In their January Monetary Policy report, the BOC directly addressed the trend Tembo has been watching and analyzing for months now; a rapid, sustained, and comprehensive shift to detached homes – especially in suburban rural southern Ontario. The demand for a small slice of the white picket Canadian dream has never been stronger as people flee the cities, work from home, and yearn for privacy, space, and a ‘back to the land’ quiet and tranquility. We’ve seen home prices in the suburbs and exurbs soar and supply evaporate like never before, echoing the 30% price growth seen in the summer of 2017.
The BOC’s chart on apartment vs. single home price growth last year mirrored the late 2016-17′ frenzy. Unlike 2016-17′, where the demand for apartments and condos was just as explosive, 2020 saw a marked decline in apartment momentum. The BOC believes the COVID inspired ‘elevated’ housing activity will gradually decelerate as we head further into 2021, and that preferences will ‘normalize’, meaning the condo, townhouse, and small unit market will recover over time. The BOC believes that price growth dynamism for detached homes will then also begin to cool, exactly as was the case in mid to late 2017 and 2018 (in response to the late 2016 surge). Tembo acknowledges the logic in the BOC’s analysis, but we note the fundamental supply crunch issue and other fundamentals which won’t take away momentum from detached home demand.
Another key piece of information from the BOC is that it increasingly counts on the strong national housing market to help Canada’s economy recover from the impact of COVID. The dependence on real estate, and its corresponding construction and finance stimulus has been a key pillar of Canada’s economy since the early 2000s, when rates fell. This dependence grew in the aftermath of the 2007-8 recession, when rates fell even more. In a nutshell, this is good for the real estate community – as it signals that the BOC is openly outlining how important the market is, and thus, shows yet another strong reason why they’ll have no choice but to keep rates low. The longer they keep rates low, the longer this market will be relentless, dynamic, and on the up.