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House prices forecast to double by 2026

Wednesday, April 18, 2007
TheStar.com - Business - House prices forecast to double by 2026
House prices forecast to double by 2026

 

Apr 18, 2007 10:46 AM
Canadian Press

Home prices in Canada will likely double in the next 20 years despite predictions that population pressures will limit their growth, says CIBC World Markets.

A projected decline of 167,000 in the number of first-time buyers between 2007 and 2026 is "marginal, at best," CIBC economist Benjamin Tal said.

"Despite downward pressure from demographic forces, on average, we expect house prices in Canada to double in the next 20 years," said Tal.

"Fears of a decline resulting from the downsizing and increased liquidations of houses by seniors and the falling number of first-time buyers are highly exaggerated."

In a report released Wednesday, the bank compared population growth between two cycles of housing prices, from 1987 to 2006 and from 2007 to 2026, with medium-growth, medium-immigration projections from Statistics Canada as a benchmark.

A decline of 2.5 million buyers is projected for the 45 to 54 age group, as baby boomers move to the next age bracket, but that will not severely affect prices, Tal said, as the group accounts for only 12 per cent of total housing demand.

"We estimate that in the coming 20 years, the Canadian housing market will face extra supply of roughly 250,000 houses," Tal said.

"While at first glance this appears to be a large number, it means an average extra supply of only 12,500 homes a year during that period."

The housing market is expected to fluctuate in the next 20 years, but the bank predicts average real house prices will mirror the performance of the past two decades.

"Assuming a two per cent annual inflation rate, this means that house prices in Canada are expected to double by 2026," said Tal. "This increase, of course, will not be symmetrical – with large cities seeing even larger increases in home valuations."

Higher home prices generally mean higher financial gains by banks and other lenders who provide financing to homeowners.