CIBC – “Demographic forces will be as supportive to real estate markets in the coming decade as they were in the past decade.”

“Demographic forces will be as supportive to real estate markets in the coming decade as they were in the past decade,” CIBC economist Benjamin Tal says in a report. …
“The growth in the number of Canadians in the age group 25-34, which accounts for the vast majority of first-time buyers, is projected to be much stronger. In other words, the group that is most likely to buy a house will grow faster in the coming decade,” Tal says. …
“The housing correction in the 1990s came with a softening in demographically-based housing demand, CIBC says, which dropped from an average annual rate of more than 2 percent in the late-1980s to 0.2 percent during the 1990s.” …
“Assuming that any upcoming adjustment in housing market activity will occur in a non-recessionary environment, demand for housing in the coming decade should be more than four times stronger than it was during the dreary market of the 1990s,” Tal says.
An increase in immigration is also expected to boost the housing market, according to CIBC, as home ownership rates for immigrants ten years after they have arrived are higher than among those born in Canada.
“So, while housing market activity is projected to soften in the near-term, the good news is that any adjustment will not be aggravated by negative demographic forces,” Tal says. “In fact, at least for the next decade, demographic forces will be strong enough to mitigate the damage and probably shorten the duration of the upcoming market adjustment.”

– from ‘Housing crash fears overblown: CIBC’, bnn.ca, 23 Aug 2012

Real demand for housing supports fundamental-derived prices, not speculative-derived prices.
Perhaps the weakness in the Canadian market in the 90’s came from waning demographic demand.
The weakness now commencing is the result of a cresting speculative mania. Fundamental-derived price supports (based on rent yields or local incomes) only come in at prices far below current market prices. A slight increase in demand due to demographic factors will not substantially change the reconciliation that is going to be occurring.
– vreaa

9 responses to “CIBC – “Demographic forces will be as supportive to real estate markets in the coming decade as they were in the past decade.”

  1. Gotta love the RE-speak in Tal’s note. “Adjustment”, “market activity”, “soften”. Nice and fluffy. Why not come out and say it: Prices are likely to fall.

    Also, Tal wrongly assumes that people aged 25-34 will buy just because their predecessors did. He forgets that renting is an available and, in today’s market, more financially sensible alternative. i.e. it’s not a 1:1 relationship.

    Tal also needs to go back to Econ 101. More buyers will only push up prices if supply is fixed. In fact, there’s plenty o’ land in Canada. More buyers will mean more housing starts.

  2. The thing he’s missing is that many of us 25-34 year olds see how ruinously expensive buying a home is when the prices are skewed so far away from the fundamentals we know better than that. This is especially true of the current 20-25 range. College and university has left us in financial tatters. Qe are hyperaware of how much housing costs- rental or purchased. Combine that with the fact that most of us in that age range accept that we will have to move and change jobs several times in our lifetimes, none of the boomer single-job-for-life BS, I don’t expect the Gen-Ys or whatever we’re called will be nearly has house horny as past generations.

  3. “The housing correction in the 1990s came with a softening in demographically-based housing demand”

    Um, so like people need to live somewhere. How does a shift in demographics change the number of bedrooms needed? Help one out here.

  4. There is also an increase in the Elderly downsizing and returning to dust. And what about the provincial out-migration? Are there enough people ages 25-34 to mitigate this?

  5. “Real demand for housing supports fundamental-derived prices, not speculative-derived prices”.

    real demand for housing comes from more demand (population) and actual financial ability, not from generalized financial calculations (statistics).

  6. There is a slight dip in population in the 35-39 age group but the numbers in the 25-34 age group are not much higher and quite a bit lower than the peak of the boomers. There is a big decrease in population for ages under 20. As boomers retire without savings there won’t be enough people to buy all the houses that will be on the market.

    http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/demo10a-eng.htm

  7. Disappointed to this “marketing” form of research, If it is a “real” research and cliam that the youth group will support the market, how come the group’s financial status is ignored. For example, what is the employment rate of this group now ( not good at all )? what is status of their “education loan” ( I can’t face mine)? Most importantly, what is their saving level? I can’t understand how the “Pro” releases such incomplete (shit) work – The writer must think that the readers will just take any written word on face value!!

  8. i keep reading about the mitigation of the housing bubble, and this article is no exception. Prediction is a mugs game, for both bull and bear alike. Vote with your feet, whether walking or running.

  9. Stats are very easily used in so called “research” manipulations when taken out of the overall picture. Take one supposedly growing part, omit the rest and you get to prove whatever you are paid for!
    On the other hand he might be really correct in saying that the trend stays the same – “Demographic forces will be not at all supportive to real estate markets in the coming decade as they were in the past decade”. The RE bubble was not inflated by the demographic in the past and will not be supported by it in the close future, especially with young people leaving in droves looking for the real BPOE.

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