In the face of renewed economic turmoil around the world, Canada’s housing market continues to perform well. To what should we attribute this sustained strength? Low interest rates? Growth in full-time employment? Foreign investment? Yes to all, but how about demographics? Canada’s population is now aged ‘just right’ to be homebuyers.
Even if interest rates had been higher and regulations stiffer, the population factor would still have supported a strong housing market over the past couple of years. And, even with the turmoil emanating from China and elsewhere in the world, it is increasingly easy to understand why the housing market has been performing well in many cities across Canada and why there is room for continued growth in those markets.
Oh, we know: Canadians are old and getting older and that’s the story of our population. Actually though, that is only one story. The other is that there is a large cohort of ‘Millennials’, born since the 1980s, who are now prime aged to get into the housing market. Typical first-time buyers tend to be in their late 20s and early 30s, which is where those Millennials are now sitting. Since some studies have suggested that the typical first-time buyer is 29 years old, let’s look at that segment. For about a decade, as the Millennials started to hit that age, their numbers have been steadily increasing. After falling in number in the early 1990s, in 2004 there were 428,000 29 year olds in Canada. In contrast, that figure grew to 495,000 by 2014 – an increase of 16 per cent. Helped by mortgage rates that slid over that period, of course the number of homebuyers swelled and prices increased accordingly in many markets.
Vancouver and Toronto – the sites of bidding wars in many neighborhoods – are good illustrations of this demographic story. To get an idea of the young buyer segments in those cities, we looked at a slightly wider slice of the population, examining the trend in those aged 25 to 29 and 30 to 34.
In the case of Toronto, the number of 25 to 29 year olds never dipped (presumably because the city attracted so many young people from elsewhere in the province and country) but the 30 to 34 year old segment was in decline until 2010. Since then though, it has been up sharply, creating a market of would-be homeowners. Interestingly, in Vancouver the situation was almost the reverse, with the number of 25 to 29 year olds falling between 2010 and 2013, before ticking up slightly in 2014. The number of 30 to 34 year olds however has been sharply on the rise since 2008 –pretty much the exact same time period over which mortgage rates have been on a downtrend.
The potential impact of Millennials does much to dispute any suggestion that Canada has a housing bubble that will burst anytime soon. What we have clearly seen in recent years is demographically-driven demand which boosted home sales and prices. Looking to the future, population projections suggest that the first-time buyer age segment will continue to grow for at least another decade. That means housing demand will grow too – not because of speculators, but simply because more people will be prime aged to buy homes.