The ongoing softening in housing market activity is hardly a surprise and probably represents the early stage of the highly expected downward adjustment in volume and prices. How concerned should we be that the falling number of young Canadians and the downsizing and increased liquidations of houses by seniors will work to exacerbate the adjustment?

It turns out that those fears are highly exaggerated.

Key here is the role of demographics. From a housing market perspective, what counts is not simply the change in population of a given age group, but the level of housing market activity among those age groups. The projected decline in the number of Canadians in the age groups 20-24 and 45-54 in the coming decade is negative for housing demand, however their low propensity to buy will limit the damage. The growth in the number of Canadians in the age group 25-34, which accounts for 75% of first-time buyers, is projected to be much stronger. In other words, the group that is most likely to buy a house will grow faster in the coming decade.

What about the supply of housing? Our main focus is on the age group 55-75 (empty-nesters), and on a regular basis, less than one-third of those households actually move. As for the age group 75+, the projected increase in their number is simply not large enough to flood the housing market with extra supply.

So, while housing market activity is projected to soften in the near-term, the good news is that any adjustment will not be aggravated by negative demographic forces. In fact, at least for the next decade, demographic forces will be strong enough to mitigate the damage and probably shorten the duration of the upcoming market adjustment.