- Fears of a decline sparked by demographics greatly exaggerated -
TORONTO, April 18 /CNW/ - CIBC (CM: TSX; NYSE) - Canadian house prices
are likely to double in the next 20 years, according to a CIBC World Markets
report released today, entitled "Much Ado About Nothing: Canadian House Prices
Not Based on Demographics Alone."
"Despite downward pressure from demographic forces, on average, we expect
house prices in Canada to double in the next 20 years," says Benjamin Tal,
Senior Economist, CIBC World Markets. "Fears of a decline resulting from the
downsizing and increased liquidations of houses by seniors and the falling
number of first time buyers are highly exaggerated."
The CIBC report compares population growth between two cycles of housing
prices, from 1987 to 2006 and from 2007 to 2026, using Statistics Canada's
medium-growth, medium-immigration projection as a benchmark.
Between 2007 and 2026, the projected 167,000 net decline in the number of
first time buyers (Canadians between the ages of 25 and 44) is marginal, at
best, Mr. Tal said. Since this age group is by far the largest contributor to
overall housing demand, accounting for almost 68 per cent of all home sales,
this relatively modest downturn will not significantly impact housing demand.
The largest decline (2.5 million) is projected for the 45 to 54 age
group, as many baby boomers move to the next age bracket. The impact of this
change is also expected to be limited, given that the 45 to 54 age group
accounts for only 12 per cent of total housing demand. In fact, this moderate
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 - largely
reflecting purchases of vacation and investment properties.
"We estimate that in the coming twenty years, the Canadian housing market
will face extra supply of roughly 250,000 houses," adds Tal. "While at first
glance this appears to be a large number, it means an average extra supply of
only 12,500 homes a year during that period."
Considering that total housing starts during the previous cycle averaged
180,000 per year, builders will only have to reduce new supply to just under
170,000 to completely eliminate any negative demographic influence on house
prices compared to the previous cycle.
Concerns regarding the impact of demographic forces on the Canadian
housing market were first raised in the late 1980s. However, during the twenty
year period from 1987 to 2007, Canada experienced a three per cent annual
increase in real home prices.
Although housing market activity in the coming 20 years will fluctuate,
CIBC projects that the average real house price will mirror the performance of
the past two decades.
"Assuming a two per cent annual inflation rate, this means that house
prices in Canada are expected to double by 2026," said Mr. Tal. "This
increase, of course, will not be symmetrical - with large cities seeing even
larger increases in home valuations."
The complete CIBC World Markets report is available at:
CIBC World Markets is the wholesale and corporate banking arm of CIBC,
providing a range of integrated credit and capital markets products,
investment banking, and merchant banking to clients in key financial markets
in North America and around the world. We provide innovative capital solutions
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For further information: Benjamin Tal, Senior Economist, CIBC World
Markets, (416) 956-3698, firstname.lastname@example.org; or Rina Cortese, CIBC
Communications and Public Affairs at (416) 980-7458, email@example.com