First-time buyers will lead eventual housing recovery: Brookfield CEO

Wednesday, February 25, 2009

Lower home prices and shifting demographics mean first-time buyers could lead a rebound in Canada's real estate market, experts said Wednesday at a real estate conference in Toronto.

Phil Soper, president and CEO of Brookfield Real Estate Services, said rookies are the largest category of buyers in the real estate market, accounting for close to 70 per cent of all transactions at the height of the housing boom.

However, they've been scared away in droves by the economic downturn, which was led in part by record foreclosure rates in the United States as homeowners defaulted on their mortgage debt.

Such a lack of first-time buyers can grind the real estate market to a halt, Soper told Scotiabank's annual real estate outlook conference.

"When new buyers stop entering the market, it's like sand in the gears," he said.

Homes hit a wall

Although Canada has managed to duck the severity of the housing crisis that has hit the U.S., the 10-year boom that saw housing prices soar, particularly in the western provinces, ended abruptly last year.

Canadian housing starts — the number of new residential construction projects — were down to 211,056 in 2008, about eight per cent lower than an average of almost 230,000 in the period from 2004 to 2007. Resale activity fell by 17 per cent in 2008 while home prices dipped by one per cent, according to Scotiabank.

Things seem to have worsened dramatically in January, with housing starts falling to an eight-year low of 153,500 annualized units and home prices down 11 per cent year-over-year.

The bank predicted the decline will continue through 2009, with housing starts forecast to fall to around 155,000 units, another 15 to 20 per cent decline in the number of resales and a 10 per cent drop in prices.

Buyers' market

But Adrienne Warren, a senior economist and real estate specialist at Scotiabank, said all of this seemingly bad news is working to create a buyers' market. And although young buyers are likely keeping an eye on the job market before they rush into buying a home, conditions are improving, she said.

"Certainly, the softening we've seen in prices, the increase in listings, is giving first-time buyers more choice," Warren said.

"We have seen some deterioration in affordability in recent years as home prices continued to rise, and I think that began to pinch a lot of first-time buyers. Hopefully, when we see some relief on prices, more choice, less bidding wars, we'll see more interest coming back."

And even though most first-time home buyers — generally in their late 20s or early 30s — tend to have much more debt than their parents did, Soper said they're also much more "real-estate savvy" than the generations that came before them.

"If you think of the traditionalists, the older people who went through very different economic times, they're very, very conservative about mortgages and debt as it relates to housing," Soper said.

"Today's first-time buyer views this as just a natural way to get into the market."

He added that young prospective buyers also tend to be much more confident about their future, less financially dependent on one job and one company and less concerned about the recession than their parents.

This confidence has combined with lower housing prices, better government incentives and less risk to make the real estate market more appealing to first-time buyers, Soper said.

Warren added that the demographic of first-time home buyers is growing as the children of baby boomers reach the age where they begin to consider entering the housing market.

"The baby 'echo' boomers that are now just graduating university, going out on their own ... will be an increasingly important demographic behind the pickup in some sales," Warren said.

She added that new immigrants will also be an important driver of home sales in the coming years as Canada's population growth becomes increasingly reliant on those born elsewhere.

However, Warren predicted that the housing market won't see a substantial rebound until 2013 or 2014