We've seen a lot of discussion and reports of people sitting on the sidelines lately. The real estate industry wants us to believe that sitting on the sidelines is a mistake and that if you're waiting for prices to come down drastically, you're wasting valuable "equity-building time."
Last year, after the 2006 census, we learned that Canadians had reached an all-time high of home ownership. Over 68% of the 12.5 or so million Canadian households owned their own homes. I'm guessing that number continued to increase in 2007 and early 2008, if only slightly.
That leaves about 32% of Canadian households as renters. Industry is targeting this market precisely because these are the necessary components of continued market growth. There will always be players exiting the market, they must be replaced if balance is to be maintained.
In 2006, the census also told us that roughly 7% of Canadian households live below the poverty line. I think it is safe to assume they are not sitting on the sidelines waiting to buy. So our total sideline percentage is down to 25% or so. Considering that you need a minimum household income of $55-$60K to own Victoria's cheapest condos, that leaves a very small percentage left sitting on the sidelines here, if the national census numbers translate evenly to the local ones.
Annual sales are forecast to be somewhere around 170,000-180,000 across Canada in 2009, down from somewhere around 220,000 in 2008. In Victoria last year we had 5820 unit sales. For argument's sake, let's say we track the national trend of an approximate 20% decline in sales, we'll have somewhere around 4600 in 2009.
How many of these will be to new entrants? Just how big is the segment of households that are apparently just sitting on the sidelines waiting to get in?
In the time I've been blogging, I'd say at the beginning about 1 in 10 people I ever spoke with about real estate had similar bearish views to me. Now, it's probably closer to 5 of 10. 4 of those 5 don't want to talk about real estate and the 1 left usually has a property they need to divest themselves from, so they're keeping a positive outlook. My point here is you would have had to be preparing yourself over the past year, at minimum, to be a qualified sideline sitting, able-to-purchase household.
I don't think there are many prepared and adequately finance-able households to bring into the market right now. If I was to wager a guess of total households in Victoria that are currently renting and capable of buying given today's requirements/conditions I'd cautiously put the number somewhere between 500-1000. With 3800 units on the market at the end of December 2008, even if they all jumped in over the next 6 months and available listings only climbed to 4500 by mid-summer, their impact on prices will likely be negligible.