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The Canadian housing market is like an anti-gravity machine, impervious to the weight of a depression-level economic shock and levitating everything in its vicinity.

After a brief interruption, Canadian housing sales and prices have stormed back to record levels, while the U.S. housing market has fully regained its own losses.

A housing boom in the midst of a deep recession is an unexpected windfall for a smattering of loosely connected stocks, including home builders, lumber stocks, home centres, hardware stores, furniture retailers and real estate software developers.

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Any kind of association with residential real estate has been an advantage, resulting in some blockbuster earnings beats and big returns.

Much of that run is due to pent-up demand for North American housing, which is likely to wane in the months ahead.

But it’s also difficult to imagine what might really suck the air out of the real estate ecosystem, said Michelle Wearing, an associate portfolio manager at Starlight Capital who focuses on global real estate stocks.

“As long as the majority of people propelling the housing market keep their jobs, and interest rates stay at record low rates, you’re probably going to continue to keep the housing market really strong,” Ms. Wearing said.

Even many housing bulls were surprised by the July numbers, which saw existing home sales in Canada rise by 30 per cent year over year – the strongest month on record. This was no regional blip – all major markets of the country are higher than they were at this time last year.

It’s not just rare to see a buoyant housing sector in the middle of a recession, it’s unheard of in the postwar era. “This has shaped up to be a bizarro-recession for the sector, where what is usually down is up, and vice versa,” Bank of Montreal senior economist Robert Kavcic said in a note.

But this is also a recession unlike any other, as central banks and governments have injected an unfathomable level of stimulus into their economies to try to prevent an economic catastrophe.

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Policy rate cuts have dragged down five-year fixed mortgage rates in Canada to below 2 per cent, reducing financing costs on home purchases by as much as half. “The cost of financing has dropped so much that it’s outplayed any other factor,” said Jason Mann, chief investment officer at Toronto-based Edgehill Partners.

Homes sales in Canada

In thousands, data as of July

Sales

Five-month moving average

Recession

56

52

48

44

40

36

32

28

24

20

16

2012

2016

2020

2008

THE GLOBE AND MAIL, SOURCE:

NATIONAL BANK OF CANADA

Homes sales in Canada

In thousands, data as of July

Sales

Five-month moving average

Recession

56

52

48

44

40

36

32

28

24

20

16

2012

2014

2016

2018

2020

2008

2010

THE GLOBE AND MAIL, SOURCE: NATIONAL BANK OF CANADA

Homes sales in Canada

In thousands, data as of July

Sales

Five-month moving average

Recession

56

52

48

44

40

36

32

28

24

20

16

2012

2014

2016

2018

2020

2008

2010

THE GLOBE AND MAIL, SOURCE: NATIONAL BANK OF CANADA

There are other forces influencing housing demand. The work-from-home movement has many homeowners rethinking their living spaces.

A spike in renovation activity has pushed up spending on home furnishings and building supplies. There are long wait-lists for new pool and hot tub installations. And lumber producers can’t keep up with demand, resulting in shortages across the country.

Forestry stocks have soared as a result. Shares in West Fraser Timber Co. Ltd. and Canfor Corp. have risen by 228 per cent and 198 per cent, respectively, from their March lows. Both names, however, are still well off their 2018 highs despite some lumber prices hitting unprecedented levels. “These stocks have some catching up to do,” Mr. Mann said.

As do Canadian retailers catering to Canadian homeowners, such as Leon’s Furniture Ltd. and Sleep Country Canada Holdings Inc.

Both stocks sold off heavily as the Canadian retail industry shut down in March and investors anticipated a hit to consumer spending that typically accompanies a recession. And while neither stock has fully recovered – Leon’s is still off 7 per cent from its 2020 high and Sleep Country 4 per cent – both have rebounded sharply on resilient home spending.

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“There is a portion of Leon’s product that is arguably ‘essential’ in COVID times, like home office and some appliances, and the reallocation of discretionary spending to the home is a positive,” Matt Bank, an analyst at CIBC World Markets, wrote in a note.

Meanwhile, the U.S. real estate market is at the core of one of the single best runs by a Canadian stock this year. Real Matters Inc. is second only to Shopify Corp. on the S&P/TSX Composite Index leaderboard, with a 140-per-cent increase in share price, year-to-date.

The Markham, Ont.-based company, which specializes in mortgage appraisal and title services for the U.S. real estate market, has been the beneficiary of falling U.S. mortgage rates, which has incentivized many American homeowners to refinance.

Change in spending, by category

Year-over-year percentage change

Week ended Aug. 7

Week ended July 24

Week ended March 27

Convenience and specialty food

Financial services and insurance

Home furnishings

Professional services

Home centres & hardware

General merchandise stores

Supermarkets

Used vehicles, plus other vehicles*

Misc. retailers

Pharmacies and personal care

Telecommunications

Other

Clothing

Gasoline stations

Recreation and entertainment

Transportation

Travel

*Plus auto parts

-100

-60

-20

20

60%

THE GLOBE AND MAIL, SOURCE: TD ECONOMICS

Change in spending, by category

Year-over-year percentage change

Week ended Aug. 7

Week ended July 24

Week ended March 27

Convenience and specialty food

Financial services and insurance

Home furnishings

Professional services

Home centres & hardware

General merchandise stores

Supermarkets

Used vehicles, plus other vehicles*

Misc. retailers

Pharmacies and personal care

Telecommunications

Other

Clothing

Gasoline stations

Recreation and entertainment

Transportation

Travel

*Plus auto parts

-100

-60

-20

20

60%

THE GLOBE AND MAIL, SOURCE: TD ECONOMICS

Change in spending, by category

Year-over-year percentage change

Week ended Aug. 7

Week ended July 24

Week ended March 27

Convenience and specialty food

Financial services and insurance

Home furnishings

Professional services

Home centres & hardware

General merchandise stores

Supermarkets

Used vehicles, plus other vehicles*

Misc. retailers

Pharmacies and personal care

Telecommunications

Other

Clothing

Gasoline stations

Recreation and entertainment

Transportation

Travel

-100

-60

-20

20

60%

*Plus auto parts

THE GLOBE AND MAIL, SOURCE: TD ECONOMICS

In fact, the company’s biggest growth constraint is “the ability of lenders to increase their underwriting capacity during COVID-19,” Real Matters chief executive Jason Smith said in the company’s most recent quarterly earnings release.

There is one segment of the Canadian residential real estate market, however, that has been left out of what has otherwise been an all-consuming ascent – apartment real estate investment trusts.

For example, Canadian Apartment Properties REIT, which is one of the country’s largest residential landlords, is trading 38 per cent off its prepandemic high.

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The entire space has been held back over concerns of mass rent delinquency, a conversion of Airbnb units to long-term rentals, and reduced demand for downtown housing.

Overblown, on all counts, Ms. Wearing argues. Rent collections have been strong, there are no signs of a mass exodus to the suburbs and most Airbnb units are higher-end than the average rental apartment.

It’s only a matter of time before these REITs catch the uptrend driving the rest of Canadian housing, she said. “Low interest rates are going to be here for the next two years or longer, and that’s going to continue to drive investment into real assets.”

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