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The Globe and Mail asked dozens of experts about the economy in 2022. Here are the charts they think are important to watch and why

Illustration by DAVE MURRAY

Decoding 2022: The Globe asked dozens of experts – from economists and strategists to investors and academics – to make sense of the economy in the year ahead. These are the charts they think are important to watch and why.


Population rich, house poor

For several years, Canada has had the highest population growth rate in the G7, but the lowest per-capita stock of housing. New construction hasn’t been advancing quickly enough to stem a steady decline in the ratio of new home completions to population growth. A recent rise in the ratio has been wholly driven by a temporary decline in new immigration – not an increase in building. This measure is set to dive again to record lows as Canada pursues ambitious immigration targets through 2023.

Not enough housing construction

to bring down prices

1.0

Ratio, 36-month rolling sum of home completions

relative to change in population over same horizon

forecast

0.9

0.8

Canada

0.7

Early-2010s pop. trend

0.6

Avg. 1980-present

0.5

0.4

0.3

Late-2010s pop. trend

0.2

2,000

36-month rolling

change, 000s

Population

Completions

1,500

1,000

500

0

1980

1985

1990

1995

2000

2005

2010

2015

2020

the globe and mail, source: Scotiabank Economics;

Statistics Canada

Not enough housing construction

to bring down prices

1.0

Ratio, 36-month rolling sum of home completions

relative to change in population over same horizon

forecast

0.9

0.8

Canada

0.7

Early-2010s pop. trend

0.6

Avg. 1980-present

0.5

0.4

0.3

Late-2010s pop. trend

0.2

2,000

36-month rolling

change, 000s

Population

Completions

1,500

1,000

500

0

1980

1985

1990

1995

2000

2005

2010

2015

2020

the globe and mail, source: Scotiabank Economics;

Statistics Canada

Not enough housing construction to bring down prices

1.0

Ratio, 36-month rolling sum of home completions

relative to change in population over same horizon

forecast

0.9

0.8

Canada

0.7

Early-2010s pop. trend

0.6

Avg. 1980-present

0.5

0.4

0.3

Late-2010s pop. trend

0.2

2,000

36-month rolling

change, 000s

Population

Completions

1,500

1,000

500

0

1980

1985

1990

1995

2000

2005

2010

2015

2020

the globe and mail, source: Scotiabank Economics; Statistics Canada

At best, the three-year rolling ratio of home completions relative to population growth could get back to its 40-year average by mid-2023 if domestic sources of population growth revert to trends from the early 2010s. Under a more likely scenario, with population growth during 2022–23 resuming its pace from the late-2010s, the ratio would fall to its lowest levels in over 40 years. The forecast becomes even more dire for affordability if one adjusts for the ongoing, century-long decline in Canada’s average household size.

Canada unequivocally needs more homes, and it needs to build them more quickly than it has over the past decade. But that takes time, and despite all the cranes and building sites in our major cities, they won’t be enough to provide a meaningful check on price gains in 2022.

Jean-François Perrault, senior vice-president and chief economist (@ScotiaEconomics), and Brett House, vice-president and deputy chief economist, Scotiabank (@BrettEHouse)


Housing is cannibalizing the economy

Investment in residential housing now accounts for roughly 42 per cent of all investment in the country. In the past two decades, that lofty level has only been hit by a couple of other OECD countries – namely Ireland and Greece at the height of their respective housing bubbles. It didn’t end well for them.

The issue here is twofold. On one hand, residential investment has surged in recent years to hit a record share of GDP. But the bigger issue is a chronic underinvestment in research and development – the sort of spending we need to ensure long-term productivity gains. Canada ranks near the bottom of OECD countries in terms of R&D expenditures as a share of GDP, and we’re the only country that has seen that metric actually fall since 2000.

It raises an important question: If we’re not making the necessary investments to ensure long-term economic growth, what will support these lofty house prices in the long term?

Ben Rabidoux, founder, Edge Realty Analytics (@BenRabidoux)


Your nest will never be empty

This isn’t exactly a chart to watch, since we get this data only once every five years from the census. But for me the most exciting day of 2022 might be the day when the housing data gets released from the 2021 Census (expected to be on September 21). One of the data elements I’ll find interesting is household formation rates – the percentages of Canadians, by age group, who are “heads” of their households.

These headship rates can be used to calculate how much new housing is required to accommodate our growing population. From 2011 to 2016, total housing production in Canada roughly matched the amount required by the small changes in household formation during that period. However, there was a notable drop in the formation rate for the 25 to 29 age group (from 39.8 per cent in 2011 to 38.1 per cent in 2016) signalling that it became more difficult for young adults to live independently. Since 2016, new-housing production has fallen far short of estimated requirements, by about 32,000 per year during 2016 to 2020, or 14 per cent, based on my calculations reported in May.

As a result, it’s highly likely the new data will show drops in household formation rates, especially for the youngest age groups. The data will quite likely provide additional confirmation of something that a lot of us believe – that insufficient housing production is having substantial negative impacts on Canadians.

Will Dunning, housing market consultant (@LooseCannonEcon)


Go forth and spend!

Broadly speaking, Canadians are sitting on a lot more money. Household disposable income – that is, what’s left after tax – has accelerated over the pandemic, thanks to Ottawa’s COVID-19 support programs. And with fewer places to spend, Canadians have amassed roughly $300-billion in excess savings. That bodes well for next year. With interest rates set to rise, the typical household looks well-positioned to absorb any added costs and power the economic recovery through higher spending.

