The risk of a recession is on the rise in Canada, and that could spell big trouble for the housing market, one economist suggests.

In a new report — which follows two stagnant quarters of economic growth — Oxford Economics, a UK-headquartered research firm, pins the probability of a recession hitting Canada within 12 months at 45 percent.

An economic recession would have obvious impacts on the Canadian housing market: for example, consumer confidence would take a hit, and so would business investment.

But to what extent home prices and sales activity are affected depends a great deal on what causes the downturn to begin with, says Tony Stillo, Oxford Economics’ director of Canada economics.

“There’s a variety of concerns I have,” Stillo tells Livabl, citing global trade tensions, “a material fallback” in oil prices, or a global economic turndown as possible catalysts. A housing-led recession is also a possibility, he adds.

“There’s a variety of things that are weighing on the outlook. Which one of them could do it? It could be a combination,” says Stillo.

A recession spurred by falling home prices in major markets would wipe 15 percent of the national index price of a home from peak to trough over four quarters in 2020, as per Oxford Economics’ moderate outlook.

In the most extreme scenario of a global economic turndown, the predictions are grimmer.

“You’re talking about a global economy that could be in recession, and then the house price declines would be worse, much worse, than even in our moderate scenario,” Stillo says.

For now, Stillo notes that although risks are increasing, a recession isn’t the most probable outcome. “Slow growth, but continued growth: that’s the most likely scenario,” he says, pegging economic growth at 1.1 percent. “There is still a possibility that we could see a stronger economy.”

What a Recession Would Mean for Canada’s Housing Market by Josh Sherman | Livabl