Economists are warning Canadians not to count on any significant growth in house prices in the years ahead, with Bank of Nova Scotia’s Adrienne Warren saying in a report Monday that the key drivers of prices are looking increasingly weaker.
The new report comes one week after Toronto-Dominion Bank’s economics department said it expects price gains to average about 2 per cent a year for the next decade, hovering just around the rate of inflation.
In her report, Ms. Warren says that “the underlying fundamental factors that drive home prices – income gains, interest rates and population growth – are becoming less positive for further strong price growth over the medium and longer-term.”
During the next couple of years households are likely to work at paying off their debts while governments are in a period of fiscal restraint, and that’s likely to dampen the country’s growth prospects and income gains, the report says.
“Looking further ahead, the impact of the retirement of the large baby boom generation in slowing labour force growth will restrict the potential growth rate, or speed limit, of the Canadian economy relative to recent decades,” it adds. Population growth is expected to slow as higher immigration goes only part of the way towards offsetting aging and low fertility rates and, in the meantime, interest rates or borrowing costs will “inevitably drift higher,” impacting the affordability of homes, the report says.
However, “contrary to some dire predictions, population aging will not fuel a demographically-induced selloff in Canadian real estate,” Ms. Warren predicts. “Today’s seniors are healthier, wealthier and living longer than prior generations. They are increasingly likely to own their own home and to live in their homes for longer.”
Home ownership rates don’t begin to decline until after age 75, and “even then, the home ownership rate of Canadians 75+, at close to 70 per cent, is roughly the same as for those aged 35-44,” the report says.
But an older population is likely to act as a drag on sales and listings and mean fewer homes change hands, it says, because seniors are more attached to their homes and less likely to move.
The report also notes that there are now more one-person households than couples with children, and that single-person households are much more likely to rent than those with more people.
And the majority of new immigrants initially move into rental units before becoming homeowners, another fact that means the demand for rental housing in urban centres is likely to remain strong, the report says.