Although Murray Rothbard, a 20th-century economic historian and political theorist, argues that the natural tendency of the state is inflation, it has its drawbacks. For example, if prices increase too fast, you lose purchasing power. To this end, Milton Friedman, a Nobel Prize-winning economist, observed that inflation is taxation without legislation.
Although inflation in Canada has been historically stable, it can never be fully anticipated. The COVID-19 pandemic has created unprecedented market uncertainty and economic anomalies.
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According to the latest Statistics Canada data, the year-over-year inflation rate was 0.7 per cent. Some experts are suggesting that inflation is currently underestimated. Demand for essential goods and services is high, as their prices are tracking above average. Yet the current “basket of goods” in Canada’s consumer price index — used to assess inflation — includes many non-essential categories that did not appreciate in the last year.
Therefore, current measures may need to be reconsidered to accurately reflect Canada’s inflation.
The much-anticipated end to COVID-19 and Canada’s stimulus package further point to long-term inflation. As economies emerge from recessions and gross domestic product (GDP) rises, inflation occurs.
Historically, Canada’s inflation has followed, but lagged, its GDP increases. Accordingly, post-pandemic GDP gains are likely to be a driver of inflation. The unparalleled COVID-19 stimulus package, 420 per cent larger than Canada’s 2008 recession stimulus package, is also likely to create inflationary trends.
Inflation and GDP. (Macrotrends, Statista, Author’s calculations), Author provided
To individuals, losing purchasing power as a result of inflation is perhaps the most salient feature of increasing prices. Anticipating those increases, prudent investors explore ways to hedge against inflation.
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An inflation hedge involves investing in an asset that is expected to maintain or appreciate in an inflationary period. Hopefully, its appreciation exceeds, or is at least comparable to, inflation. Real estate has long been considered a hedge against inflation, as rent and property values tend to increase with inflation. Historical empirical evidence supports real estate and farmland as effective inflation hedges.
A farmer harvests hay on a farm near Cremona, Alta., in August 2020. THE CANADIAN PRESS/Jeff McIntosh
In order to explore the historical effectiveness of Canada’s real estate and farmland as an investment hedge, I compared inflation to the new housing price index and farmland values from 2000 to 2020.
I selected the new housing price index as a proxy for property appreciation because it’s the most timely indicator of changes to residential real estate values. Farmland values obtained from Farm Credit Canada were used to determine its appreciation.
From 2000 to 2020, the cumulative inflation change was 39 per cent compared to a change and increase of 51.8 per cent to the new housing price index. The data showed that the new price housing index tracked above inflation.
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Cumulative change in inflation and the new housing price index. (Statista, Statistics Canada), Author provided
From 2000 to 2020, the cumulative farmland value appreciation was 168.4 per cent. The data showed that Canadian farmland significantly outpaced inflation.
Cumulative change in inflation and farmland value. (Statista, Farm Credits Canada, author’s calculations), Author provided
Based on this 20-year period, it’s evident that residential real estate and farmland values appreciated faster than inflation, suggesting both were effective hedges against inflation.
Macroeconomics trends, including the COVID-19 stimulus package, expected GDP gains and anticipated reduction in unemployment, suggest inflation is on the horizon in Canada.
In these extraordinarily uncertain times, prudent investors seek to protect the value of their money. Previously, Canadian residential real estate and farmland have proved to be strategic inflation hedges.
After all, as billionaire industrialist Andrew Carnegie once stated: “Ninety per cent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined.”
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
