3 macro trends that impact Canadian housing prices

Housing prices in Canada have already decreased 10% from its peak in March to July based on MLS Housing Price Index. To put that into perspective, we saw housing prices decrease 9% over 12 months from peak to trough during the 2008 financial crisis.

But should we be worried as long-term real estate investors?

Here are three major trends that are in the favour of housing prices:

1. Housing shortage is still an issue

   As released by a recent CMHC housing affordability report, Canada needs an additional 3 million housing units to be built by 2030 to bring housing down to affordable levels. This is on top of 3 million housing units already expected to be built by 2030. While the exact numbers are hard to estimate, the report is meant to elaborate on the scope of the housing challenge.

   Another result of the housing shortage is that our rental markets are very strong. Canada’s purpose built vacancy rate was 3.1% in early 2022 with our large urban centers also seeing trends towards record low vacancy rates. In GTA, we saw the vacancy rate fall to 1.8% in Q1 2022 in this Urbanation report.

2. High annual immigration targets

   Canadian households are expected to rise to 730,000 by 2024, the majority of which would be from immigration. Canada is set to bring in 1.3 million new permanent residents by 2024 which would add 555,000 new households according to Robert Hogue, Assistant Chief Economist at RBC.

3. Shrinking household sizes

   Another major trend is that household sizes are shrinking. In the early 1940’s we saw that an average household had 4.3 people while in 2021 we saw it drop to 2.4. To illustrate the impact, a 0.02 decline in the average household size resulted in an increase of 140,000 households in Canada between 2016 to 2021. The decrease in household size is a result of aging population, younger people choosing to live alone, starting families later and Canadians having fewer children. The trend of shrinking household sizes is expected to increase Canadian households by 90,000 by 2024.