The Canadian housing market is currently undergoing correction.
Sales and prices have fallen, but a collapse is not widely anticipated.
Today (August 17), RBC Economics identified two factors that will prevent doomsday.
These are immigration and the rising number of new households due to shrinking household sizes.
“Together, immigration and shrinking households are among the forces that will bolster Canadian housing demand and protect against a full blown housing crash,” RBC economists Robert Hogue and Carrie Freestone wrote.
The two economists noted that the current market correction has “yet to fully play out”.
However, “it’s unlikely to morph into the type of prolonged spiral observed in the U.S. during the 2008 financial crisis”.
“One of the main reasons: demographic demand for housing in Canada is strong—and it’s getting even stronger,” Hogue and Freestone explained.
The RBC economists anticipate that the number of Canadian households will rise by 730,000 by 2024 compared to 2021.
This means an addition of 240,000 new households annually.
“Immigration is key to this surge: Ottawa’s targets are set to bring in a record 1.3 million new permanent residents, adding 555,000 new households by 2024,” Hogue and Freestone wrote.
Another factor is the rise in the number of households because of shrinking household sizes.
Households have become smaller as more people are choosing to live alone and parents are having fewer children.
“Even a relatively small decline in average household size has a big impact on the number of new housing units required to shelter Canadians,” the RBC economists noted.
Hogue and Freestone stated that over the five years leading up to 2021, the average household size declined by 0.02 people.
“That was enough to raise the total number of households by 140,000 (or close to 30,000 a year),” they wrote.
The economists continued, “This trend will be responsible for just under 90,000 of the 730,000 new households created by 2024—and will provide a significant boost in housing demand.”
And so together, immigration and rising household numbers will “strengthen demand for housing (whether owned or rented) and act as a powerful counter to sliding sales and prices—eventually putting a floor under the correction”.More