Canadian real estate has been in growth purgatory for nearly a year, and we should expect another. That’s the takeaway from Scotiabank’s macroeconomic scenarios in their Q4 2023 earnings report. The bank generally expects home prices to fall over the next year, and move much slower than usual in the following years.
Canadian Real Estate Prices Forecast To Make A Small Drop Next Year
The base case scenario, the most likely outcome in their opinion, shows falling home prices into next year. Their forecast is a 1.9% decline for national home prices over the next 12 months. Their medium-term outlook over the following 48 months is a 2.9% compound annual growth rate (CAGR). It’s only a mild decline, followed by growth that would be significantly slower than households are used to.
The Best Case Scenario Is Mild Growth For Home Prices
Their optimistic scenario, where things are better than expected, doesn’t show much of an improvement. A booming economy is only expected to push home prices 1.3% higher over the next 12 months. The medium-term outlook expects compound annual growth of 4.2% for the following 48 months.
Scotiabank doesn’t expect home prices to rise higher than inflation expectations over the next year. That means the best case for real growth is negative in the short-term.
A Faster Drop Means Faster Growth To Follow
Unlike most forecasts, Scotiabank has two adverse, or negative scenarios. In the event the economy fails to meet expectations, they see prices falling 2.3% over the next year, and 3.5% CAGR following in the years after. In the event of the “very pessimistic” scenario, home prices are expected to show a 4.3% decline over the next year, followed by 3.9% CAGR over the following 4 years. Not the end of the world, but it does tell us something about their expectations—the deeper the correction, the faster the recovery.
Of course, this is also the bank that missed their own guidance for earnings. Take their forecast with a grain of salt, since this operating environment isn’t what anyone expected. The further out the forecast gets, the more difficult it is to nail down.
