Do you recall the period from the mid-80’s until about 2004 in Calgary when housing was seen as a steady, appreciating asset with price growth predictably tracking inflation?
TD has a new report out this morning which highlights that over the next decade Canadian housing as a whole will see “measly” 2.0% rate of return while the long-run outlook for price growth is projected to be 3.5%.
Below are some highlights of the report:
- With the slowdown in the Canadian housing market well entrenched, many are worried about the future value of their homes. This is not surprising as real estate is the largest financial asset most Canadians have in their possession.
- The housing market is prone to cyclical ups and downs and we should embark on a gradual, modest, downward adjustment over the next three years.
- We project a 3.5% annual rate of return on real estate to prevail beyond 2015 – this is the long-run rate of increase for home prices in Canada. However, this pace will be moderately lower than they have been historically (5.4%).
- A string of lacklustre performances over the next few years will mean that the annual rate of return for real estate in nominal terms will be roughly 2% over the next decade. In other words, home price gains should simply match the pace of inflation.
- The long-run rate of return for home prices is primarily driven by macroeconomic fundamentals, such as income and economic growth, and demographics (e.g., population and household formation).
- Structural changes, including an ageing populace and the number of immigrants as a share of total homebuyers, could influence real estate returns. However, the literature is mixed on whether these changes represent an upside or downside risk to our 3.5% status-quo projection
In the long haul, Calgary is predicted to be an “out-performer” in relation to the national housing market. Between 2009-2030, Alberta’s population growth is projected to be above the national average, but lag behind BC and Ontario.
To download the report, click here