CANADA: The Elderly To Drive Growth

A record number of Canadian households have taken advantage of improved affordability and now own their own homes, according to the latest Real Estate Trends, released today by Scotia Economics.

« Given the strength of new and existing home sales over the past three years and the steady rise in the rental vacancy rate, we estimate that Canada’s home ownership rate is now hovering just over 67%, up from 65.8% in 2001, » says Warren Jestin, Chief Economist, Scotia Economics. « This adds close to half a million more households to those who own their homes and builds upon the almost 750,000 new owner households that emerged over the 1996-2001 period. »

The report notes that part of the rise in home ownership reflects the aging of the population. In fact, homeownership rates have been increasing steadily over the past three decades as Canada‘s large « baby boom » generation made the transition from renters to owners. These « boomers », today in their 40s and 50s, are now in their prime homeowning years.

« However, this is only part of the story, as age-specific ownership rates increased in all major age groups between 1996 and 2001, a trend we expect has continued over the past several years, » says Jestin. « A number of factors, including rising disposable incomes, strong job growth and low mortgage rates, have allowed many Canadians to make the jump to homeownership. New mortgage products, mortgage insurance that reduced minimum down payments, and tax- deferred RRSP withdrawals for first-time buyers have also supported home purchases. »

Looking ahead, the economic factors that drive homeownership – overall affordability and the relative cost of owning versus renting – may be turning. Low mortgage rates will maintain affordability, but some erosion is already under way due to the rise in home prices. At the same time, rising apartment vacancy rates are improving the relative attractiveness of renting over buying.

The relatively faster pace of home price appreciation vis-à-vis rent increases is beginning to widen the cost differential between these two accommodation choices. The difference between the typical monthly mortgage payment on an average priced home and the average rent on a two-bedroom apartment was about $300 in 2004, still only half the $600 gap that existed in 1990 but up from a low of just over $100 in 1998. « The differential will likely edge up further this year, pricing some potential buyers out of the market, » adds Adrienne Warren, Senior Economist, Scotia Economics.

Regionally, while home ownership rates have risen in all provinces and in virtually every major urban centre in recent years, there remain large geographic differences in the level of home ownership. In Newfoundland and Labrador, the province with the largest share of homeowners, 78% of homes were owner-occupied in 2001. In contrast, only 58% of households in Quebec own their home, the lowest among the provinces. In between are New Brunswick (75%), P.E.I. (73%), Nova Scotia and Saskatchewan (71%), Alberta (70%), Ontario and Manitoba (68%), and B.C. (66%).

« In general, ownership rates are considerably higher in rural areas and smaller cities than in large metropolitan centres, most likely reflecting lower affordability, a relatively younger population and higher immigration in many major urban centers, » concludes Warren.

Real Estate Trends and other Scotia Economics publications are available on www.scotiabank.com and on Bloomberg at SCOE.

Scotia Economics, part of the Scotiabank Group, provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

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