Canadian real estate price forecasts are so volatile, even the same firms can’t decide. RBC‘s senior economist released their real estate forecast, showing big gains for 2021. The forecast is contrary to the numbers RBC execs stated to investors, just last month. It’s not uncommon to have forecasts with different outcomes. However, it’s rare to see the same organization have different outlooks at the same time. This speaks to how unpredictable the market will be after the pandemic, when cheap money can’t be justified.
RBC’s Senior Economist Sees Big Price Growth
Robert Hogue, RBC’s senior economist, has forecast real estate prices will make big gains early in the year. The economist is calling an 8.4% increase at the national level in 2021. Ontario is expected to make a 9.6% increase, followed by Quebec at 9.0%, and B.C. an 8.3% gain. He also adds, this is driven by a shortage of supply almost everywhere. The only exception being downtown condos in major real estate markets.
This forecast also calls for a slower second half, with a little more potential for risk. They see annualized sales falling to 515,600 in December, down 23.6% from the year before. Price gains are likely to taper, but do average out to the above numbers. That is, bigger gains should be seen in the near term, with the market taking back some of the ground later in the year.
One detail in this forecast that hasn’t been discussed anywhere else is rates. The economist states there’s the potential for interest rate risk. Rates are so low, they expect a minor increase can put a kink in the market. They don’t elaborate, but the BoC has stated they won’t be touching the overnight rate until 2022. This may indicate they believe the risk is in the loosening of mortgage rate suppression.
RBC Execs Told Investors They Expect Price Drops
Executives at Canada’s largest bank shared a different sentiment just a few weeks ago with institutions and analysts. RBC’s chief risk officer (CRO) said the bank is putting “greater weight” on negative price movement. The executive stated they see, “house prices declining by 8 percent and remaining depressed until late 2023.” Other statements implied a second wave of unemployment to come, closer to normalization at the end of the pandemic.
Who’s right? No one knows, but this highlights how hard the current situation is to forecast. Institutional level-guidance is contrary to consumer level guidance. Not just at different organizations either. Even large institutions can’t come to a consensus.
There’s a few things in common that can be taken away, that both mention. Downtown condo apartments in major cities are expected to underperform (a popular consensus, even with bulls). Both agree near-term, real estate markets will be very busy. Both expect the second half of the year to be more volatile, with price gains fading, and sales to slow. The main difference in opinion is what happens as the pandemic dies down. Going back to normal is now the undetermined risk.
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Institutional in general sees more risk. RBC Capital Markets sent a report to large investors with a higher default forecast, and price declines. Totally different department, and their clients pay a lot for it.
They cover RBC CM reports. I believe this is the one you’re referring to.
” However, it’s rare to see the same organization have different outlooks at the same time. ”
I don’t always agree to your blog’s premise but this is a great point.
There might be a diverse view internally, very rare to see diverging public statements.
So the public-facing execs see a price boom while the institutional side see declines. Does anybody else think that this seems fishy?
Executives are thinking long term and economist are thinking short term.
Both executives and economist are correct in their judgment/study.
That’s not true, because they’re both making a statement about the exact same period.
🙂 That’s how these banks work and that’s how bank executives get their big fat bonuses.
The people who work 9-5 jobs are the biggest losers in this grand ponzi scheme.
It all depends on interest rates
rates move high ..house prices will fall..as these million dollar mortgages will get expensive
Although don’t hold your breath waiting for rates to be hiked… we’re looking at even further micro cuts as-is
They want to be right either way! 😀
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