The Canadian economy defied odds, and became more dependent on real estate investment. Statistics Canada (Stat Can) residential investment data shows a surge in current dollars for Q2 2021. The most recent quarter showed a massive climb — much bigger than GDP in general. This pushed residential investment’s share of the economy to a new record high.
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Residential investment is the segment of gross domestic product (GDP) related to housing. It includes the construction of homes, significant renovations, and ownership transfer costs. The measure isn’t comprehensive, since other areas like banking are dependent on housing. But it’s the most direct contribution housing investment makes to GDP.
Low growth in residential investment is typically seen during a recession. A lack of residential investment is a sign of consumers’ lacking confidence. Housing tends to involve borrowing for most people. People tend to borrow less if they’re worried about job stability. This is typical of a recessionary environment.
High growth can be a sign of a large misallocation of capital — both financial and human. This tends to happen when money is cheap, and has too few places to land. The US at its peak bubble saw the share of residential investment rise to almost 7% of GDP. An overallocation can amplify an economic shock, which tends to purge inefficiencies. This is essentially what happened to the US, during the Great Recession.
Canadian residential investment has been consuming more and more of the economy. Seasonally adjusted annual rate (SAAR) of investment hit $249.3 billion in Q2 2021. This is 0.59% higher than the previous quarter. It’s a new record in current dollars, by a significant margin.
Isolating just the most recent quarter of data, we see the SAAR trend minimizes the data. Unadjusted residential investment for the second quarter was $67.9 billion. This is up 25% from the previous quarter, and a record high. The seasonal adjustment is flattening the quarterly trend significantly.
Residential investment’s share of the economy is falling, according to the SAAR trend. It represented 10.1% of gross domestic product (GDP) in Q2 2021, down from 10.3% in the previous quarter. The previous quarter is the record share, so the indicator is just a little below that.
Canadian residential investment expressed as a share of gross domestic product (GDP).
Unadjusted quarterly investment actually shows it was a record share of the economy. Residential investment reached 11.2% of GDP in Q2 2021, up from 9.5% the previous quarter. This is contrary to the SAAR trend, which shows slowing growth. In the most recent quarter, it might actually be the exact opposite of what people have been saying. Canada became even more dependent, without smoothing the trend.
Seasonally adjusted data for residential investment shows it’s slowing. This is especially true when compared to the general economy, when seasonally adjusted. Unadjusted quarterly data shows residential investment is actually accelerating though. It might be a seasonal blip, but seasons have meant less and less for housing throughout the pandemic.
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