Immigrants, young buyers to buoy home sales, CIBC says

English: Kings Grove, Longniddry This resident...
English: Kings Grove, Longniddry This residential area was built during the early 1970s. At that time, the post-war "Baby Boomers" had entered the housing market, creating a big demand for accommodation within easy commuting distance of Edinburgh. (Photo credit: Wikipedia)

CBC News Posted: Aug 23, 2012 12:55 PM ET
A large bubble of people in their prime home-buying years, coupled with an influx of immigrants, is poised to support Canada's housing market for the next decade, a major bank economist said Thursday.

Benjamin Tal of CIBC put out a report on Thursday in which he argued that Canada's population demographics are working in favour of the country's housing market.

Canada is facing a well-documented demographic pinch over the coming years, as Baby Boomers retire and seek to cash out their homes to finance their retirement. Experts have gotten increasingly concerned on the impact this boomer bulge will have on the job market and the housing market.

But beneath the numbers, Tal sees some reasons for optimism. Although the 55- to 74-year-old age group will see the largest population increase in the next decade, the second-largest will come in the 25-44 group. That's the prime home-buying demographic, with recent research suggesting 18 per cent of that group buys a home in any given year.

"In other words, the group that is most likely to buy a house will grow faster in the coming decade," Tal said.

Canada is forecast to see a decrease in the 45-54 demographic, but historically, that group represents a very small percentage of home buyers as people are typically late career with established families, making them less likely to move.

Down the line, there's a concerning 170,000 decrease expected in the number of Canadians under 25. But the "low propensity to buy among this age group will limit the damage" at least until 2022 and beyond, Tal said.

 REAL ESTATEMapping average home prices across Canada
Secondly, immigration will act as a key supporter for real estate demand. Most of the growth in population is now due to immigration, Tal writes, and that bodes well for the housing market over the next decade.

While immigrants often face many hurdles integrating into society while finding a home and employment upon first arriving in Canada, the numbers show a significant uptick in home ownership after three years.

Indeed, "after ten years in Canada the propensity among immigrants to own a house is higher than among native-born Canadians," Tal writes.

In the short term, Tal agrees with the consensus of economists who expect some sort of modest contraction in the housing market, after years of outsized gains fueled largely by low borrowing rates. But longer term, the particulars of Canada's population should help keep the real estate market sustainable.

"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.

"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."

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