CIBC Risk Model Shows Canadian Real Estate Price Growth Slowing Next Year

A Big Six bank thinks Canadian real estate prices will move slower in recovery than in recession. CIBC’s risk models show they anticipate a lower rate of home price growth over the next year. Even though they see things slowing down, they generally don’t expect prices to fall. Only in a worst case scenario do they show falling prices, making them one of the most optimistic banks.

Forecasting Scenarios

Risk forecasts are a little different from the consumer forecasts, but still straight forward. Instead of one straight-forward answer, finance professionals look at scenarios. A base case, where they expect things to go based on current data, and at least one upside and downside. Since conditions change, they forecast what would happen if things improve or deteriorate.

You can probably guess what the terms mean, but let’s spell it out just in case. In the base case, the market would continue exactly how it is. No hiccups, and things unfold at the current expected pace – even if we know there’s a hiccup coming. The upside would see a stronger than expected economy, and a fast vaccine rollout. The downside sees a worse than expected situation to unfold, likely with a delayed or ineffective vaccine rollout. It’s important to remember a base case doesn’t include scenarios outside of the data. For example, RBC’s earnings included statements of expectation that were worse than their base case. This would be based on  management expertise, that goes beyond data.

Canadian Real Estate Prices Expected To Make Small Gains

The bank’s base case shows a small price increase for Canadian real estate prices over the next year. In the next 12 months from October, the bank sees a 2.4% increase for home prices. The remaining forecasting period, about two years, shows a 3.0% increase from the same start point. Small growth over the next year, and even smaller growth in the one following. Even though it’s small, this is one of the more optimistic base case scenarios from a bank.

Canadian Real Estate Prices To Fall 7% In A Downside Scenario

The bank’s worst case shows substantial declines, but not nearly as big as some of the other banks. In the next 12 months, they forecast prices could fall 6.9% in the worst case scenario. Over the remaining forecast period, they see prices falling 0.8% – barely a full point. This is once again, one of the more bullish “worst case” scenarios from a bank.   

Canadian Real Estate Prices To Rise 11% In An Upside Scenario

The bank’s best case scenario, where the economy is much better than expected, will perform like today. They forecast an increase of 11.2% over the next year, from October’s numbers. Over the remaining forecast period, they see prices 10.4% higher. The last data point is interesting. It implies a better than expected year may be followed by negative growth, which is a little odd.

Forecasts are all over the place, as analysts imagine what the post-pandemic world looks like. This is so far one of the more bullish forecasts from a bank, with their downside a little worse than National Bank’s base case. CIBC’s downside is also similar to what RBC management has stated they expect over the same period. Risk firms have forecasted much larger price declines, while the industry is forecasting much higher price growth. That last one is a shocker, I know. 

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  • Trader Jim 3 years ago

    Didn’t they just send out a report to institutions saying they expect home prices to fall, mostly in Toronto?

    • Ethan Wu 3 years ago

      Yes. Prices to decline 5-7%, but won’t materialize until the cushion saved. 3-6 months from April would be the first sign, is what they said if I’m not mistaken.

    • Sand 3 years ago

      I feel like we are entering a hyper inflation environment due to the government printing a ton of money. So people natuarally pour all their money into real estate.

      • Trader Jim 3 years ago

        That’s what happened in the early 80s. People moved. Caused long-term damage to cities. Montreal’s only now picking up where it left off.

        Everyone thought it was going to be the next New York City, until it was overrun with speculative hedges.

  • James Wilson 3 years ago

    There’s artificial inventory control. People on deferrals can’t move, and probably won’t come to terms they have to, until it’s too late.

  • Ottawa Resident 3 years ago

    *cue real estate industry doing stories on how it’s horrible to live outside of the city.*

  • SAVVY 4CASTER 3 years ago

    So, one could work for the banks using this tried & proven process: (1) Pick your favourite price increase target between -40% and +20% …. (2) Take 15 min to review one or two (max) macro economic drivers that would support your argument …. (3) Publish the forecast!

  • Ethan 3 years ago

    From what I’ve heard, CIBC has high exposure to the housing market, more so than the other big banks. Perhaps this explains their Bullish forcast!

  • SH 3 years ago

    “Real estate might rise. Or it might fall. Or it might stay the same.” – CIBC

    Thanks for the insight, CIBC.

  • V 3 years ago

    Thanks for the laugh….lol

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