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CIBC: Canadian House Prices to Double in Twenty Years – Still True?

Back in 2007 CIBC stated what many thought was a safe prediction, Canadian house prices were likely to double in the next 20 years. The CIBC report compares population growth between two cycles of housing prices, from 1987 to 2006 and from 2007 to 2026, using Statistics Canada’s medium-growth, medium-immigration projection as a benchmark.

Between 2007 and 2026, the projected 167,000 net decline in the number of first time buyers (Canadians between the ages of 25 and 44) is marginal. Since this age group is by far the largest contributor to overall housing demand, accounting for almost 68 per cent of all home sales, this relatively modest downturn will not significantly impact housing demand.

However, with the credit crunch, how far back have the numbers gone?

Up to 2007, the largest decline (2.5 million) is projected for the 45 to 54 age group, as many baby boomers move to the next age bracket. The impact of this change is also expected to be limited, given that the 45 to 54 age group accounts for only 12 per cent of total housing demand. In fact, this moderate decline in housing demand will be partly offset by the strong increase in the age group 55 to 74 and its surprisingly high housing market activity – largely reflecting purchases of vacation and investment properties.

Concerns regarding the impact of demographic forces on the Canadian housing market were first raised in the late 1980s. However, during the twenty year period from 1987 to 2007, Canada experienced a three per cent annual increase in real home prices.

Although housing market activity in the coming 20 years will fluctuate, CIBC projects that the average real house price will mirror the performance of the past two decades. There is no word in the report whether
income levels are expected to increase on par with the expected increase in housing prices.

With the drop in housing prices recently, and in the very least the stagnation of prices, Canadian houses will likely double in 25 years from 2009. That’s our prediction at least weighing the downturn and the time for expected recovery. Your thoughts?

[tags]cibc housing prices, canadian hosing market, canada home market[/tags]

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