“Many people believe that equity and house prices will be dragged down by Baby Boomers as they reduce purchases and sell holdings during their retirement years. But this forecast’s predictive power could disappoint.”

“Many people believe that equity and house prices will be dragged down by Baby Boomers as they reduce purchases and sell holdings during their retirement years. But this forecast is based on just one of the many factors that impact equity and house prices, so its predictive power could disappoint. Indeed, the track record of previous demographic-based predictions suggests such an outcome is likely. A great deal of scholarly research has established the significance of the other factors.”
– from ‘Don’t blame Boomers if housing goes bust’, Larry MacDonald, Globe and Mail, 25 Jan 2013

Retiring boomers will likely weigh heavily on Vancouver RE.
Wannabe retirees are overdependent on their RE holdings for their retirement.
– vreaa

In a related vein:

“Canada’s financial regulator has “serious concern” about the viability of a rising number of private pension plans, a sign that plans are struggling to meet obligations at a time of low interest rates and weak investment returns.The Office of the Superintendent of Financial Institutions supervises roughly 1,400 private pension plans covering more than 637,000 employees in federally regulated businesses such as banking, airlines and telecom. When pension plans give rise to “serious concern,” generally because of their financial condition, OSFI places them on a watch list to be actively monitored.”
Regulator puts more private pension plans on watch list, Tara Perkins, The Globe and Mail, 7 Jan 2013.

21 responses to ““Many people believe that equity and house prices will be dragged down by Baby Boomers as they reduce purchases and sell holdings during their retirement years. But this forecast’s predictive power could disappoint.”

  1. I know this is a popular refrain but in the interest of some cursory analysis behind these figures, is this going to be true?

    So boomers decide to sell their properties and, I assume, either:
    1) downsize to a smaller place
    2) downsize to a retirement home
    3) move to a different city/community
    4) move to a wooden box
    5) stay put

    There are a fixed number of boomer-era houses, mostly lower-density dwellings, and these will be bought by those with appropriately-sized families (or speculators I guess but I’ll ignore those for now). There are still new SFHs being built in Vancouver CMA, most notably in the FV and outer burbs but also as infill in more established cities. As long as dwelling formation for new families, which includes both natural and immigration, exceeds the sale of these dwellings, there is not going to be much oversupply; rather the construction of new SFHs will fall and construction of retirement-suitable dwellings will increase.

    What I see as more likely is construction adjusting to accommodate demographic shifts, and that will mean less child-family-oriented units and more couple and retirement-focused ones. That doesn’t necessarily mean prices will fall for existing stock.

    I did a bit of work looking at population projections for the next 20 years into BC. While the baby boom is evident even then, immigration is going to fulfil a healthy need for housing for families with children above what even current stock can accommodate.

    • I’ll go with #5. Keep working and stay put regardless of what happens to prices.

    • jesse/yvr -> I humbly submit that you are here proposing a version of the ‘Limitless Demand Argument For Ongoing Market Strength’.
      Yes, population is increasing; yes, there will always be demand for housing, and (arguably) there may never be ‘oversupply’. But none of that translates into an argument that prices won’t fall.
      Prices have gotten so far above those that would be determined by supply/demand forces under normal market circumstances, that they’ll have to fall a long way before conventional supply/demand dynamics apply.
      Take away the financial instrument component of the Vancouver housing price, and what do you get? Hard to quantify precisely, but it’s prices far below current levels.

      • The Poster Formerly Known As Anonymous

        Ah you can’t fight the genie. It’s out. This is a brave new world we are entering. The flow of humanity to the sparsely populated areas will continue until equilibrium is reached.
        I believe these gentlemen had something to say about that.

        Might as well break out the 30 year fixed rate m’s and sign us all up as Joe Howmuchamonths. Or move to Merritt. It will all work out and the world will turn beige… unless… resources [oil] get scarce. Then, look out!

        Short term, I believe in a large housing correction. Long term, along Jesse’s proposed timelines, I believe in density.

      • “Limitless Demand Argument For Ongoing Market Strength”

        I’m not arguing for “market strength”, I’m arguing there is not going to be a structural oversupply of family dwellings. Another discussion should ensue surrounding the proper price for these SFHs, but I think there will be enough families to fill them. That’s different from, say, a situation where a bunch of improper houses are on the market that nobody really wants (think McMansions in OC), and that can cause prices to slip under fundamental value. I don’t think that specific condition will play out in Vancouver, ceteris paribus.

