“This is a seller’s market and has been for a very long time,” says Sherry Cooper of Canada’s housing market, “and the biggest problem is insufficient supply.” In a recent interview session presented by Pinsky Mortgages, the sought after speaker, who serves as Chief Economist of Dominion Lending Centres, shared her knowledge and perspective on everything from inflation and interest rates to world events and the housing market. Her rare combination of experience, insight, and charisma were apparent throughout the presentation, as well as the Q&A that followed.
Housing Supply Insufficient
“The supply of homes, be they for rent or for sale, are totally inadequate to meet the population growth we’ve already had since 2016, let alone what’s coming in the next few years,” says Cooper, noting expected increases in immigration levels.
The former Chief Economist of BMO Financial Group expects the housing crunch to continue unless action is taken at a local level.
“The Federal Government has proposed all sorts of initiatives, but the Federal Government doesn’t really control home construction,” says Cooper. “We need to see incentives to speed up the approval processes, as well as rethinking zoning regulations,” she continues. “Allowing medium density development in low density areas is the only way to improve the supply of housing, particularly more affordable housing, but let’s face it, the likelihood of that happening when there are municipal elections coming everywhere is hard to imagine.”
Factors Contributing to Inflation
“I do believe that much of the inflation that we’re seeing is the direct result of shutting down the global economy, and then having to reopen it, which caused enormous dislocations,” explains Cooper. While supply chain disruptions, commodity price booms, and the Ukraine war all contribute to rising prices, wages struggle to keep pace.
“Wages (have) increased by 3.1%, and clearly more wage inflation is likely to come,” says Cooper. “It is still well below the actual CPI inflation rate, so families in Canada are experiencing a reduction in their purchasing power.”
A Return to the 70s and 80s?
While Cooper doesn’t expect a return to the double-digit inflation experienced in the late 1970s, she notes that the current situation is conducive to significant upward pressure.
She lists many factors that contributed to relatively low inflation during the last several decades, including decreasing union power, reducing manufacturing costs as a result of globalization, technology, and the internet removing middlemen from many transactions.
“Remember that all businesses worked on a just-in-time inventory basis,” says Cooper, “now they’re getting to see what the downside of that is.” Seeing the current supply chain difficulties as a wake-up call, Cooper believes that globalization has “peaked.”
“Globalization was great when everything was running smoothly,” says the economist.
“Now there’s been a major paradigm shift. If anything, we’re going to start to see the businesses bring a lot more production back home to avoid these supply bottleneck problems. Every country in the world, their deficits have exploded, because they were working to cushion the blow of the negative impacts on people’s jobs and income during Covid. So fiscal policy is no longer tight. The only thing left, really, that will be disinflationary will be technology.”
Bifurcated Labour Market
“It is very much a bifurcated labour market, and those who could work from home are typically the ones who have actually benefited over the course of the last two years,” says Cooper. As the economist explains, those who work from home are more likely to have benefitted from rising real estate and stock market values, further increasing their net worth.
Income inequality has led to much discussion over the social safety net and guaranteed income, something that Cooper believes is closer to reality in Europe and Canada than in the U.S.
“It’s public policy and whether or not people are willing to stomach it,” she says. “I can’t see it in the US any time soon. Canada’s top marginal tax rate is 54%; in the United States it’s 39%. We have a much more progressive tax system.”
Markets Can be Wrong
Cooper’s understanding of finance is clearly razor sharp, but she’s careful to point out that she possesses no crystal ball. Although she expects interest rates to elevate and remain above recent levels for some time, she knows that nothing is for certain.
“There’s nothing like a recession to get interest rates back down fast,” she says. “I don’t think a recession is imminent, but who knows?”