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The growth of Canada Guaranty’s portfolio highlights a bet that both it and its new owners – including the Ontario Teachers’ Pension Plan – are making on the resiliency of the housing market. (Deborah Baic/The Globe and Mail/Deborah Baic/The Globe and Mail)
The growth of Canada Guaranty’s portfolio highlights a bet that both it and its new owners – including the Ontario Teachers’ Pension Plan – are making on the resiliency of the housing market. (Deborah Baic/The Globe and Mail/Deborah Baic/The Globe and Mail)

Three Charts

Why our young may save the housing market from tumbling Add to ...

Youth to the rescue

Here’s one more factor buoying average home prices: young and middle-aged adults.

Canada stands out among the 34 countries in the Organization for Economic Co-operation and Development with one of the fastest growth rates in housing prices since 2007, note Stéfane Marion and Matthieu Arseneau, economists at National Bank Financial Inc.

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Low interest rates and decent job creation have helped boost prices, the economists said in a report. But what distinguishes us from the rest of the OECD is the rate of increase of people aged 20 to 44, an important group for home buying and renting. That group is shrinking on average among OECD countries, but growing in Canada.

“The growth rate for the population group aged 20 to 44 is particularly important for the housing market since this is the age cohort generally associated with marginal demand for a residential asset,” the economists said.

“After a period of stagnation since the mid 1990s, population growth for people aged 20 to 44 has picked up very notably since 2007,” the economists said. “Importantly, even if the rate of growth is expected to crest in 2013, it will still remain positive over the next decade. This argues against precipitous fall in home prices.”

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The two faces of emerging markets

Money managers often recommend putting part of our investments into emerging markets to benefit from growth in the world’s hottest economies. The trick is to pick the sizzle and avoid the fizzle.

As the chart shows, the biggest gains this year among 95 major stock indexes worldwide tracked by Bloomberg have come from developing markets. But so have many of the largest losses. Looking back five years, it’s much the same story.

Assuming you could and did invest in Venezuela in the past few years, you’d be smiling today. The Caracas Stock Exchange’s IBC index has almost doubled this year in Canadian dollars.

Or take Vietnam. The Ho Chi Minh stock index has risen 32 per cent this year, compared to less than 2 per cent for Canada’s S&P/TSX composite index. Over the past five years, though, the total return of Vietnam’s benchmark has slumped by more than 60 per cent in Canadian dollars, compared with an increase of 2.8 per cent for Canada’s.

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Fewer surprises, fewer returns?

U.S. stocks had a great start to the year, but this month, they’ve lost a lot of that upward momentum.

One reason has been the less-glowing U.S. economic data of late. Judging by past trends, the market could come under further pressure from the latest signals emanating from the world’s largest economy.

Robert Kavcic, an economist at BMO Nesbitt Burns Inc., compared the Citigroup Economic Surprise Index, which tracks how U.S. data compare to expectations by economists, with the S&P 500, a benchmark for U.S. equities. As the chart shows, they’ve moved broadly in the same direction recently. “Note that similar behaviour presaged the summer equity market corrections seen in each of the past two years,” Mr. Kavcic said in a report.

“The data have been less surprising to the upside recently than they were in late 2011, when stocks were really rallying, and so if that’s something that’s going to continue going forward, it would take a lot of steam out of the equity market,” Mr. Kavcic said in an interview. “It’s not necessarily even that the data are getting worse, it could be the fact that expectations are catching up to the reality of better data.”

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