Canadian Demographics and Housing

In the past I have covered some topics on housing in more depth to show a more complex and less dire reality than what some others are portraying.

One example is where I showed Garth Turner's model of a typical Canadian home buyer as exaggerated.

Another where I point out some inaccuracy regarding the systematic risk of the CMHC. (here and here)

In this post I will look at demographics and housing with this chart from the Alberta Bubble Blog as a starting point.


The conclusion is pretty clear. An aging population will lead to lower economic activity and lower demand for housing. There are a couple of details to indicate a less severe impact than implied in this graphic.

First, look at how top heavy the age distribution of the chart. It's because lower birth rates as compared to the baby boom.

But there is more to the story. At the peak in 1960 there were 479,000 births while this chart shows 540,000 people at the peak age range of 45 (in 2006). Immigration has had a role to play here otherwise this age group would have decreased. Consider the components of population growth in this chart from Statistics Canada.


Since immigration has made up a portion of population growth the pyramid will be skewed upwards. The portion of immigrants among the newborns only includes those who come to Canada within that year. In contrast those age 30 include immigrants who have come to Canada over the last 30 years at different ages.

The lower numbers represented among 0-15 age group compared to 16-30 years has more do do with immigration than declining birth rates. That is why I disagree with observation "D" in the chart "2011 to 2026 will witness a sharp decrease in the 20 - 35 year old cohort". Statistics Canada recently projected this age range will increase from 7.16 million in 2011 to 7.27 million in 2026. This was using their medium growth assumptions which I found to be totally reasonable.


I also disagree that demographics will necessarily result in an absolute drop in aggregate demand (housing or otherwise). It is true boomers represent the largest demographic and they are currently in their years of peak demand. This may be offset by a population that is still growing due to longer life expectancies, slightly higher birth rates and immigration.


One graphic used on the chart is the shift in housing demand over the next 15 years. It shows boomers will go from living alone in a 1800 sq ft single family home to assisted living space of 500 sq ft 15 years later. This definitely does not represent the group as a whole. For an alternative example consider 50 year old boomer parents with children in their late teens. They may have a house which is too big for them in 20-30 years when they require assisted living but their children will have formed households of their own long before then.

What else is not mentioned, but included in statistics Canada's current projections is an increase in the birth rate. Over the past year there were 381,000 births in Canada, compared to 338,000 in 2006. Surprisingly, this is only 20% fewer in absolute terms as the peak of the baby boom.

Finally, being this is an Albertan blog and all, I have to point out that it's different here. Note the higher proportion of younger people and mini baby-boom.

February Real Estate Meta-Analysis

In the press release for February the Realtors association of Edmonton commented on sales falling 32% from last year and the increase in inventory:

“We predicted that sales would be on par with the last ‘normal’ year that we had in 2005. So far the market is behaving as we anticipated.” The number of available residential properties listed on the MLS® at the end of February was up 12.7% from the previous month at 8,284 properties. In February 2007 the inventory had just 2,120 properties.

Compare this to their forecast released less than 2 month ago:

The current inventory of residential properties is now 7,094 homes. The inventory will decrease through the year but the wide choice of properties will have a dampening effect on prices offsetting increased demand from in-migration and economic growth. Condominiums are expected to become a stronger option (especially for first time buyers) because of the lower price point.

The total number of residential sales in 2008 will probably drop slightly from 2007 levels. Perras expects that 19,100 residential properties will sell through the MLS® in 2008. There were 20,544 sales in 2007.

_____________________________________________________________

From Edmonton Weekly Stats on Working Together

The “sales to listing ratio” remains healthy, which is what really matters for the Edmonton real estate market.

Sales to listing for the week was 239/601=39.8% which is on the line balanced and buyers market. For every 4 people that bought 10 people listed - It is a stretch to label that healthy.

No real shock to anyone, the number of new listings in Edmonton is much higher than it was for the same week last year, and the number of property sales is much lower. But last year wasn’t a typical real estate market, and we all have to stop measuring against it.

Last year the high level of sales was seen as soley being attributed to Alberta's boom. Some did predict that price increases would moderate, but did not questions the legitimacy of the demand during this time. Comparing current demand to last year illustrates that some of this demand may not have been justified.

Based on the last 3 months worth of sales, we have 6.62 months of Edmonton housing inventory for sale. That puts us into a very balanced market, as 6 months of inventory is considered to be a perfectly balanced market, and anything over 8 months is a buyers’ market. We aren’t even over 7 months yet, so I don’t think you have to panic.

On the same page there is a graphic:

more than six months is considered a buyer's market.
Less than six months is considered a seller's market

Andrew Kyle, a Calgary Realtor defines a buyer's market over 3.5 months of inventory. The CREB had defined it a similar way until adjusting charts.

_________________________________________________________________

Consider the title of the Calgary Real Estate Board Statistics:

MLS® RESALE MARKET PICKS UP MOMENTUM IN FEBRUARY 2008

Single family Calgary metro properties changing hands in February 2008 were 1,252, an increase of 15.6 per cent over the 1,083 sales reported in January 2008 but showing a decrease of 35.5 from the same period last year, when the sales were 1,942.