Hello, everyone.
I would like to thank the committee for the opportunity to speak with everyone here today.
We manage investment portfolios for families right across Canada, and we also manage money for investors outside of Canada. Our focus on markets is what we would call global macro factors. What that means, if you're not familiar with that, is that it's really focused on the very large moving trends that affect the price of housing, such as interest rates, inflation, economic growth, monetary policy, fiscal policy, things like that. What we tend to focus on primarily is risk first, and then we're able to anticipate where markets may or may not move.
With regard to the current challenges we have here in Canada with the housing market, we tend to look at, first of all, the short-term challenges and then the longer-term challenges.
The short-term challenges have basically been brought on by a mismatch between supply and demand factors. It is our view that supply has not been able to grow as fast as it should have been, and demand has been greatly affected by the policy responses from the COVID pandemic back in 2020. This includes the monetary policies from the Bank of Canada and other global central banks, as well as fiscal spending from the government side. All of this put together allowed the demand side to increase while supply was not able to increase and grow at a normal rate.
What I really want to look at next is the longer-term factors. I think that's what is being missed in a lot of these conversations. What I want to share with you is what may be developing. It's something that may not be expected by Canadians. As this goes, we could be having a different conversation a very short time frame from now, so instead of trying to increase supply for the housing market, this could very quickly flip around to a conversation about demand, what happened to demand all of a sudden.
First of all, I would like everyone to appreciate that all markets around the world are significantly affected by the long-term interest rates. Overnight rates for central banks count, but long-term rates are even more important.
In the early 1960s all the way up to 1982, long-term rates using the American markets proxy went from about 5% almost up to 20%. Maybe some of your parents had a mortgage back in the early 1980s at 20% to 24%. You know what I'm talking about.
From the early 1980s all through the 1980s, and then the 1990s and the 2000s, long-term interest rates went from effectively 20% down to 0%. When that is happening and you overlay it with globalization, you're going to have a growing market in a lot of different industries, including the real estate world, but it also helps with the cost of funding. It goes lower and lower and lower.
When the American housing market broke in 2008-09, this was a critical moment that really set the stage for the growth in the Canadian housing market 25 years onward. It is that interest rates should have been allowed to reset. Instead, central banks around the world, including the Bank of Canada, anchored overnight rates at 0% or near 0%. The Europeans and the Japanese went to negative overnight rates. Also, a lot of the central banks used quantitative easing to help suppress what we would call the global U curve, or they prevented price discovery from taking place. Then we have a full decade of lack of pricing taking place in the bond market, which means borrowing rates are kept lower and lower. This has enabled governments and households to continue to borrow and borrow until the day comes when we're having what we're experiencing right now.
Now we have 40 years when the Canadian economy has never experienced a moment with long-term rates going higher and the ability to continue to borrow at lower and lower rates. Also during this time, the Canadian economy has never experienced a national recession or an economic crisis of any kind. Alberta will have experienced one, because they are in a cyclical industry exposed to oil, but not the rest of Canada.
What I'm sharing with you today is that we view the world now as having global risk being synchronized. The challenge for Canada is that we do not get a soft landing. We actually have a recession that's deeper than what's being projected by a lot of economic platforms. Instead, what that's going to do is reduce employment. It's going to force, or cause, commercial banks to become restricted with credit and lending. It's actually going to cause mortgage rates to go even higher. This will cause the effect of housing prices coming down. Rental prices may come down as well.
You will get your wish, but at the same time, we're going to be facing another challenge at the exact moment when you're looking for something else.
That's my closing statement for everyone.