A major uptick in home construction paired with gradual, long-term demographic change will have a cooling effect on Canadian home prices in the coming years.

Barring a significant spike in mortgage rates or a big shift in housing policy, the red-hot Canadian housing market should begin cooling organically this year, making a market crash “unlikely.”

That’s the latest prediction from research firm Oxford Economics, who in a recent briefing said that house price growth will gradually be outpaced by increases in household income, allowing buyers to more easily afford homes in the future.

This more balanced market will be driven partly by an increase in new home supply coming online over the next several years. Oxford Economics’ Tony Stillo and Michael Davenport wrote in the briefing that the recent spike in home prices caused homebuilding to rise to its highest level since 1987.

“Over the next ten years, we expect housing completions to total almost 2.2 million units and far outpace the projected 1.9 million newly formed households, which will help rebalance supply and demand in the national housing market,” wrote Stillo and Davenport.

As housing completions ramp up, Canada’s aging population will drive household formation down. The economists wrote that over the next several decades, the country’s senior population will nearly double, with one in four Canadians falling within the 65-plus demographic by 2050.

Over this same 30-year period, household formation is projected to slow from the current rate of 200,000 new households formed each year to a rate of 130,000 by 2050.

Taken together, these trends paint a more optimistic housing affordability picture awaiting Canadians after the current trajectory — which Stillo and Davenport call “unsustainable” — moderates.

Oxford Economics : Homebuilding Surge, Aging Population Make Canadian Housing Crash “Unlikely” by Sean MacKay | Livabl