- Takota Asset Management Inc - http://www.takota.ca -

What Demographics Say About the Future of Canadian Residential Real Estate Prices!

According to Statistics Canada in 2013 there were 3,634,815 Canadians who were 70 years of age or older. By 2017 this number had grown to 4,198,454 an increase of 563,639. This number will continue to grow as the baby boomer bulge ages.

What are the implications of this for the asset class known as residential housing?

For most (but not all) Canadians, their family home is their primary asset. In order to fund the cost of housing or accommodation in retirement, most Canadians whether they are just downsizing, living independently in some sort of retirement community, or whether they will require some sort of assisted living care or memory care will sell their home to fund these requirements.

Therefore, one could expect an accelerating “surge” of home sales over the next decade. Who will buy these homes?

Foreigners? Maybe, but what if their own economies face a slow down? What about the competition from other developed countries with a similar demographic profile? What if capital controls continue to be strengthened in more restrictive states?

Would our children buy these houses? Maybe – but #1 how would they afford them at current prices and #2 would there be enough of them to balance the bulge in homes for sale?

What is says to me as a believer in the mean reverting nature of assets is that the upcoming mean reversion of this asset will be particularly nasty.

There is good news however. The good news is that the retirement home industry should boom!