Canada

A Bubble, Eh? Scotiabank’s “Very Pessimistic” Outlook Is Real Estate Prices Rise 10%

Canadian real estate is so bubbly a large bank sees prices soaring in a downturn. Scotiabank (BNS) reported earnings today, filing the bank’s macroeconomic forecasts. These forecast scenarios help to determine outlook, and include a base case, optimistic case, and two pessimistic ones. Even in the bank’s worst case scenario, they forecast home prices will still rise at a breakneck speed.

Scotiabank Is Forecasting A Base Case of Home Prices Rising 16.6%

Let’s start with what the bank thinks is the most probable outcome — the base case. This involves everything carrying on as is, with no improvement or deterioration. In the base case, the bank has forecast annual growth of 16.6% from April 2022. In contrast, they had forecast annual growth of just 9.9% back in January. Higher rates have somehow accelerated their forecast. Which is a little odd since they’re also forecasting the higher end for interest rates. 

In The Best Case Scenario, Real Estate Prices Rise Nearly 20%

The best case, or optimistic scenario, sees slightly higher growth than the base. Home prices are expected to show annual growth of 19.5% for April. This is a huge jump from the 12.5% seen in January.

Scotiabank’s Worst Case Scenario Is Prices RISE 9.8%

The worst case scenario, called a “pessimistic scenario” at BNS, involves another downturn. They split this one up into two, and the first one involves short-lived stagflation. In this scenario, home prices fall… uh, whoops. BNS doesn’t actually see prices falling in their worst case scenario over the next 12 months. Prices are seen rising 11.4%, up from the 3% in January. Since the last forecast, a conflict broke out, inflation soared to a multi-decade high, and interest rates are climbing. Somehow this boosted their outlook.

Then there’s the “very pessimistic” scenario for BNS, in which things become unhinged. It involves high commodity prices, financial uncertainty, supply chain disruptions, and people eating each other in the streets. Okay, everything but the last part, but the point is this is a terrible economy in this case. BNS sees this driving home prices 9.8% higher, accelerating from the 3.5% drop forecast in February. 

A Bubble, Eh? Scotiabank’s “Very Pessimistic” Outlook Is Real Estate Prices Rise 10%

The strangely high forecast is at odds with their interest rate forecasts. BNS has one of the highest forecasts in the industry and has been outspoken about inflation. Somehow reducing leverage doesn’t impact their outlook. 

In the bank’s eat-your-face-off-by-zombies style pessimistic case, prices actually rise. Not a little either but an increase of 9% over the next year. It’s bubbly for mom & pop investors to think downturns make them rich now. It’s another level when a big bank sees the system working that way too, assuming economic downturns lead to 3x the long-term growth average.

10 Comments

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  • Jappan Singh 3 weeks ago

    When Brampton loans are there anything is possible.

  • Mark Bayly 3 weeks ago

    The banks are getting worried . People might not want to owe them half their disposable income for the next 25 years That would be a tragedy.

  • DoDo 3 weeks ago

    If they didn’t see it coming they can’t be held accountable for poor lending practices. Bet even the banks forecasting drops are lending to anyone who qualifies.

    Down with government backed mortgages.

  • Guess 3 weeks ago

    I think BNS may actually be right (Can’t believe I’m saying this). Bond yields on the 5 year may have peaked which may pull in some sidelined buyers who were waiting for things to settle down a bit. I wouldn’t rule out a correction in the small town markets or outer suburbs though as employers begin to call staff back into the office even if on a hybrid basis. A 2 hour commute each way will wear on anyone even if only a few days a week. Small town exodus may happen if replacement work for work from home jobs can’t be found.

  • Rene Albert 3 weeks ago

    Don’t believe a word the banks are saying…they’re just trying to appease people before the inevitable carnage in the housing market! If you’re not sure, play safe as best you can!!!

  • questions guy 3 weeks ago

    house prices are negatively correlated to interest rates. period. if mortgages are north of 5% prices CANNOT go up.

    pure lunacy

  • Yoroshiku 3 weeks ago

    I suspect the banks will begin to lower interest rates again as soon as humanly possible. They need to fend off a housing collapse.

    • David Chan 2 weeks ago

      If the central bank is trying to lower interest rates, the manager needs to be fired because he’s not overriding markets for a non-market agenda. And if Canada’s money has become political, it’s no longer worth the value of oil used to make those bills.

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