Economist rejects fears of softening sales

CALGARY — Changing demographics will not lead to a softening of housing prices in Canada, says a report from a nationally known economist.

Benjamin Tal, Toronto-based senior economist for CIBC World Markets, says Canada housing markets will continue to be influenced by cyclical forces in the next two decades. “But it is our finding that the widely held fear of a softening in housing market activity and structural downward pressure on prices due to the changing Canadian demographic landscape is largely unsubstantiated,” he says in his report, Much Ado About Nothing: Canadian House Prices Not Based on Demographics Alone.

The resale housing sector must consider not only the change in population of a given age group, but also the level of housing activity by people in those age groups, he says. As an example, the economist says that first-time buyers ages 25 to 44 account for almost 68 per cent of all home purchases. But, he adds, that group will decline by 167,000 between now and 2026 — a “marginal decline that will not impact housing demand in any significant way.”

Without giving specific numbers, Tal says the largest population decline will be among those aged 45 to 54, a group, though, that only accounts for 12 per cent of housing activity. “Even that limited decline in housing demand will be partly offset by the strong increase in the age group 55 to 74 and its surprisingly high housing market activity,” he says. For this particular group, the main interest is recreational or investment property.

Tal expects the number of people downsizing their homes will increase, but it won’t be as pronounced as has been expected by some industry watchers. Many baby boomers will stay in their current homes, he says, adding that in the last six years, fewer than a third of Canadians between 55 and 75 have moved. “What’s more, this low proportion might be even lower in the coming 20 years as those baby-boomers have more financial assets and are generally in better health than their parents,” he says.

Although the boomers who do downsize will create more demand for condominiums, Tal says they shouldn’t expect any significant price increases. “Even if we assume that a full one-third of Canadians aged 55 to 75 will move into multifamily housing, this means that on an annual basis builders will have to increase supply by 14,000 units from the previous cycle (1987-2006) in order to eliminate all the potential price impact on that extra demand,” Tal says.

Given the strength of demand for condos and the number of developments under construction or planned for the near future, another 14,000 starts is possible, he says.

CanWest New Service.

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Published in: on June 7, 2007 at 5:19 pm  Leave a Comment