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Bank Forecasts Doom, Brokers Aren’t so Sure

Scotiabank has recently come out with a new forecast, saying that the housing market is going to be slow in 2014. This, they say, will be due to factors such as rising interest rates and low housing starts, but at least one broker isn’t so sure that their forecast represents reality.

The bank did point towards higher interest rates in their predictions, but they were also sure to say that there is no major housing collapse on the way.

“The combination of moderately higher interest rates and slowing job growth will likely dampen home sales later this year and into 2014,” Scotiabank’s Global Real Estate Trends report stated. “Meanwhile, increased supply should limit price gains. However, the risk of a large price correction nationally remains low barring the major adverse shock such as a sharp rise in unemployment.”

The report continued on to say that housing starts will begin to slow, and this will also dampen the market’s activity for the foreseeable future.

“Slowing home sales should in turn lead to a reduction in new home construction. We expect starts will fall to about 170,000 units in 2014,” the report said. “A period of below-average construction will help absorb excess housing stock.

Unsold inventory has been creeping up in recent years with starts exceeding household formation trends, but is not particularly high from a historical perspective.”

And those starts include the condo market, which the bank is particularly worried about.

“The slowdown primarily reflects fewer high-rise projects breaking ground. Toronto apartment starts have fallen almost in half this year, from 30,000 units in 2012 to an annual rate of 16,000 from January through July,” says the report. “Given the weakening trend in new home sales, construction will likely move even lower over teh coming year.”

But at least one broker is willing to take the bank to task, saying that there is no slowdown coming.

“I think economists are very myopic in their view; they don’t see things very well, from what I can see,” says Jeff Evans of Centum Innovation Financial. “I find that they tend to create sensationalism to kind of manipulate.”

He goes on to say, “I tend to believe that a lot of the time these economists are incorrect in their assumptions. In 2008 or 2009 they were telling people to lock into fixed rates and I advised my clients to get into variable rates. My clients were getting 1.65 – 2.35 for most of that time.”

Who do you agree with – Scotiabank, or Mr. Evans?

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