Canadians shouldn’t expect to see any significant increase in house prices in the coming years, says a new report from the Bank of Nova Scotia.
Key factors that drive home prices — including income gains, interest rates and population growth — are becoming less positive for further price growth, said senior Scotiabank economist Adrienne Warren in the report released Monday.
The forecast comes on the heels of a TD report which said the Canadian housing market will embark on a “gradual, modest, downward adjustment over the next three years.” Economists with that bank said they expect price gains to average about two per cent a year for the next decade, matching the rate of inflation.
For the Scotiabank report, Warren says Canada’s growth prospects and income gains will be reduced over the next couple of years as people begin to pay off debt and governments go through a period of “fiscal restraint.”
“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,” the report says.
Higher immigration will only partially offset slow population growth caused by an aging populace and low fertility rates.
“Contrary to some dire predictions, population aging will not fuel a demographically-induced selloff in Canadian real estate,” Warren says. “However, an aging population does point to a lower level of housing turnover, sales and listings.”
That’s because seniors are more attached to their homes and are less likely to move, the report says.
In fact, homeownership doesn’t begin to decline until after the age of 75. An even then, the rate of Canadian homeowners 75 or older, at close to 70 per cent, is roughly the same as for those aged 35 to 44.
Additional notes from the report
- Home sales have dropped more than 10 per cent from spring 2012, and are now running below historical averages in most major cities. Prices in turn are leveling out, with the return of balanced market conditions.
- Another important demographic trend impacting housing preferences is the rapid growth in the number of one-person households. This share is expected to continue to rise over the next two decades, driven in large part by an aging population, in particular an increase in the number of widowed women living alone.
- Immigration also will have a profound impact on housing demand over the next two decades, being increasingly the dominant source of new household formation in Canada. The majority of new immigrants will first live in rental units, but most will eventually become homeowners.
- Relative to their Canadian-born counterparts, immigrant households are more likely to reside in large and mid-sized urban centres, which could fuel relatively stronger housing demand and prices in those areas.