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Monday, March 18, 2013

Staying put: Baby boomers not selling, skewing Canada’s housing market

Demographics are expected to have a profound effect on Canada’s housing market in the coming years, resulting in less housing turnover as well as fewer sales and listings, according to a new report by Scotiabank Economics.
But that’s not necessarily a bad thing.
“Contrary to some dire predictions, population aging will not fuel a demographically-induced sell-off in Canadian real estate,” Scotiabank economist Adrienne Warren told a conference on global housing trends Monday.
“Today’s seniors are healthier, wealthier and living longer than prior generations. They are increasingly likely to own their own home and to live in their homes for longer.
“Many will not need to tap into their principal home to finance retirement,” she said.
Home ownership rates are only likely to decline as the massive wave of baby boomers, the first of whom are now in their late 60s, start to hit age 75. But even at that later stage of life, close to 70 per cent of Canadians still tend to own and live in their own homes, said Warren.
And they’re usually too comfortable and attached to their communities, to move, Warren says in her report.
Over a five-year period, just 20 per cent of homeowners over 65 tend to move, about half the rate of the rest of the population. When they do, it tends to be into retirement communities or rental accommodation, which bodes well for rental demand down the road, she noted.
Housing demand is also likely to be tempered in the next few decades, she said, by slowing population growth.
While the United States is outpacing the rest of the world in recovering from the devastating downturn of its housing market, “the long-anticipated slowdown in Canadian housing activity is well underway” but not likely to result in drastic dips in prices.
Sales are down about 10 per cent since last spring, housing starts have dropped from 220,000 to 180,000 year-over-year, first-time buyers and even investors are taking a breather, said Warren.
All of that is likely to continue with job growth expected to slow, she added.

Monday, March 11, 2013

The psychology of home buying

What happens inside your head when you choose a home? You may think you're deciding by logic, but don't be so sure

By Patrick Langston, The Ottawa Citizen March 7, 2013

You'd buy a sweater on impulse, but when it comes to buying a home it's all about calm deliberation, right? You might be surprised.
Price, square footage, location: "All that can be trumped by the visceral reaction of seeing a home," says June Cotte, who teaches marketing at Western University's Ivey Business School.
"Smells, colours, sounds you can hear inside or from the outside - you might not be aware of them, but they can have an influence."
The layout may even subliminally remind you of the home of a former boyfriend, says Cotte. That can have a positive or negative emotional impact on how you perceive a home that's for sale.
In fact, a study published in the Journal of Advertising Research in 2002 said emotions can be twice as important as knowledge in consumer buying decisions. Subsequent research has determined that the role of emotion in buying situations varies by individual and circumstance, but there's no doubt that, overall, it's a critical factor in consumer behaviour.
And while it's important to feel an emotional tie to the place you live in (it can inspire everything from maintaining the house properly to caring about your community), abandoning your inner Mr. Spock and his logic isn't wise.
Take aspiration, for example. We judge a potential purchase in part by whether we think it will represent what we would like to be and how we'd like to be perceived. An empty nester, however, might actually be happier staying in peaceful suburbia instead of buying a loft in a noisy downtown area just because he fancies himself a young-again urban hipster.
As well, we fall victim to confirmation bias, the pervasive tendency to cherry pick or interpret information that confirms our preconceptions. We fall in love with a house and so we dismiss the mouldy smell, saying the place just needs a little airing out.
We also readily become invested psychologically in a property before we've reached a rational decision, according to professor Michael J. Seiler, who specializes in behavioural real estate at Old Dominion University in Norfolk, Virginia.
"You're looking at a house and suddenly start thinking of the community and the neighbours and how they'll be your friends.
"Expectations, fears, desire for status - a lot of stuff influences you," he says. "So be cautious, try to be rational."
Influences are at work before you ever enter a prospective home. Billboard, newspaper and other advertising, although frequently banal, fosters expectations, says Cotte.
If a builder advertises extensively, for example, you might make the illogical assumption that because the company spends oodles of money on advertising it must be profitable so it must be good. "It's called accessibility bias," she says. "The most accessible brands, the ones that immediately come to mind, we value as being positive."
Urbandale general manager Matthew Sachs says when advertising, "you hook with emotion and reel in with intellect." A radio ad, for example, might ask, "Remember the first time you fell in love?" It would then segue from romantic love to love of a house, tack on some factual benefits - energy efficiency for example, although Sachs says that might be couched as "comfort" or "you'll save money" - and exit with another emotional hook.
When it comes to face-to-face sales, Sachs says Urbandale has no defined strategy except to listen closely to what the prospective buyer wants.
His advice to home hunters: "Excitement is important if you're buying a house, but do your research. Validate and verify."
Eric Manherz, a Royal LePage real estate broker in Ottawa, says a good agent will help clients keep emotions in check and concentrate on finding what it is they really want. That, he says, takes time and may not be what they had originally thought.
He also sees peer pressure at work. "People at coffee break say, 'You should never offer full price.' In some cases, you should. And maybe those people bought years ago, when the market was different."
Because having too many choices usually means we make no choice, Manherz suggests after a day of house hunting to scratch most of what you've seen off your list.
That will also help control what Cotte terms "anchoring and adjustment bias": if you've seen 20 crummy houses and then one decent one, you'll assess the decent one as being better than it actually is.
And do not - repeat, do not - feel guilty for making your real estate agent troop around for days on end or think you have to please him or her by buying.
And what if, by following all this advice, you feel you missed out on the "perfect" home?
Says Manherz, "There's always another opportunity."