Analysts are getting edgy about the future of the Canadian economy. And should the loonie weaken even more, there’s one industry that looks as though it could be in for an even rougher ride.
While Canada may have made some progress in the last while, there is still a bear case to be made in the words of one analyst. A lack of post-COVID stimulus combined with indebted consumers brought in higher risks from rate hikes. This could lead the Canadian economy to fall even further.
Population up, and so is housing
Demand for housing continues to climb. And while some believed this would be a bubble set to burst, the Canadian housing market and real estate in general have risen for decades and decades. After the pandemic, Canada saw a new swell of newcomers to Canada, and this has continued in 2024.
In 2023 alone, the population of Canada grew by an incredible 1.3 million, largely from non-permanent residents. And this certainly was good for the Canadian economy, lifting the gross domestic product (GDP) as temporary workers filled jobs lost after the pandemic.
However, the economy is now slowing, and high interest rates continue to be a part of our present. And this will certainly have an effect on these non-permanent residents, who may choose to get out of Canada in search of more affordable living at better wages.
As population drops, so does real estate
Now, if analyst theories prove true, there could be a major population decrease over the next few years. With that will also come lower demand for real estate. Given that a large part of Canada’s economy centres around real estate, this could create a “perfect storm.”
What this could amount to is a mass exodus of temporary workers seeking out a better option. And the slow fall in interest rates could be too little, too late. This could be devastating for the future of the Canadian economy.
That’s because Canada’s economy depends a fair amount on non-permanent residents and newcomers to Canada to keep our economy running. Should these residents choose to go elsewhere, we could see another lag in the economy that hasn’t been seen since the pandemic, when immigration was put to a halt.
Real estate in the crosshairs
Granted, this could be great news for Canadians looking to buy a house. As we saw during the pandemic, there suddenly became lower demand for housing, leading to lower housing prices. But these lower prices weren’t good for real estate investors.
Lower price mean lower profits, so investors in the real estate market will want to keep an eye on this moving forward. Real estate stocks have now had to deal with higher interest rates, higher inflation, and could very soon deal with lower demand as well.
In this case, it would be best to seek out in-demand real estate companies. For instance, Granite REIT (TSX:GRT.UN) will continue to be a solid option. No matter what has been going on, industrial properties have been in high demand with the ongoing rise in e-commerce and supply-chain demands. And with a dividend yield of 4.65%, it’s a strong investment to consider for the long term. As for the rest of the real estate market, the same cannot be said.
