Canadian House Prices Will Double in the Next 20 years, Says Economist


A new report, Much Ado About Nothing: Canadian House Prices Not Based on Demographics Alone, predicts that Canadian house prices are likely to double in the next 20 years, and not drop as some analysts have feared.

Benjamin Tal, senior economist with CIBC World Markets, says that while cyclical forces will continue to influence the housing markets during the next two decades, "our finding is 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 are largely unsubstantiated."

Tal says that when examining how demographics will impact the market, "what counts is not only the change in population of a given age group, but more importantly, the level of housing market activity among those age groups." For example, he says that first-time buyers in the 25 to 44 age group account for almost 68 per cent of all home purchases. His study shows that group will decline by 167,000 between 2007 and 2026, which is such a "marginal" change that it will not impact housing demand in any significant way.

The largest population decline in the next 20 years will be in the 45 to 54 age bracket, but this group accounts for only 12 per cent of total housing demand. "And 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," says Tal. Much of the property purchased by this group is in the recreational and investment markets.

Although an increasing number of people will downsize to smaller houses, the trend may not be as pronounced as some people predict. Tal's study shows that many baby boomers will stay in their current homes. Less than one-third of those households of people aged 55 to 75 have moved in the last six years. "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," says Tal.

Although the boomers who do downsize will create more demand for condominium units, "those who expect a significant rise in the price of condominiums will be disappointed," says Tal. "Even if we assume that a full one-third of Canadians age 55 to 75 will move to multi-units (a very strong assumption), this means that, on an annual basis, builders will have to increase supply by 14,000 units, compared to the previous cycle (1987 -- 2006) in order to eliminate all the potential price impact of that extra demand." He says that's not a tall order, given the number of condominium developments underway.

The study says the combination of fewer first-time buyers and the downsizing and liquidation by the older population in the next 20 years means that the housing market will have an extra supply of 250,000 houses. "While at first glace this appears to be a large number, it means an average extra supply of only 12,500 homes a year during that period," says Tal. The previous 20 years saw an average of 180,000 starts per year, so builders would only have to drop to just under 170,000 starts "to completely eliminate any negative demographic influence on house prices," he says.

Many other factors can have an impact on the housing market, but Tal says interest rates will not be a huge factor in the coming 20 years. Interest rates have been at historically low levels for the best part of a decade, and Tal says the anti-inflationary nature of globalization will keep inflation -- and interest rates -- at about the same levels.

Another reason why the housing market will stay strong is immigration. Two-thirds of Canada's population growth since 2001 has been due to immigration, and government policies could allow for even more in the future.

Tal also points to the changing Canadian mortgage market as a possible boost to housing in the coming years. Unlike the United States, which has had products such as interest-only mortgages and extended amortization periods for some time, Canada is only now discovering these products. "One can argue that there is some room for these products to grow without triggering a significant increase in the overall risk profile of the Canadian mortgage market," Tal says.

"We project that the average real house price in the coming 20 years will mirror the performance of the last 20 years," he says. "And assuming a two per cent annual inflation rate, this means that house prices in Canada, instead of falling, will in fact double by 2026." He says the increase will not be symmetrical, and large cities will see even larger increases in home valuations.


Written by Jim Adair


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Amit Kalia, Broker, REALTOR®
RE/MAX Real Estate Centre., Brokerage
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100 City Centre Dr, Unit 1-702
Mississauga, ON L5B 2C9
Phone No.: 905-339-5111
Website: https://www.realestate-ontario.com/
Condo Blog: https://condopundit.com/blog/

Then better to Invest in India. Real Estate doubles every 7-10 years. So after 20 years it will be 4 times.

From an investment perspective:

Doubling of house prices in 20 years is no way a big deal, especially when you spend so much to maintain a house, not forgetting the cost of borrowing.

For someone who has the capital, letting x amount of CAD in the bank at 4% for 20 years gives you 2.2x already without doing anything! So according to the above statement, real estate is going to grow at less than 4% p.a. averaged out in the next 20 years.

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G13, you are forgetting that when we put a deposit in bank, we are investing 100%. With a mortgage, we are investing only 5% to 25%. Of course, we assume the risks associated with it as we assume the benefits associated with it.

*del*

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Quote:

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Originally posted by Vijay

G13, you are forgetting that when we put a deposit in bank, we are investing 100%. With a mortgage, we are investing only 5% to 25%. Of course, we assume the risks associated with it as we assume the benefits associated with it.

