- Rishi, the Canadian housing market showed no signs of slowing down this year, even after a bit of a brief lull during the summertime. Now, is this tight market mostly due to a lack of supply, or are there other factors at play here?
- Hi, Anthony. Yeah. So there's a lack of supply, but I think that's a function of the fact that demand is so robust. So it would be it would be tough to service this level of demand with supply in general, right? So I think a big part of that story is the fact that demand has been very strong. So there's a lack of supply because demand has been so strong, people are looking for those homes.
Now the question becomes, why is demand get so strong? Well, interest rates have been low, job markets have been healing, population growth is on the rise a little bit. So the macroeconomic backdrop has been supportive for housing demand through the pandemic.
- Now, of course with the Bank of Canada reiterating their potential for rate hikes in 2022, have you seen a sign of buyers pulling forward their purchases ahead of these higher rates?
- We have. I mean, when you look at the October data, it was very robust increase, 9% month on month. So that in a historical context, it's a very, very strong monthly gain. And to us, that would signal that buyers are indeed pulling forward an advance of rate hikes by the Bank of Canada.
In late October, you have to remember the Bank of Canada signaled their very strong intention to take rates higher. And I think that's a pretty strong message to buyers. So we definitely saw that in October and November. It looks like sales, more or less, held their ground relative to October. And October is a very strong month. So that too could be a-- and November is likely another month where pull forward sort of supportive activity.
We don't have full data for November, but the preliminary data that we do have certainly suggests that. So we are seeing evidence sort of on the ground there.
- OK. So other than higher interest rates, what are some of the other potential headwinds for the Canadian housing activity going forward?
- Right. So, well, we have the Omicron variant. Much still needs to be discovered about the variant, but there some risk that it could lift inflation if supply chains are hindered. And more inflation means real incomes. Inflation adjusted incomes are lower, so that could provide a bit of a hit to demand.
Another thing it can do is it could slow population growth. And if population growth slows, then that means there's less rental demand, which means that rents don't move up by as much, which could weigh on decisions by investors to invest in rental properties.
- OK. So what's your outlook on housing on a housing activity and home prices next year?
- Well, we think it's going to be healthier for home sales next year and that's because the macroeconomic backdrop is quite supportive. We think economic income and employment growth would be quite robust. We think population growth will pick up, the risk from Omicron variant notwithstanding.
There's a big chunk of the community population that's aging into its years in which home buying is typically elevated, so there's some demographic support there. And finally, household savings are quite elevated and some of those excess savings that are built up in the pandemic will be filtered, likely to be filtered into down payments, which should support demand.
And these factors should offset, to degree, rising interest rates such that we don't see as robust the level of activity next year as we did in 2021. 2021 was a blowout year. But the level of sales all in for 2022 should be above pre-pandemic levels. So we're expecting another healthy on the sales front, and that should filter through the prices. We're expecting another year of fairly strong price growth on an annual average basis, and that's a function of the fact that markets are tight, as we sort of mentioned earlier on in the interview. And the fact that the demand environment is expected to be relatively strong, despite the fact that interest rates are probably going to creep higher.
- Appreciate. Thank you very much for joining us.
- Thanks, Anthony.