I just read an interesting article by Pacific Partners on Canadian Demographics and Real Estate. The chart below on the Canadian Population distribution is an interesting indicator of the shift that is going on.
This is going to have a huge affect on the world as we know it today. Many of the constants we have come to believe like real estate always goes up are no longer fact and consumer spending is going to take a significant shift as the baby boomers age and move into retirement.
“It is reasonable to assume that future Canadian consumer behaviour will be markedly different than what was witnessed over the last half century.”
How it will be different is yet to be determined but imagine that this huge segment of the population stops going to work everyday and starts doing something else with their time. They experience a decrease in the money coming in and start spending their savings on items more relevant to getting older and living the retired lifestyle.
For me the most interesting piece to this is that this large segment of the population that all own real estate and have counted on it as their “retirement nest egg” will all decide around the same time to sell and take out the equity.
The question I have is this; where will the buyers come from to help all of these people “cash out”? As the chart below indicates, there is a huge population gap in the 21 to 45 age group that I would assume are the potential buyers of these assets. This younger workforce that have low savings, have consumed through debt, currently owe roughly $1.63 for every $1 dollar they earn don’t seem capable of buying these assets at current day prices. They simply can’t afford it. As the market floods with baby boom homes, I think we will see significant price drops as supply will outmatch demand by a large gap.
- How house prices depend on demographics (business.financialpost.com)
- Canada’s housing market: a victim of demographics (theglobeandmail.com)