GHVan
New Contributor
The prospect of a U.S. recession has some homeowners and prospective buyers nervous about the impact on the real estate market in Canada, but one economist says a slowdown could actually boost activity in Canada's housing sector.
It's not surprising that economic uncertainty in the U.S. has been the focus of much discussion and speculation in recent days, since Canada has followed the American lead during four of the last six U.S. recessions.
But Gregory Klump, chief economist for the Canadian Real Estate Association, said it's still an "open question" whether the U.S. slowdown will turn into a recession -- as defined by two consecutive quarters of negative economic growth.
"The chances are about 40 per cent, but the U.S. Federal Reserve is expected to cut interest rates and do so very aggressively to prop up their growth and keep them out of recession.
"So while they're heading for a soft patch of growth it's an open question whether they'll enter a recession. My own thought is no, they won't."
There is a direct link between the economies of the two nations, which are each other's largest trading partner. If the U.S. demand for Canadian exports declines -- as the result of the strong loonie or a limping U.S. economy, for example -- the Canadian economy usually follows suit.
But even if the U.S. does slip into a recession, there's no guarantee Canada's strong real estate market will lose any steam. In fact it might do the opposite, Klump said.
That's because prospects for softer economic growth -- which is "the current sentiment in financial markets and the Bank of Canada" -- usually prompt the central bank to lower interest rates, which can make home ownership more affordable and more attractive.
"Softer growth means lower interest rates and lower interest rates are positive for the housing market,"
It's not surprising that economic uncertainty in the U.S. has been the focus of much discussion and speculation in recent days, since Canada has followed the American lead during four of the last six U.S. recessions.
But Gregory Klump, chief economist for the Canadian Real Estate Association, said it's still an "open question" whether the U.S. slowdown will turn into a recession -- as defined by two consecutive quarters of negative economic growth.
"The chances are about 40 per cent, but the U.S. Federal Reserve is expected to cut interest rates and do so very aggressively to prop up their growth and keep them out of recession.
"So while they're heading for a soft patch of growth it's an open question whether they'll enter a recession. My own thought is no, they won't."
There is a direct link between the economies of the two nations, which are each other's largest trading partner. If the U.S. demand for Canadian exports declines -- as the result of the strong loonie or a limping U.S. economy, for example -- the Canadian economy usually follows suit.
But even if the U.S. does slip into a recession, there's no guarantee Canada's strong real estate market will lose any steam. In fact it might do the opposite, Klump said.
That's because prospects for softer economic growth -- which is "the current sentiment in financial markets and the Bank of Canada" -- usually prompt the central bank to lower interest rates, which can make home ownership more affordable and more attractive.
"Softer growth means lower interest rates and lower interest rates are positive for the housing market,"
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