Canada’s Economy Hits A New Record For Dependency On Real Estate Investment
The Canadian economy defied adversity and became more dependent on real estate investments. Statistics Canada’s residential investment data (Stat Can) shows an increase in the current dollar for the second quarter of 2021. The final quarter showed a massive increase – much faster than GDP in general. As a result, the share of residential investment in the economy reached a new record high.
Housing investment is the segment of gross domestic product (GDP) that relates to housing construction. It includes house construction, major renovations, and the cost of ownership transfer. The measure is not comprehensive as other areas such as banking are dependent on housing. But it is the most direct contribution of housing investment to GDP.
Small residential investment growth is typically seen during a recession. A lack of residential investment is a sign of a lack of consumer confidence. Housing for most people involves borrowing. People tend to borrow less when they are worried about job stability. This is typical of a recessive environment.
High growth can be a sign of a major misallocation of capital – both financially and personally. This usually happens when the money is cheap and too few landing spots are available. In the US, housing investment rose to nearly 7% of GDP at the height of the bubble. Overallocation can exacerbate an economic shock, which tends to remove inefficiencies. This essentially happened in the US during the Great Recession.
Canadian Residential Investments Up 25% Last Quarter
Canadian residential investments are becoming increasingly consumed by the economy. The seasonally adjusted annual rate (SAAR) of investment reached $ 249.3 billion in the second quarter of 2021. That is 0.59% more than in the previous quarter. It’s a new record in current dollars, by a large margin.
If we just isolate the final quarter of the data, we see that the SAAR trend is minimizing the data. Unadjusted residential investment was $ 67.9 billion in the second quarter. That is 25% more than in the previous quarter and a record high. Seasonal adjustment is clearly flattening the quarterly trend.
Housing investment accounts for a record share of Canada’s GDP
According to the SAAR trend, the share of residential investment in the economy is falling. It accounted for 10.1% of gross domestic product (GDP) in the second quarter of 2021, up from 10.3% in the previous quarter. The previous quarter is the record share, so the indicator is only slightly below it.
Canadian Residential Investment as a Share of GDP
Canadian residential investment expressed as a percentage of gross domestic product (GDP).
Source: Stat.-Dose; Live better.
The unadjusted quarterly investments actually show a record share of the economy. Housing investment reached 11.2% of GDP in the second quarter of 2021, up from 9.5% in the previous quarter. This is in contrast to the SAAR trend which shows slower growth. In the final quarter, it might actually be exactly the opposite of what people are saying. Canada became even more dependent without smoothing the trend.
Seasonally adjusted data for housing investment shows that it is slowing down. This is particularly true in comparison to the seasonally adjusted economy as a whole. However, unadjusted quarterly data shows that housing investment is indeed accelerating. It may be a seasonal rash, but the seasons have meant less and less to housing construction during the pandemic.
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