Matt Lundy, economics reporter, The Globe and Mail (@mattlundy33)


Give us some credit

Year after year, credit card debt followed a familiar pattern – peaks of heavy borrowing in December and summer, followed by rounds of belt tightening. Meanwhile insolvency filings would track that in reverse – when we weren’t spending and getting ourselves into trouble, we were paying down debt or filing insolvencies to get out of trouble. Then COVID struck. Credit card debt plunged by $12-billion from March to May, 2020, during the first shutdown, only to fall further during subsequent waves as renewed lockdowns took effect and consumer sentiment dropped.

The question is, what will 2022 bring? Expect inflation to drive credit card debt back up, likely to its pre-pandemic peak of $90-billion by the end of the year. That’s because so many Canadians are living paycheque to paycheque, and credit cards are the key to making ends meet. Generous government supports enabled Canadians in lower credit score brackets, who rely on credit cards more than any other credit score cohort, to pay down their balances but those programs are ending.

At the same time, expect insolvency filings to begin to rise again as the economy normalizes. Creditors who could not pursue collections, either due to court closures or the fact so many people were collecting emergency benefits instead of paycheques, will now be looking to garnish wages as job markets pick up.

Scott Terrio, manager of consumer insolvency, Hoyes Michalos (@ScottTerrioHMA)


Will housing go from boomtown to bustville?

This chart from Teranet is notable for two reasons. First, it shows that investors have been the biggest buyer segment in Ontario, accounting for one in four home purchases. But more importantly, it shows that investors were the only buyer segment that saw their share of home purchases accelerate in 2021; every other segment saw their share of transactions decline.

When more people are buying homes strictly as an investment rather than as a place to live, this is usually an early indicator of a market driven by exuberance rather than fundamentals. Strong investor demand tends to amplify boom-bust cycles in the housing market. The optimism from investors pushes home prices higher than they otherwise would be during the boom, and when the market turns, investors become the pessimists that are first to exit the market, driving prices lower. If investor demand continues to accelerate in 2022, this will push prices higher and elevate the risks to the housing market.

John Pasalis, president, Realosophy Realty (@JohnPasalis)


Irrational exuberance, Canadian housing edition

Canada sales-to-new listing ratio

and house prices

Sales-to-new listings ratio

(%, adv. 4 months)

MLS House Prices

(YOY % chg.)

100

34%

90

80

24

70

14

60

4

50

-6

40

30

-16

2005

2007

2009

2011

2013

2015

2017

2019

2021

the globe and mail, Source: crea; refinitv;

capital economics

Canada sales-to-new listing ratio

and house prices

Sales-to-new listings ratio

(%, adv. 4 months)

MLS House Prices

(YOY % chg.)

100

34%

90

80

24

70

14

60

4

50

-6

40

30

-16

2005

2007

2009

2011

2013

2015

2017

2019

2021

the globe and mail, Source: crea; refinitv;

capital economics

Canada sales-to-new listing ratio and house prices

Sales-to-new listings ratio

(%, adv. 4 months)

MLS House Prices

(YOY % chg.)

100

34%

90

80

24

70

14

60

4

50

-6

40

30

-16

2005

2007

2009

2011

2013

2015

2017

2019

2021

the globe and mail, Source: crea; refinitv; capital economics

The home-sales-to-new-listing ratio shows us the relative balance of demand and supply in the housing market and it has been back on the rise in recent months, pointing to house-price inflation of more than 20 per cent. The big issue is that the most recent rise in the sales-to-new-listing ratio is at odds with the jump in mortgage rates in the past few months, which should have reduced demand, and is therefore a worrying sign that house prices are being driven by unduly optimistic market psychology rather than fundamentals. This “irrational exuberance” scenario is the type of situation central bankers dread. If the sales-to-new-listing ratio does not soon decline sharply, the Bank of Canada may raise interest rates even more quickly next year than most forecasters expect. Of course, by doing so, they would also risk causing a housing market downturn.

Stephen Brown, senior Canada economist, Capital Economics


Balance-sheet blues

House prices have outpaced incomes

spectacularly in Canada

350%

Canadian home prices

U.S. home prices

300

Canadian disposable

income

U.S. disposable

income

250

200

150

100

50

0

-50

1975:

Q1

1982:

Q3

1990:

Q1

1997:

Q3

2005:

Q1

2012:

Q3

2020:

Q1

the globe and mail, Source: karl schammota

House prices have outpaced incomes

spectacularly in Canada

350%

Canadian home prices

U.S. home prices

300

Canadian disposable

income

U.S. disposable

income

250

200

150

100

50

0

-50

1975:

Q1

1982:

Q3

1990:

Q1

1997:

Q3

2005:

Q1

2012:

Q3

2020:

Q1

the globe and mail, Source: karl schammota

House prices have outpaced incomes spectacularly in Canada

350%

Canadian home prices

U.S. home prices

300

Canadian disposable

income

U.S. disposable

income

250

200

150

100

50

0

-50

1975:

Q1

1982:

Q3

1990:

Q1

1997:

Q3

2005:

Q1

2012:

Q3

2020:

Q1

the globe and mail, Source: karl schammota

After several decades of price appreciation in Canadian housing, talk of a bubble has become clichéd in many circles. But with home prices outpacing incomes to a truly spectacular degree, it’s clear underlying economic productivity is lagging the expansion on both the asset and liability sides of household balance sheets – something that could become terribly meaningful in a downturn. If credit growth and real-estate gains are underpinning consumer spending, it seems unlikely the Bank of Canada will be able to hike rates seven or eight times in the next two years – as markets currently expect – without triggering an old-school balance-sheet recession. Fixed-income and currency markets could be in for lots of turbulence as the consequences of extensive capital misallocation finally hit home.

Karl Schamotta, Chief Market Strategist, Cambridge Global Payments (@vsualst)