07 Oct THE SKY ISN’T FALLING: WHY THE FUTURE REMAINS BRIGHT
The catchphrase of the fable Henny Penny, The Sky Is Falling, also known as Chicken Little, seems to be the order of the day for media outlets when it comes to real estate.
Rising interest rates paint a negative picture and runaway inflation is certainly no fun as these factors affect the real estate market. The Bank of Canada hit the economy again, this time with a 75-basis-point hike. It was only the third hike of this magnitude since 1980, which reflects the bank’s frantic attempt to rein in inflation.
Housing prices have dipped since the spring’s historical highs but remain steady year-over-year. The question is: Are we in a short-term housing correction? Here are a few conversation points to bolster your knowledge of why this correction may be short-lived:
1. Canada’s Housing Shortage – Canada has a housing shortage of approximately 1.8 million homes. Housing supply has not kept up with population growth, resulting in a near record imbalance.
2.Housing Starts – Builders continued to break ground with 275,329 starts in July. However, starts are expected to trend lower through the remainder of 2022 and into 2023 as increased costs for developers, worker shortages and cooling demand begin to impact supply.* Source: Trading Economics, CMHC
3. Millennials – 92% of Younger Millennials Believe Owning a Home is a Good Financial Investment* Source: Royal LePage 2021 Younger Millennials Survey & Royal LePage 2022 Millennial Survey
4. Transfer of Wealth – Canadians are entering an age of unprecedented wealth transfer with inheritances of $1 trillion over the next decade *Source: Strategic Insights (2016 – 2026)
5. Immigration – Canada plans to welcome over 1.2 million new permanent residents between 2021 and 2023
6. A Seasonal Fall “Bump” in Home Sales? – In August, sales represented a higher share of new listings compared to the previous three months. If this trend continues, it could look up.
At the end of the day, all markets are driven by supply and demand. It seems apparent that the Canadian housing market fundamentals are on solid ground. Over time, interest rates will ebb and flow, inflation will loom and Chicken Little will continue to look up. Unless we fill a massive deficit of places to live for the people that want and need a place, things are looking up for home prices.