| |
|
Author: CIBC World Markets - Benjamin Tal
Article Date: April 2007
How real is the fear that real estate values in Canada will face downward pressures in the coming decades due to an aging population? Does the falling number of first time buyers and the downsizing and increased liquidations of houses by seniors mean an inevitable decline in house prices? The short answer is that those fears are highly exaggerated. Yes, all other things being equal, those forces will have a net negative impact on house prices. But, of course, not all other things are equal. Even a modest adjustment to the number of new housing starts in the upcoming housing market cycle will completely eliminate any demographically induced price decline. Instead of falling, house prices in Canada are more likely to double in the coming twenty years. The Demographic Story — Not Boom or Doom In the late 1980s, a highly quoted paper named “The Baby Boom, The Baby Bust, and The Housing Market” famously predicted that given the American demographic landscape, real house prices would fall by 3% per year between 1987 and 2007. Today, we know that US real house prices rose by almost 4% a year during that period. Similar concerns were raised in Canada, but the end result was a 3% annual increase in real home prices over the past twenty years, with the market correction of 1990 being largely due to cyclical factors and monetary policy over-shooting. Were those predictions wrong or have they, in fact, already occurred and simply been masked by the surge in demand for housing due to other factors? The experience of the last real estate cycle provides us with a unique opportunity to tackle this question and assess the prospects for house prices in the next cycle.
View The Entire Article: Canadian House Prices Not Based on Demographics Alone
|
|
