Tuesday, May 31, 2011

Population Aging and Housing Demand

Recently the Stephen Gordon wrote about how immigration cannot fix the aging problem on the Worthwhile Canadian Initiative Blog. The main point was the number of immigrants required is too overwhelming to overcome the enormous gap as shown in the chart below.

Ben at Financial Insights also commented on this analysis as it related to housing:
The current immigration rate is wholly inadequate in eliminating the coming demographic imbalance. While it certainly helps, it will be insufficient in entirely eliminating the headwind on house prices set to be exerted by the aging population.
The post at Worthwhile Canadian Initiative derived the amount of immigration required to avoid population aging. This is far more than the what would be required to maintain a constant level of housing demand. This is an important distinction and is best represented in the chart below from Statistics Canada population projections (Medium growth).

In this projection the pyramid is skewed up, as the baby boomers age, but also increases for the younger age groups, albeit to a lesser degree. The future will certainly have more seniors but the decline in housing demand is fully offset under moderate immigration, fertility and life expectancy assumptions.

See previous post here.

Sunday, May 8, 2011

Business Credit Expanision and Economic Recovery in Canada

Since the recession ended the role of household credit in the recovery has been examined. One narrative that has formed is that this is largely artificial due to an unsustainable rate of household credit expansion.

However, not much attention has been given to role of business credit shown in the chart below.

Consider three different time periods in recent history.

(A) Pre-recession household and business credit were expanding at a rate of 11.8% and 8.6% respectively.

(B) In the aftermath of the financial crisis household credit growth slowed to a rate of 7.4% while business credit expansions stopped entirely with an yearly growth rate of -0.1%.

(C) Recently, household credit growth has eased to 6.5% while business credit recovered to 4.8%.

The financial crisis had a bigger impact on business credit than household credit and since then the gap between the two has narrowed considerably. This could explain some of the continued strength of the Canadian economy after two years of recovery.

Source: Bank of Canada
household credit
business credit

Saturday, May 7, 2011

Edmonton Stats April 2011

The REALTORS Association of Edmonton released their monthly stats here and overall they show weak sales and normal level of new listings.

The preliminary number for sales held steady with 1487 in April compared to an initial report of 1503 in March. Normally, sales are expected to increase this time of year. Preliminary sales are at scorched earth level, which is equivalent to the worst six months of the financial crisis.

Listings are rising at a normal pace for spring.

Seasonally adjusted rate of sales have been low for a year following a bounce after the financial crisis. I assumed the final number for sales will come in about 7% higher than the preliminary figure.

Seasonally adjusted listings have been stable since a spike last spring.

With lower sales and stable listings on a seasonally adjusted basis the sales to new listing ratio fell to 47%. A ratio lower than 50% indicates a market with downward price pressure.

Finally a historical chart of actual sales, listings and inventory.