So with all that is currently going on in the world there are factors at play that have a daily affect on our current market.
Yesterday I had the extreme pleasure to sit amongst a select few colleagues and listen to a presentation from CIBC's Managing Director and Deputy Chief Economist - Benjamin Tal on some insights on what is currently happening and how these events will affect us weeks, months and even years from now.
We learned what is inflationary or recessionary as he delved into talking about Putin/Ukraine, Covid, Inflation, Interest Rates and lastly the Housing Market.
So let’s start with the war because it’s the biggest wild card. While he opened with saying that nobody really knows what the outcome of this will be, he stated Russia is not a clear super power what they have done has drastically affected our global primary supply chain and that their hold on the energy sector in Europe is the main reason that Russia is even relevant. I was also unaware that Ukraine has the second Largest Natural Gas deposit in Europe which would be a great steal if Russia took over Ukraine (let's pray they don't)
If you're watching around the world some countries have started to invest more money into their defence and green energy will soon follow. It will also be interesting to watch what China decides to do in keeping with the rest of the world or siding with Russia and further developing their relationship.
So with other countries now upping their spending, the supply chain still in shock from the War in Ukraine, Covid and de-globalization we will see an increase in prices - so the war is obviously causing some inflation as everything is ultimately connected.
2022 will be a transitionary year as we will likely experience another variant or two but now we are more equipped to just live with it. The GDP should also see some growth of 4-5% but it will zig zag over the course of the year.
FACT: Did you know when Covid first hit the supply chain was hit with such a high demand over the first year that we actually took four years worth of consumer demand in the first year. This has had such a high impact on why we are in such short supply still as well, not just the war.
With the rumblings of mortgage rate increases from late last year now coming to fruition and with the BOC making the bold move yesterday of increasing the overnight rate up a full half point from 0.5% -1.0% (something that hasn’t been done in 22 years) we see that the BOC is flexing to try to curb the market and inflation.
What has kept the current market going is the continued supply issues partnered with rising rates causing the current real estate market to panic buy and they are essentially “borrowing activity from the future” as they want to buy a house before it’s too late.
The current pace of home prices as of March were on track to double digits increases in prices this year. This is why the brakes are now being put on rather hard from the Government.
All levels of Government have admitted that there is a housing supply shortage and the BOC will continue with more increases to the overnight rate over the year. Mr. Tal felt it should fall around 2.0% - 2.5% by the end of the year but could go as far as 3.2% in a years time. The Bank of Canada doesn’t care about the inflation of today in that they are looking to the inflation down the road.
This is the balancing act that our Government has to achieve because if they overshoot on the rates that will likely cause a recession. So expect them to go hard in the coming months and he mentioned to expect a more balanced market in 6 months time.
In regards to Immigration coming to Canada, I found some neat tidbits in there. In the first year of Covid we still managed to bring in 401,000 immigrants into Canada. Did you know how the Government did that? Well it was because 70% of them were already here, stuck here or studying here. So they became citizens as they were more educated and employable.
Some other things he said that I found intriguing was that the Governments plan to build housing is that we don’t have the capacity to build these homes in this amount of time. While the labour Market is on fire with many jobs available the issue is the immigrants that we do bring over - zero had any backgrounds in construction and very few in nursing. These are two areas where we do need skilled labourers and this will help us achieve our goals as well.
This is where he said our Government can learn few lessons on who we are bringing in and how these new immigrants can help shape Canada immediately upon their arrival. If we continue to bring in over 400K new immigrants here per year this will continue to put fuel on the proverbial fire as now we need places for these people to live.
Lastly when he talked about housing there were a few key words here that stuck out to me. While I watch so many other realtors talk about a bubble and forecasting drastic price drops from 24-40% he stressed that we are not in a bubble but rather we are stuck in a supply issue and are “underestimating demand”.
One key factor helping the market is gifting. Roughly 1/3 of first time homebuyers have been receiving a “gift” from the bank of Mom and Dad. With the average gift being around $80k and in places like Toronto and Vancouver the average “gift” is about $200K!
He felt strongly that the housing market will not derail as the fundamentals of the housing market are still very strong. The only concern is what I mentioned above and that’s the “Monetary Policy Error” where the bank of Canada raises their rates too quick and this will shock the market causing a recession. It’s unlikely but you never know with this current Government.
That’s all I got for now. Hope this helps provide some clarity.