Last week, RBC Economics published a very interesting article that I want to share with you.
Toronto, and essentially all major cities in Canada, are currently undergoing a housing correction.
It makes people wonder whether we would see a prolonged downturn like what the United States saw during the 2008 financial crisis.
RBC thinks that it would be very unlikely because there are two strong forces driving demand in Canada’s housing market and they are getting even stronger.
The first force is well expected, but the second force is totally unexpected, I didn’t think it would be so significant.
No surprise, the main force driving our strong housing demand will continue to be immigration.
Our government’s target is to bring in a record 1.3 million new permanent residents by 2024.
That’s going to add around 555,000 new households to our country.
Immigration is one thing.
But another thing is we have been going through demographic changes for decades already.
Now it has become a long term trend and has a big impact on housing demand.
Young Canadians are staying in school longer and starting their careers later.
They also face greater housing affordability challenges than prior generations.
These all mean they are getting married later.
And they typically have fewer kids, or no kids at all.
In 1851, the average Canadian household had more than 6 people.
And now, it dropped to only 2.4 people.
Let’s suppose we have to provide shelter for 100 people, how many housing units do we have to build?
Back then, we only had to build around 17 houses, with roughly 6 people in each household.
But now, we need to build roughly 42 houses because there are only 2.4 people in each household on average.
You see, we need to build 2.5 times more housing units just because of shrinking household size.
And do you know what household size is the most popular nowadays?
One, two, three or four-person households?
I bet you picked two.
The correct answer is actually a one-person household.
Nearly 30% of Canadians are now living alone.
On one hand, the young generation is starting families later, and with smaller families.
On the other hand, elderly people are living longer than prior generations, which means they stay in their homes for longer.
The number of widowed seniors living alone has also been increasing.
This shrinking household trend alone will be responsible for creating the demand for 90,000 housing units by 2024.
With immigration, Canada’s population is growing much faster than other countries.
It’s actually more than double the pace of the average of 38 countries in the Organization for Economic Co-operation and Development.
With immigration and everything together, 730,000 households would be created by 2024.
So RBC thinks that immigration combined with shrinking household size, will strengthen demand for housing in both the sales and rental markets.
And they will act as a powerful counter force to sliding sales and prices, eventually putting a floor under the correction.
This is in line with my prediction that the housing market downturn won’t last for very long because of the demand we have been seeing in the rental market.
In fact, we have seen an obvious increase in activities in our resale department over the past 2 weeks.
Whether it’s an early sign that more and more people are taking advantage of a quieter market, or it’s just a coincidence, we have to observe for a few more weeks.
I will definitely keep you posted on what we see on the front end.
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