      • Okay.
        But you did say: “That doesn’t necessarily mean prices will fall for existing stock.”

      • jesse -> You’re basically saying that there’s going to be more than enough people around who desire the existing housing stock. I agree. That doesn’t say anything at all about price levels, however.

      • It does say, to me, that significant undervaluation due to oversupply is less likely.

      • All we really need to know is that the numbers of the group following the Boomers are insufficient to take up the slack and maintain the current balance of supply and demand. Boomers will be adding to supply in disproportionate numbers while the group of potential buyers is already known to be smaller than their Boomer cohorts. This does not even need to put an assumed “significant pressure” on the market to cause prices to fall. It only needs to cause a marginal drop in demand under normal circumstances to disturb the supply/demand function and all prices will be pushed down. Ealsticity of demand in this case is worth looking at more closely. Prices will moderate or drop continuously for years into the future until that new balance is achieved.

      • jesse ->
        Coming price drops are not dependent on oversupply, as I suspect you realize. (Is that a correct assumption?).
        Bubbles can cause oversupply, and in those cases, oversupply adds to downside pressure in the collapse, but price collapse after a speculative mania is no more dependent on oversupply than it is on rising interest rates. Price collapse comes as buying based on the premise of rising prices disappears.

      • Yes, the point I was making is analyzing whether or not demographics will cause prices to fall. It may affect liquidity of some dwelling types but I don’t think it will be as large an effect as price-income and price-rent.

        I’m bearish because of price-rent, not demographics. Oversupply will cause prices to fall but there are many more issues at play. Las Vegas is a good example of massive oversupply depressing prices well below trends of other cities.

      • Agreed.
        I don’t think massive oversupply will be a big issue in Vancouver.
        Prices will fall because prices are way too high, not because of oversupply or lack of demand. People will still want to own property here, but, once prices start tumbling/grinding down, they won’t want to overreach++ to do so.

    • Re 4) The majority of boomers already live in wooden boxes.

  2. Turn the leaky (but fixable) 1-2 bedroom half empty downtown condo towers into retirement homes and/or low income housing. Have the gov. buy these towers and fix them up for half the cost.
    It has to be cheaper than the $1000 per sq.ft. cost of renovating “heritage” buildings in the DTES or prime RE in SE False Creek, among other places.

    Or build them in the burbs??

  3. The Poster Formerly Known As Anonymous

    The family that was featured here a while back with the smart kid… Even I was believing there was no speculatory element to their purchase. Just ingrained resistance to renting. But, when the kid brought up not buying and keeping the money in the bank for a while, they came out with “you don’t know, anything, you’re justastupidlittleboy! You cant make money off your money in the bank, you have to sign it over for five years and you can’t touch it or you will lose all the interest.”

    So, they viewed purchasing a house as a more secure and liquid way to earn money on your money, than a GIC.
    That’s how much they believed that house prices will rise. It’s the most sure and concrete way to make money on your money.

    Is that speculation? I don’t know. But it gives me the feeling that several peoples’ worlds will be turned from flat to round if prices swoon so much that everyone has to notice. Honestly, I think it will be an epic mental earthquake for many; they seem as certain that “house values always go up” as they are that rain falls downward.

  4. Real Estate Tsunami

    Again, research based on what?
    And again, no position taken!
    Stand up and be counted, stick your neck out!

    • I loved this one liner from Larry…..

      “A great deal of scholarly research has established the significance of the other factors.”

      I wonder if he could elaborate on that scholarly research in detail instead of just saying the words to make a convincing case without adding any references or backup.

      • … Yes they have very well made up “Scholarly ” research…
        none of which they can or will produce because they do not exist…
        and they really don’t know what an actual piece of scholarly research is.
        It has “Facts” and “Documents” which provides “Proof” to “Prove” the position. Statements without proof are just unproven facts. Chatter.

        I love watching “Ponzi” schemes unfold.
        Position… happily sold.

        Silver

  5. FACTS…
    70% ownership level in Canada.
    70% of Canadians do not have pensions.
    Not exactly rocket science to figure how this one will end.

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