Did you know housing PULLS an Economy out of a recession?

First, lets quickly recap what a recession is.

A recession is defined as declining GDP, and high unemployment.

A very simplistic way of thinking about GDP in, a practical sense, is to think of it as a collection of all the small business like a grocery store, a furniture store, or a sub-contractor.

A declining GDP essentially means the majority of all these businesses are earning less money today than they were last year.

If a business earns less today than it did last year, then it will find a way to reduce their costs and increase their sales. Often, the quickest way to reduce costs is to let go of an employee. This leads to rising unemployment rates.

So how does the housing market PULL an Economy out of a recession?

When an economy is in a recession, the only tool the Bank of Canada can use to help the economy get out of a recession is to lower the interest rate.

Lowering the interest rate, makes borrowing money more affordable.

The monthly interest costs on a multi-million dollar development project is unimaginable when interest rates are high. The costs are enough to make many new developments un-profitable, and halt these projects. Again, this leads to rising unemployment rates.

But, when interest rates decline, these projects become cheaper and more profitable, incentivizing developers to build.

Each one of these multi-million-dollar development projects has a ripple effect on the economy by providing jobs for the lumber industry, cement industry, steel industry, engineers, sub-contractors, furniture stores, hardware stores, etc.

When the Bank of Canada lowers the interest rate: developers build more projects -> creating more jobs -> increasing the GDP -> and helps pull the economy out of a recession.