There may be more homes on the market as needs of seniors change, but population projections suggest the effect will be limited.
House-hunting is more frustrating than it used to be. Four or five years ago, buyers had a buffet of options to choose from. In today’s market it’s more like being at a 5 à 7 where the platters are circulating yet someone else always seems to beat you to the last tasty canapé.
According to the Quebec Professional Association of Real Estate Brokers, over the last 50 months, the menu of homes for sale in Greater Montreal has diminished every month. Meanwhile, the number of sales keeps increasing.
In other words, we’ve got a lot more people at the party, and the kitchen isn’t sending out enough food.
Surely this can’t continue indefinitely. Either the chef will get her act together and ramp up production or the hungriest folks will leave, right?
Well, according to one recent economist’s analysis, it may take longer than you expect to balance supply and demand
According to CMHC economist Francis Cortellino, the Montreal real estate market has been overheating since the end of 2018, and it looks like we’ll be elbowing our way to those canapés for a while yet. With the current situation in Montreal, it would take about 5,000 additional properties on the market per year to cool the market below the threshold that marks an overheated market. Based on forecasted population trends, Cortellino estimates the supply of properties for sale is not likely to increase to those levels until about 2030.
For Cortellino, the real estate market is officially deemed to be overheating when the ratio of sales to new listings rises above 70 per cent. In Montreal, we crested past that threshold toward the end of 2018, and we’ve remained above it ever since. In some markets, such as the resale condo market, Cortellino has found the ratio has gone as high as 90 per cent this year.
“That means for every 100 condos listed on the Centris system, 90 were removed in that quarter because they sold,” he said.
One reason why there is a shortage of homes for sale on the market is demographics: people are living longer than they used to, and have many more active and healthy years than in generations past. Although their kids may have flown the nest, many of today’s baby boomers are preferring to remain in their mortgage-free homes. They don’t feel ready to downsize to a condo or move into a seniors’ residence.
While more homes should go up for sale as the housing needs of today’s seniors change, Cortellino said population projections from provincial statisticians indicate the effect on the market will be limited in the short term.
In Cortellino’s analysis, demographic changes are likely to affect the housing market in a few ways:
- Residential construction will likely slow down, as there will be fewer young families and lower net migration.
- The aging housing stock is likely to result in a surge in spending on residential renovations.
- More rental apartments and senior-specific residences are likely to be constructed, and rental demand will continue to grow.
- The population of seniors living in the suburbs will grow.
- Young families are likely to rent longer as house prices rise and become less affordable.
Although some demographers have predicted that housing markets could crash when boomer retirements hit their peak if these seniors decide to sell their homes and downsize en masse, Cortellino said in Montreal, there is pent-up demand for single-family homes because there hasn’t been a lot of new construction of detached homes in recent years.
“What we see now is most baby boomers are still living in their homes,” he said. “Most single-family homes will come from the resale market and a lot of those units are owned by baby boomers.”
As Cortellino noted, these are only projections. If social trends change or economic factors influence people to make different choices, the future might not be quite as expected.
“It’s a bit like when you’re driving your car with the GPS and it tells you that given your current speed you’ll arrive in Quebec City in two hours,” he said. “Given the situation we’re in now, if it stays the same, we’ll have more demand than supply for the next 10 to 20 years.”