It’s no secret that Canada is predicting a recession in early 2023. With this in mind, it’s important to understand why it’s happening and what this means for your finances.
According to a new report by RBC, Canadians amassed $3.9 trillion in net wealth thanks to a roaring housing market and a surging stock market during the pandemic. In fact, the study found that the real estate boom drove some home values 52 percent higher.
But right now, the market is experiencing a drop in those gains. The report states that the housing-charged boom in Canadian net wealth is now over. As a result, Canadian net worth will fall at the fastest pace in decades.
“The dramatic decline in net wealth, combined with rising prices and higher interest rates, will cut roughly $15 billion from household spending in 2023,” the report states. “This is one of the factors that will drive Canada into a recession early next year.
Preparing for a recession
Looking back on the pandemic, economists found that renovations and home furnishings helped drive the initial consumer spending recovery after pandemic lockdowns. Remember how many people were improving their newly minted home offices, revitalizing their backyard into a staycation paradise, or outfitting newly-purchased homes?
As a result of the interest rate hike on mortgages and inflation, more Canadians need to prioritize essentials like groceries, gas and paying off their debt (including their mortgages). While higher interest rates could mean a higher mortgage payment for many, the silver lining is that it continues to cool down Canada’s housing market. With fewer bidding wars and less extreme housing prices, there’s a chance a first-time buyer’s dream home might be within reach one day after all.
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