Canada's Condominium Magazine
The badly damaged US housing market is practically roaring back to life, while Canada’s is “softening.” According to a report on global real estate by ScotiaBank, the US is “at the top of the pack” globally for price growth, as demand outstrips supply. Here, on the other hand, demand has slumped because of government engineered market restrictions, i.e., tougher mortgage rules, and a “lack of pent-up demand.”
North American markets are “diverging,” the report says. In the United States, after six or so years of collapse, panic and readjustment, there is pent-up demand, high affordability and low interest rates. The employment picture is also improving slowly but steadily. All of that means more buyers are ready to enter the housing market, and once-depressed markets are beginning to recover.
Here in Canada, where the “long-anticipated slowdown” is now underway, we are seeing “reduced momentum,” as high home prices and restricted mortgage financing stifle demand. ScotiaBank sees this trend continuing through 2013, with little likelihood of a “sharp price correction,” unless some global economic shock beyond our control destabilizes things further. And as we have now become accustomed to hearing, “Ultra-low interest rates will continue to supply support.”
Taking a longer look at housing in Canada, the ScotiaBank report sees a number of underlying factors that it says will prevent strong price growth in the medium and longer term.
One set of these dampening factors is purely economic. The likelihood of a “relatively moderate” global economic expansion, combined with domestic fiscal restraint and the inevitability of higher borrowing costs, could limit the numbers of Canadians buying homes. Wage gains in Canada are expected to be modest, and that will impact housing sales through the middle of the decade.
The demographic card
The other constellation of factor is demographic. We are getting older, and older homeowners tend to stay put. ScotiaBank says that homeownership rises steadily up to about age 60, and drops off after age 75, though the drop-off is not steep: homeownership among Canadians over the age of 75 is still close to 70 per cent, which is about the same rate as for those aged 35–44.
What this points to, the report says, is lower turnover in housing, as seniors are less likely to move. Seniors move at just half the frequency of the overall population. Age also influences preference for the type of home we choose to live in. Seniors, along with those under 35, are more likely to live in a condo.
And there is the growth in Canada of one-person households. That demographic has increased from 9 per cent to 28 per cent over the past fifty years. For the first time, as has been noted in other studies on this, there are more one-person households in Canada than couples with children. Persons living alone are more likely to rent than to own, though this too is changing, according to ScotiaBank. The housing of choice for about a quarter of those who live alone and own their home is the condo.
In line with other reports on the subject, ScotiaBank sees immigration having a “profound” impact on housing markets, with new Canadians becoming the “dominant” source of new household formation in the country. Immigration will account for about 75 per cent of population growth by 2031. Today, that share is about 66 per cent.
Contrary to some dire predictions, population aging will not fuel a demographically induced selloff in Canadian real estate. Today’s seniors are healthier, wealthier and living longer than prior generations. They are increasingly likely to own their own home and to live in their homes for longer. Many will not need to tap into their principal home to finance retirement.
What is significant about this in terms of housing is that immigrants tend to become homeowners after an initial period of renting. They are twice as likely to live in a condominium than non-immigrant families.
TREB numbers, March 1–14
Tbe Toronto Real Estate Board (TREB) reported 3,594 sales system during the first 14 days of March, a year-over-year drop of 11.5 per cent. The number of new listings was up by less than two per cent. The average selling price was up by almost six per cent year-over-year to $532,102. Average prices were up for all major home type categories.
“The average price for condominium apartments in the City of Toronto was up over last year. If this price growth continues, it may indicate that conditions are tightening slightly in this segment,” added Ms. Hannah.