Canada’s economy sank in a shocking way in the second quarter. Where will you go now?

A worrying report from Statistics Canada last month may indicate that the country’s economy has already entered a cold dip.

StatCan attributed the drop to declining resale and home exports. But experts say the second-quarter plunge into negative economic growth may have little to do with a cooling housing market, which remains in sunny summer territory.

“The best way to put it is to think of a hot summer day instead of a sweltering summer day,” says Leah Zlatkin, a specialist in the mortgage industry.

“So it had been a sweltering summer (in the first quarter) when it comes to real estate, and now the second quarter was a hot summer day,” says Zlatkin, the lead broker for Toronto’s Brite Mortgage.

The unexpected recession, which saw gross domestic product shrink at an annualized rate of 1.1 percent from April to June, could change everything from Canada’s economic recovery to the results of the upcoming federal elections, with affordability as an issue. key point of the elections.

The fall, which occurred just before the elections were called, was shocking in its magnitude, causing the economy to rise a strong 5.5 percent in the first three months of the year.

Even on the pessimistic side, economists surveyed by Bloomberg had anticipated a 2.5% expansion in the second quarter, the agency reported.

Many economists attributed the decline to COVID-induced supply chain disruptions that have held back many businesses. But many were concerned that another factor, a cooling in the crucial housing market, would be a much greater threat to the economy in the future.

Zlatkin, who is also a consultant for the mortgage and insurance website, says the housing market is far from cool. The stripping of clothing is simply no longer torrid.

“When you compare the heat to the sweltering, it obviously looks like things are contracting, and we could be getting into one of those hyperbolic incidents where people think the end is coming,” he says. “It is not really like that. It is still summer. It’s still very hot outside. It just isn’t suffocating. People (before) sweated a lot and took off all the clothes they could. ”

But hot, cold or scorching, how important is the housing market to the Canadian economy?

University of Toronto economist William Strange says some experts have speculated that it may overwhelm any other economic factor.

In fact, Strange, a professor of economic and policy analysis at the Rotman School of Management at the University of Texas, says that much of the difference between an economic boom and bust can be attributed to housing alone.

So, he says, it wouldn’t be surprising if a recent drop in home sales played a major role in the overall economic downturn.

“What I will say, however, is that this is quite a different situation in the sense that the slowdown that we are seeing in housing right now has a lot of things responsible for it,” Strange says.

“One of them is the boom year we had last year, (and) this is kind of a reverse recovery, it’s a hangover, so to speak,” he says.

What’s more, supply chain disruptions that were seen as another source of the second-quarter recession likely haven’t escaped the housing market, depriving contractors, for example, of parts and materials with which to build or renovate, he says. Strange.

“So part of the (real estate) slowdown that we’re probably seeing is a sort of logistical COVID tracking rather than the market deciding it’s time for a recession and something that’s driven by market psychology,” he says.

“And that could be good news, that the supply chain problems will presumably be fixed eventually.”

York University economist James McKellar says widespread supply chain disruptions could be more responsible for the second-quarter GDP decline than a housing market cooling.

“Try to buy a car, you can’t buy a car,” says McKellar, a real estate and infrastructure expert at the Schulich School of Business in York.

“I researched it and had to put money in to be on a waiting list to get a car that could be delivered in 2022,” he says.

There is also a labor shortage that makes it difficult for many companies to hire the necessary workers, McKellar says.

“I would like to point out other factors before pointing to housing as a cause of this recession,” he says.

But McKellar says the housing market is setting a trap that could cripple economic growth for years to come.

In particular, he says, the looming housing shortage, especially for low-income people, may cause more long-term economic disruption than any cyclical slowdown in the sector.

“In the short term, we’ve been able to solve it, but I think it’s a long-term problem,” says McKellar.

“If you can’t house people properly, then it becomes a challenge for any country,” he says.

McKellar says part of the problem in Canadian housing is a determined focus on home ownership, one so pervasive that it has become a major issue in the upcoming federal elections.

“If there is a housing problem (however) it is not the inability of young people to buy a house,” he says. “It’s the inability of society to provide them, particularly in the rental markets, and we haven’t addressed it.”

Without the youth who still can’t afford a home, without the essential, low-paid workers that keep communities running, any economy will suffer badly, McKellar says.

“In the long run, if young people, families and others could not live in cities, they (cities) would die,” he says.

Butchers, bakers, candlesticks. If they can’t live in the city … it won’t work ”.

Therefore, the massive construction of low-cost rental housing, on a scale seen in some European cities but not yet contemplated in Toronto or other Canadian communities, is key to future economic health, he says.

“In the city of Toronto they are talking about building in some old parking lots,” says McKellar, referring to a landfill plan for new rental housing that is being widely discussed here.

“It is tiny. Stockholm has set out to build 100,000 rental units. “

Pedro Antunes, chief economist at the Conference Board of Canada, says home starts have long been a leading indicator of economic health.

“If developers are building houses, they feel secure about the economy, it means that people are buying houses,” says Antunes.

“And it tends to generate economic activity in the future. The foundation is poured and then there is the construction activity that follows, and then people move in and then people go out and buy things to furnish the house, ”he says.

But Antunes also says he expected that residential spending to decline from the extraordinary peak it had reached earlier this year.

“Anything that goes up as high as it did will go down,” he says.

“I don’t think it was a surprise to see that declining … and we will see that residential investment will decrease in the coming quarters.”

What was a surprise, and what may have contributed the most to the second-quarter slowdown, was a sizable drop in Canadian exports.

“Exports were extremely weak in the quarter, essentially down 15 percent,” says Antunes.

He says this drop came despite the resurgence of the US economy, which normally would have absorbed more Canadian products, and was likely due to more supply chain problems here, especially in the auto sector.

“We had the feeling that those supply chain problems had been left behind. But obviously that was not the case and that came back to haunt us, ”says Antunes.

Many of the contributors to the economic downturn will be temporary, Antunes says, and the economy will return to the upside for the rest of the year and beyond.

“We are still waiting for us to see a rebound in the second half of this year,” he says, with the warning that the Delta variant of COVID could ruin everything.

But economic health plays a big role in determining election results, and any recession is a likely risk for the ruling party, most experts say.

McKellar, however, says that the recent and unexpected contraction has not been widely felt among Canadians and that there are likely more immediate concerns on their minds amid a fourth wave of COVID.

“My perception is that many people have not felt this recession, (and) I think there are more pressing problems,” he says.

“Even in the housing market there doesn’t seem to be any major drop. But people will think that we haven’t gotten out of the virus situation (and) we don’t know how long this is going to last. “

Antunes largely agrees, saying the recession may have little impact going forward.

“I don’t know how people will react to this news, (but) for me, the second quarter is past,” he says.

“I think most of the (positive) forecasts will probably be revised down by 2021 … but it’s just a temporary delay, we should still see the economy recover in the next few years.”

In the end, Strange says, like most things related to COVID, people just don’t know what’s in store.

“But I can’t say the good times are necessarily gone, and I can’t say the Toronto housing boom is gone.”

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