It's been nearly a month since the Provincial Government unveiled the Ontario Fair Housing Plan, and the supply of listings are up 54% while sales are down 18%. Everyone's wondering if this surge of listings is a reflection of Sellers trying to cash out of the market while they can. Did they wait too long?
From the real estate trenches, I can share that this year has been unique. Never before in my career have so many Sellers opened the conversation with "If we can get X dollars then we're willing to sell but if not, it doesn't make sense for us to cash out". This phenomenon reflects how the skyrocketing values of Toronto real estate these past few years has pushed values sufficiently high that Sellers - who had perhaps never considered changing their lifestyle at this moment in their lives - saw prices climbing to a level that invited 'cashing out'. Has this been unique to the Boomer generation? The answer is 'No'. I've had plenty of Sellers in their late 30s, 40s and early 50s reconsidering how they want to live their lives. By extracting themselves from the Toronto real estate with a bag of equity loot in tow, a lot of Sellers are making the decision to relocate to quieter places both in and out of Canada. It's all about pursuing a simpler life, whether that means running a cafe in Huntsville or a campground in Baha, Mexico.
Is this phenomenon here to stay? It certainly depends on whether prices continue to increase, stabilize or drop. Regardless, it does invite a closer look into one aspect of the housing market we should increasingly pay attention to - which is demographics. Basically it's simple economics - and if there's a sizable portion of Boomers sitting on large nest eggs that invite cashing out, will they? Or are they going to be obliged to help their offspring as the 'Bank Of Mom And Dad' by channeling their savings into helping their children, or grandkids, secure Toronto real estate which remains cost prohibitive for many? After all, the largest demographic groups (or, more critically, those with the most purchasing power) are the ones that land the most impact. As a realtor who considers all the factors influencing our market, demographics and population growth are helpful predictive tools to determine market dynamics.
The Next Generation Of Homebuyers
When it comes to the housing market, by and large, the demographic group that always supplies the most momentum is that of First Time Home Buyers, falling between the ages of 25-40. When this particular cohort is high, they effectively are the engine of the market. This is in part because of the numbers, but also because of the role that they play in the momentum of the property ladder, which pushes each cohort through the various rungs of ownership on the ladder. First timers get in, second and third time Buyers move up and then begin to move back down the ladder as Homeowners downsize as they age.
Recognizing the importance of this First Time Buyer demographic and their role in shaping the market, Mortgage Professionals Of Canada released an infographic and survey last year, which surveyed adults under the age of 40 who did not yet own a home, but planned to purchase in the future.
Some key findings of their survey:
· Of those intending to buy 39% married/living with a partner, 81% have no children
· Life events are major drivers in the decision to buy a home. Some of the most notable include: starting a family (33%), getting a promotion/raise (30%), getting married (29%) and receiving an inheritance (8%)
· The vast majority seek a detached home: 59% of next generation home buyers want to buy a detached home, followed by condominium (18%), townhome (13%) semi-detached (8%)
Knowing what motivates these potential Buyers and what their preferences are can help to try to anticipate where the market may head, in terms of meeting this demand.
Data-Driven Market Trends
You can actually use demographic population data, in theory, to predict Buyer, Seller and Balanced markets. Click here to read “Toronto Real Estate From A Population Growth Perspective”. In this Better Dwelling story, the Government of Ontario predicts that this important cohort (the First Time Homebuyer, typically aged from 25-40) will continue to grow through 2041. The trend line also shows that the segment most likely to exit the market (age 65-89) will continue to grow as well , at a slightly higher rate, suggesting that in the next couple of decades, we will, from a population trend standpoint, potentially see the market shift into Buyer territory.
To apply this to our current context , the large Baby Boomer cohort would be vacating their homes at the same rate that the also sizeable Millennial cohort are looking to become First Time homeowners, absorbing much of the stock at a similar rate as it is produced.
However, that’s not what is happening right now, further constraining the relationship between supply and demand.
Boomers Have What Millennials Want
Boomers are retiring, but they are not downsizing their housing as analysts expected, which leaves the first time buying Millennials anxiously waiting in the wings.
Putting pressure on timelines (and subsequently on prices for family-friendly homes) Millennials are beginning to have families, which means that they are more actively on the hunt for family-oriented housing. In fact, according to recent stats, between the years of 2000 and 2016, births increased by 66,000 a year. But from July 1, 2015, to June 30, 2016, there were 393,000 babies born in Canada, which is a high not seen since 1992-1993. Economists have coined this uptick in millennial baby growth a “baby-boomlet”.