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False Affordability Can Undermine Home Ownership

False affordability can come back to haunt you. What you can afford on paper with optimistic calculations may not be easy to live with day to day.

Whose responsibility is it to be sure that you buy a condominium, house or townhome that suits your financial present and future?

The obvious answer is the right one -- it's your responsibility. First-time and first-in-a-long-time buyers can be at a particular disadvantage as they may not have personal experience or knowledge of property ownership to help them project into the future.

The surprise may be that working with a REALTOR® or Broker entitles you to their real estate and financial knowledge and experience when you struggle to decide which home or which housing strategy is the best financial fit for you.

Explain what you'd like to accomplish through home ownership and the professional will help you achieve your goals. Buyers or sellers who are not straightforward or honest with their real estate salesperson or broker place themselves at a disadvantage. It's like asking a doctor to solve your health problem, but withholding facts pertinent to the diagnosis.

Agency Law places the legal onus on licensed professionals, not to make decisions for you, but to provide the information and expertise that will enable you to make confident buying and ownership decisions, choices that are easy to live with. Agency Law is precedent-based common law that defines the working relationship between real estate professionals and their clients and customers. Licensed real estate practitioners must place their clients' interests above all else but the law -- not a bad frame of reference for your buying decisions.

Avoiding false affordability does not always mean selecting less expensive real estate. If you want to buy property in a neighbourhood or location that is beyond your reach on paper, a real estate professional may present solutions that allow you to achieve more. For instance, rent out some or all of the property and the rental income helps pay off the mortgage. These earnings may be added to gross income in some mortgage arrangements.

Marketing Distractions

Marketing strategies for new houses and condominiums tend to concentrate on quickly building an emotional "can't you just see yourself here?" attachment. Buying decisions can be slanted toward choices of decor, lifestyle or prestige rather than being grounded in month-by-month practicalities.

Accompanying financial projections equate mortgage interest and principal payments to monthly rent to make the transition to ownership seem a financial "no-brainer." Few of these "affordability invitations" include after-move-in expenses like hikes in condominium fees, house maintenance, energy costs and property taxes. It's these and other costs of ownership that your real estate salesperson or broker can help you project beyond the purchase price to ensure you will be happy living with the financial reality of your new real estate.

Active Participation

Your contribution to your own success is important, too. Take a hard look at income security before you start visiting open houses:

It's not how much money you can scrape together to buy, but how much you'll enjoy living with the resulting financial situation. Some buyers are happy to commit to putting everything into their new home and sacrificing to pay off the mortgage as soon as possible. Others will end up maxing out credit cards to preserve their pre-purchase lifestyle until they realize, often too late, that past priorities cannot coexist with ownership responsibilities.

Take an honest look at what you want to invest in your real estate on a monthly basis and how secure your income is. Job loss and lay-offs are a reality even when the stock market creates new millionaires. Maintaining the financial freedom to make a career change or to return to school may also be important considerations.

Buying based on one income or on one-and-a-half incomes, rather than a couple's maximum combined take-home pay, may offer financial "breathing space" if problems arise. Single buyers may benefit from considering layouts that enable part of the home to be rented to tenants or boarders in case a financial speed-bump arises.

Home-based businesses offer tax deductions and advantages that can increase the amount of income available to pay off the mortgage.

Can you team up with another generation of your family? Duplexes, triplexes and other multiple-family buildings combine separate, independent living with caring proximity. This approach to home ownership may be used to gain a foothold in a better neighbourhood, cut housing family costs or preserve personal independence.
Do you want to avoid a "house rich, cash poor" existence? Knowledge is power when buying real estate. Leverage the knowledge and experience of real estate professionals who offer their services to ensure your home is truly affordable.


Written by PJ Wade

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From My Realty Times Newsletter- Emailed once a month and can be subscribed by all http://realtytimes.com/c/amitkalia

Regards,

-----------------------------------------------------------------
Amit Kalia, Broker, REALTOR®
RE/MAX Real Estate Centre., Brokerage
independently owned & operated
100 City Centre Dr, Unit 1-702
Mississauga, ON L5B 2C9
Phone No.: 905-339-5111
Website: https://www.realestate-ontario.com/
Condo Blog: https://condopundit.com/blog/