Another 25% decline in home prices would strip $1 trillion off Canadians\u0027 wealth. Find out more
Tack on the impact of the Bank of Canada’s policy tightening on interest payments by households, and it’s not hard to see consumption spending treading water come 2023.
One can thank the Bank of Canada for this because its 350-basis-point interest rate increase since February, coupled with quantitative tightening, represents the most aggressive pace of policy tightening on record. The bubble had zero chance of persisting under such conditions, a point we’ve made repeatedly in our publications this year.
What would an additional 25 per cent drop in house prices do to the economy? Here, too, there’s a lot of uncertainty about the extent of the corresponding hit to residential construction and consumption, but the end result is unambiguously negative. The home equity share of household net worth has climbed quite a bit over the past 15 years, reaching a record 41 per cent at the end of the second quarter in 2022. That share probably dropped in the third quarter amid the further correction in house prices , but not that much considering financial assets didn’t do great either during the quarter.Article content
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