with a recession for a couple of years, then the rest of society sharing the burden of seeing their money devalued by means of asset inflation.
Exactly, that was what I was implying with my post, we need a recession to hit the reset button so that we can move forward from this mess with a stronger balanced economy.
be careful what you wish for.
No we don’t want a recession…we need housing correction on in tornot and Vancouver and make sure it don’t spill over to other cities like Ottawa or Montreal and less impact on over all economy. I think government has to be careful not drag down entire economy.
People who are wishing our economy to crash are just saying that for there own benefit with an agenda just unbelievable.
Nobody wants a recession. We just believe one is inevitable. Not only that, but we believe that any efforts by the government to avoid a recession will merely make things worse by delaying the inevitable and putting off dealing with our serious debt problems for another few years or another decade.
Sweden. Norway. Denmark. Netherlands. Australia. Canada.
What do all those countries have in common? First of all, none of them have had a severe recession since the early 1990s. Mild recessions, sure, but nothing severe, even during the GFC. Guess what else those countries have in common. Enormous housing bubbles and frightening household debt levels. (Even Norway, with it’s trillion dollar sovereign wealth fund, has household debt levels higher than Canada’s believe it or not.)
So what conclusion can we draw from this? Well, one might conclude that enormous housing bubbles and massive household debt levels are the road to wealth; that we can avoid recession forever and everyone should copy us. But how likely is that?
If you’re honest with yourself, you’ll end up with a much more sensible conclusion. You would conclude that by papering over the last recession, those countries above merely delayed the inevitable reckoning. (I mean, look at the household debt levels – there’s pretty much no other conclusion to be drawn.) You might also conclude that they’d have been much better off biting the bullet and enduring severe recessions ten years ago than stimulating their way through another decade of faux growth, driven not by capital investment in productive assets, but by consumer debt and housing speculation.
So accuse us of treachery if you must, but you’re shooting the messenger. We’re just a little better at seeing the writing on the wall than you are. Or maybe just a little more fatalistic. Take a massive hit now, or an even bigger one later. If that’s our only choice, then why shouldn’t we want a recession now?
Well put, Raging Ranter.
It doesn’t matter what any of us wish for. What is going on right now isn’t sustainable. We have never seem a credit expansion go this long without a correction which is what a recession is. You need to purge that bad debt, not kick the can down the road and make for an even worse recession. it’s like people forgot recessions actually happen.
This is exactly why the government stood on the sideline for so long! They knew there was exuberance in the housing market, but chose not to act until it was too little too late.
May be a graphing error but can someone explain like im 5 how re related industries can make up close to 600% of the gdp growth around the year 2001 and 2015?
Hey friend, good question. The answer is that other industries are posting negative growth (shrinking)
So in a stupid make-believe country with two industries and nothing else, industry A goes from 1.0T to 1.02T (2% growth) and industry B goes from 1.0T to 0.99T (-1% growth) and total GDP goes from 2.0T to 2.01T (0.5% growth) then the “contribution” of Industry A was 4x that of GDP or 400%.
I wish there were more posts outlining what was or is shrinking, see how we have many comments about retail. Even forexlive takes stabs at Amazon once in a while and says it is killing retail along with everything else. In this “wonderful economic recovery” I have watched Tiger Direct, Sears, and many other retailers go belly-up or in the case of Tiger Direct online-only.
So let’s say it happens. Interest rises, buying power falls, and nobody is left to buy real estate at current prices. Prices start to tip, then fall, then tumble, and suddenly all Canadian real estate has lost 35% of its value. What’s the best course of action for us Better Dwellers? Liquidate as much as possible? The opposite? Sell all our stocks? Buy all the stocks? If there’s a storm coming, and its going to hurt us all, then what’s the best way to batten down the hatches and minimize negative impact?
Nobody really knows how bad can it be. If the market takes a dive, everything indicates this will be the case, losses could be substantial and much higher than 35%. How to prepare for this? If you’re RE and stock investor you should have an exit strategy, nobody can give you advise how to weather the storm.
If stocks crash by 50% or something like that, I’d buy like crazy. Look at what happened after the GFC. Stocks are where wealthy people have their money and they’re always protected.
