Tag Archives: homeownership
Julia Johnson – Financial Post
With record home ownership levels in Canada and a cooling housing market, home prices in Canada can be expected to fall 10% over the next two to three years, a Bank of Nova Scotia report suggests.
Comment: For those reading this in Toronto, those are national prices.
“After this period of very strong home sales, where you’ve essentially got home ownership across most demographics at record levels, even for young buyers, combined with tighter mortgage rules and the like, there’s just not going to be the same amount of demand out there,” Scotiabank economist Adrienne Warren said Wednesday.
Canada’s home ownership level has hit a record 70%, which the economist said is likely a peak, due to an aging population, as well as younger entrants to the market.
“If we compare to other countries that are similar-type demographics and mortgage markets to Canada, like the U.S., the U.K. or Australia, they all essentially peaked at around 70% level. There’s a limit because there’s always going to be a certain amount of renters for economic reasons or personal choice,” Ms. Warren said.
In 1961, homeownership was at 60%, Ms. Warren said, climbing after the turn of the millenium to almost 68%.
Scotiabank’s report joins a growing chorus of warnings about Canada’s housing market, with some economists predicting even larger drops as record high prices and tighter regulations make it harder for buyers to enter the market.
Comment: The new mortgage rules affect about 5% of buyers, very few really. That is simply not going to make a huge dent. Prices are high yes, and Vancouver is dropping. I think Vancouver’s prices have a 2-1 effect on the national prices – if Van drops 2%, then national averages go down 1%.
The biggest corrections will be in Vancouver, where affordability is a problem, and Toronto, where there is an over-supply of condos, the report suggested.
Comment: Nope, there will not be a correction in Toronto. No, there is not an over-supply of condos. Considering developers need to sell up to 80% of units before they build, the vast majority are bought – with 20-25% down and firm mortgage commitments from the banks. Thus, those being built are being bought, meaning there is just enough supply for the demand. We have up to 50,000 new households being created in the GTA every year – and only 28,000 new condos. Where do the other 22,000 families go? Trust me, demand is still there for the supply.
Ms. Warren said some Western markets, such as Calgary and Saskatoon, may outperform as resource development drives immigration for local jobs. Alberta and Saskatchewan are the only two provinces with net population increases of newcomers from other provinces.
Comment: Calgary has already peaked and collapsed once, it is likely to do so again.
Financial author and investment advisor Garth Turner said there is a new “middle ground” starting to emerge that there’s going to be a bumpy landing.
Two demographics stand to lose out the most: Babyboomers, whose net worth is tied up in real estate, and young professionals in the condo market, Mr. Turner said.
He said Boomers looking to sell houses to downsize will face a stagnant market after already seeing their property values fall at least 10-15%.
Comment: This coming from the guy who buys and sells a property or two every year. This is the guy who makes profit off of the rising real estate prices. He has a vested interest in continued price growth. And yet, as always, there is no basis for his claims of doom. He has been saying the same thing for a decade now – and been wrong the entire time. Wow, I am glad I did not listen to him and did not buy a house. One that has gone up 30% in the past 3-1/2 years. That would have been good advice!
“The boomers overall have the bulk of their net-worth in residential real estate. It is the most real estate-centric generation in history,” Mr. Turner said.
Comment: By accident, not always by design. My father bought his house in 1983 for $180,000 – a lot of money then. But it is worth 5x as much now. He did not plan this, it is a happy accident. His retirement is funded by work and investments. He simply lives in his house. As with many others of his generation, I am sure. It is my generation that is buying houses as investments. I think it is a bad idea, but for different reasons. If all you do is stress about house values, you will never enjoy it. Buy a house to live in it, raise a family in it, enjoy it. It it rises in value, bully for you, bonus.
At the other end of the demographic spectrum, Mr. Turner said young couples that bought condos on very light downpayments will get stung by the decline.
Comment: If, and only if, there is a decline. Which is unlikely. Condos may stangate and price growth may flatten, but it will take time. And it will not last forever. Real estate prices have risen for 43 out of the past 47 years, regardless of what Mr. Turner says. And the last year that had a price decline was 1996 – the culmination of the chaotic true bubble of the late 1980s.
“The young buyers who have no equity will have real estate values go down, even 10 or 15%. They’re under water. How many of those kids thought they were going to buy condos that were worth less in three years?” he said.
Comment: Again, that is a big IF. And if they wait another 3 years, maybe they see prices rise 20% and they end up 10% ahead of when they bought. We can “if” and “but” all we want…
The president of one of Canada’s largest real estate companies says there will be softening in the market, but not to the extent of Scotiabank’s predictions.
“I’d say in the medium-term in 2012-13, it’s highly unlikely we’d see a double-digit decline in national average house prices,” said Phil Soper, president and chief executive of Royal Lepage.
Comment: Who knows more about real estate than most people put together. I trust his opinion more than a banker or writer. This is what he has done for a living for longer than I have been alive!
The bumpy landing is unlikely, he said, because low interest rates will continue, there is a “real economic recovery” on the horizon, and he does not the buy pent-up demand analysis in the Scotiabank report.
“[Pent-up demand] was satisfied a long time ago in 2010 and really 2011. We’re serving first-time buyers, new Canadians and other sustainable buyer segments now,” he said, adding a 70% homeownership rate doesn’t command a sudden retreat. Rather, Mr. Soper said, fundamental changes in the market, such as the shift to build more condominiums and less rental properties, means ownership could still rise.
“It’s not necessarily a peak. There’s nothing magic about 70% other than it’s higher than it has been,” Mr. Soper said.
Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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