Scotiabank Forecast Canadian Home Prices Set to Fall Despite Rate Cut Expectations

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Scotiabank's macroeconomic scenario forecast, disclosed alongside their Q1 2024 earnings, presents a starkly pessimistic outlook on Canadian home prices. Complying with modern accounting standards, the bank employs macroeconomic variables to gauge risks, particularly focusing on home prices, crucial for estimating credit losses. Their forecasts, divided into four scenarios ranging from base to optimistic and two pessimistic ones, offer insight into the bank's sober assessment of the market, shunning undue optimism.

In their base case scenario, Scotiabank anticipates a continued decline in home prices, projecting a 3.7% decrease over the next 12 months. Even in their optimistic alternative scenario, where economic performance surpasses expectations, the bank still foresees a 3.2% fall in home prices over the same period, followed by modest growth thereafter. Such projections challenge the widespread anticipation of a post-rate cut boom, suggesting a more subdued reality than what many might expect.

The bank's pessimistic scenarios paint a bleaker picture, with potential sharper declines and prolonged recoveries. In these scenarios, home prices are forecasted to plummet by 7.3% and 8.6% over the next year, respectively, followed by tepid growth in the subsequent period. Scotiabank's cautious forecasts diverge from the optimism often echoed in social media and investor circles, signaling a more conservative stance on the anticipated impact of rate cuts on economic growth, particularly in the near term.

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