The Canadian Home Builders Association recently did a report called “Performance And Trends: The Housing Supply Deficit - Not Enough Homes For Families With Young Children”
Analysts have contended that the abandonment of development of low-rise and single family homes in favour of dense development, like condos is due to urban planning constraints and eroding affordability. What may also be playing a role here is the “baby bust” of the past decade. Now that there is a “baby boomlet” ongoing, there is going to be even greater desire for family-friendly (i.e. low-rise) housing.
The CHBA did a housing preference study recently, which showed that 95 per cent of homebuyers prefer low-rise housing. And as any house hunter in Toronto can tell you, low-rise housing is in exceedingly short supply.
Altus Group did research that showed in 2016 there were 1,878 new low-rise homes available for purchase in the GTA; 742 were single-family detached homes. Compare that with a decade ago 17,529 low-rise units available for purchase, of which 11,602 were single-family detached homes. To crunch those numbers even further, within the last ten years, there has been a decrease of 89% for low-rise housing availability to purchase overall, and 94% drop in single-family detached housing.
This study also shows that, although many Boomers are retiring, they are not downsizing their homes as one might have expected in this new life stage. According to the CHBA report, there are approximately ten million single family homes in Canada, 56 per cent of which are occupied by Boomers (or older generations). Urban planners had been assuming that much of this stock would be sold in short succession as the Boomers aged, freeing up loads of available stock for the First Time Home buying Millennials,. Altus Group sees this being a problem across the country in general, but feels that this will be most impacting in urban areas where the dynamic of supply and demand is already feeling pressure.
Not only have these Boomers not sold in the same numbers that had been anticipated, there are indications that Boomers by and large intend to stay in place in their family homes for even longer, with widespread plans to “age in place”. In fact, a recent survey from the Conference Board and Nielsen that was done jointly in the U.S. and in Canada shows that the idea that Boomers would age and downsize to condos is flawed. Two thirds of Boomer respondents said that they wanted to age in place, remaining in communities and/or homes where they’d been for a decade or more.
Making Housing Type Available To Meet Localized Demand
A recent study by Ryerson confirms this desire for the Boomers to age in place and also underscores how housing type and housing development is not truly matched to population growth, especially when it comes to geography.
The authors of Ryerson’s “Protecting the Vibrancy of Residential Neighbourhoods” report set out to debunk the notion that there is a housing shortage in Toronto. It showed that while population has grown overall in the GTA, in many of Toronto’s neighbourhoods, population has actually declined or stagnated over the past three decades. Most of the population growth has centred on downtown and midtown neighbourhoods, where there is a huge scarcity in detached housing.
There has been a focus on development of higher density housing in the urban core, but zoning and planning restrictions have limited higher density development in the suburbs. The suburbs are where many Boomers live and wish that they had the option to downsize into condominiums or smaller housing in the neighbourhoods where they’ve raised their families and have deep roots. But given that the housing stock isn’t available, they remain in their detached homes.
Here is a story from the Toronto Star about the report, “Toronto Has Too Much Housing Despite Overall Population Growth: Report”.
What these studies suggest is that, while planners may have relied on demographic data and population growth to map out development in the city, there are a number of criteria that they didn’t anticipate - namely the overwhelming desire for detached housing and the reticence of Boomers to relinquish their homes.
It also underscores something that I’ve talked about in the past, which is the gap between supply and demand for low-rise and hi-rise housing, which adds fuel to the housing price fire in Toronto. Click here to read “High-Rise/Low-Rise: The Toronto Real Estate Price Gap”.
Another important factor? The children of Boomers aren't able to move out of the family home because of the high costs for real estate, for purchase or rent. A recent article in the New York Times, which examined the bedroom community of Oakville, Ontario, called Toronto's Housing Boom Refills Empty Nests, Driving Prices Even Higher addresses how many kids are remaining at home while they save up their own nest egg. Is this phenomenon occurring across the City? It's feasible. In fact, it's possible we may not see as many of the Boomers houses coming to market for sale as they age, instead seeing them inherited by the following generations for continued use as family homes.
What does all of this mean? That once again, the storyline in Toronto’s property market with numerous influences and sub-influences is complicated. It’s all about understanding its layers and the context of the market momentum as it relates to your own circumstance and what your position is on the property ladder. Whether you are buying or selling, this market requires a well-thought out strategy derived from data, comprehension and observation and knowledge gleaned from experience. We’re here to help!
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