Housing however, doesn’t recover as quickly. So it would be a good time to buy a home to live in but not as an investment vehicle.
Just my humble opinion.
As they say, there are lies, damn lies, and statistics.
The jagged lines and arrows only appear to have been going up for 25 years,
because the banks, govt, and economists have been looking at the charts from just one side
of the desk.
Consider the numbers from the 180 deg. opposing perspective
— your average client-citizen — it’s a completely different story, things have actually been getting way, way worse since 2008, down, down, down…
In this upside down world, we’ll know things are improving when the real estate market tanks, and next winter the so-called real estate tycoons start trying to burn their marble countertops for heat.
Really random question for people living in Toronto.
Has anyone noticed or seen a huge giant shit load of new commerical realestate “for sale” signs pop up all over the city this weekend. Particularly the kind on all major streets that has retail on the ground level and apartments on the top level?
To me it appears retail is doing worse than most realize, and could be another peice of information that adds to the lack of growth shown on the charts above.
Curious about what others have noticed or think about this?
Yep, I’ve noticed this as well. Commercial properties started popping up in Q3 2017, right now you’ll find many for sale/lease signs across the city.
yeah I noticed a decent amount before last weekend, but literally just this past weekend it was obviously growing in numbers as of recent, either that, or they all suddenly just decided to put up larger and more obnoxious signs on all floors of the buildings.
perhaps nothing has changed statistically but visually something has really changed.
I recall seeing it just driving on St Clair ave, and College street.
I wonder if this coincides with recent movements overseas (Chinese Government) to curtail, or deleverage commercial properties globally. It’s looking more and more, that many companies in places like China were loading up on debt at ultra low rates, and using that debt to acquire commercial (and residential) holdings worldwide. Now the Chinese government is pushing these companies to deleverage and sell these properties. Those actions could lead to the dumping of commercial properties or aggressive tactics to find companies willing to lock in long term rental agreements.
“Nobody left to buy” ???
Xi’s communists have $50,000,000,000 extra cash coming in every month, from the US alone, with which to buy our (relatively) tiny supply of freehold property. There is an unlimited supply of both cash and buyers. With prices at 37x local incomes in many neighborhoods, it has been quite a long time since RE prices had any connection to the local economy. What reason does anyone have to think that this will suddenly change?
It’s actually quite simple … even the slightest RE price trajectory change, foreign capital will cease to pour into Canada. If ROI is too low, less or no money will be invested … make no mistake about that. Let’s not even talk about a negative price territory, it will spook out those who still own investment properties across this land.
At today’s prices, it would take nearly half a century at current levels of income growth, with flat real estate prices, for the market to return to historic norms.
In Toronto the most inflated neighbourhoods and over-renovated properties are looking at a decline of at least 50% over the next few of years.
Along with a decline in real estate commissions, taxes, and fees, 2.5% of GDP last year,
the deflating bubble will lead the country into recession.
You might say it’s inevitabubble.
Hardly an attractive investment scenario.
oops … realtor sales, taxes, fees … accompanied by a decline in renovations which were 2.5% of GDP last year
“It’s actually quite simple … even the slightest RE price trajectory change, foreign capital will cease to pour into Canada.”
Except that for the past 15 years, it hasn’t worked like that. The slightest random downtick signals to thousands of offshore millionaires that prices are more attractive. The Canadian dollar dropped 5 1/2% compared to the USD since Feb 1. That doesn’t mean much to locals, but it means that our limited supply of freehold properties are now that much cheaper to offshore buyers than they were a month ago.
It’s the only thing that has mattered here for years: The staggering amount of concentrated communist wealth, and the intense desire to get that cash out of their country. Where else are they going to take it? Ever ask yourself why the only cities where developers are screaming “we’re not allowed to build enough to meet demand” are Vancouver, Toronto, Sydney and Auckland? The demand isn’t for homes – it’s for offshore wealth storage vehicles!
“At today’s prices, it would take nearly half a century at current levels of income growth, with flat real estate prices, for the market to return to historic norms.” Doesn’t that tell you everything you need to know? If you look at local economic conditions, you are completely missing the thing that has been driving this.
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