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Another Bank Says that Home Prices Aren’t Likely to Go Anywhere in Next Several Years

It was just last week that TD reported that Canadian home prices would remain where they are, at least for the next several years, approximately keeping pace with the rate of inflation. Now, Scotiabank chimes in to the chorus, saying they agree. And that the factors that would normally be there to support increase in values, just aren’t there like they used to be.

It was Scotiabank’s Adrienne Warren that released the report saying,

“The underlying fundamental factors that drive home prices – income gains, interest rates and population growth – are becoming less positive for further strong price growth over the medium and longer-term.”

She says that this is because right now, Canada’s economy is in a period of pulling back. Households are struggling to reign in and pay off debt with the household debt ratio at nearly 165%; and the Conservative government is also looking to make austerity cuts as they want to balance the budget within the next two years. This latter factor especially, says the report, is going to have a dampening effect on both the economy’s growth, as well as the growth of incomes around the country.

The report also points to another underlying factor that so many were counting on to support the housing market – all that downsizing by the Baby Boomers that was expected. And that we now know isn’t going to happen. Pointing to this factor, Warren says in her report,

“Looking further ahead, the impact of the retirement of the large baby boom generation in slowing labour force growth will restrict the potential growth rate, or speed limit, of the Canadian economy relative to recent decades. However, contrary to some dire predictions, population aging will not fuel a demographically-induced sell-off in Canadian real estate. Today’s seniors are healthier, wealthier, and living longer than prior generations. They are increasingly likely to own their own home and to live in their homes for longer.”

Warren says that not only can we not count on the Boomers to have a fire sale of all their homes, but the fact that they are attached to their homes, and therefore likely to hang onto them for a long time, will be a further drag on the economy. But it’s not just the older population that’s going to stall things – the younger generation will too.

Warren states that right now in Canada, there are more single-person households than there are couples and families with children. And it’s this former group that’s most likely to rent, further holding up sales and keeping fewer listings even on the market.

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