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Settle in for long-term housing slowdown, Scotia says

Echoing others,  Scotiabank says home prices will rise far slower over the next decade than the previous one. Demographic and economic shifts are at the root of the slowdown.
Echoing others, Scotiabank says home prices will rise far slower over the next decade than the previous one. Demographic and economic shifts are at the root of the slowdown. Canadian Press

An ageing population and slower economic growth will weigh on the country’s housing market for the next decade at least, Scotiabank, one of the country’s largest home-loan lenders, said Monday.

The bank — the latest to offer a dour long-term view of the real-estate market — is bracing homeowners for the slowdown following a 10-year period of explosive price gains fuelled by low interest rates and high demand.

“Looking further ahead, the impact of 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,” Adrienne Warren, senior economist and the bank’s real-estate specialist said during a presentation at the bank’s Toronto offices.

As a result of the demographic change, she said Canada’s economy is expected to grow around 2.0 per cent annually, modestly below historical norms.

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Immigration will “provide a lot of support” for population growth and thus labour force growth, but it won’t be enough to fully offset the exodus of Canadians into retirement.

Housing formations, the term used to describe the coming together of new families – one of the “best indicators” for residential real-estate demand, Warren said – is expected to slow to around 150,000 a year, down from the current clip of between 175-180,000.

Immigrants to Canada currently comprise two-thirds of population growth, while that figure is expected to jump to 75 per cent in the next decade.

The bank suggested an older population weighs on real-estate markets because fewer homes are bought and sold and older homeowners are more likely to stay in their properties rather than move.

Interest rates will also “inevitably” go back up, Warren said, impacting borrowing costs and the affordability of homes.

Scotiabank’s long-term outlook comes a week after another bank, TD, said home prices will moderate to 2 per cent annual growth over the next 10 years, lower than the 3.5 per cent historical average and well below the 7 per cent clip seen over the last decade.

The combined view is almost the mirror opposite of what’s occurring in the United States at the moment, Phil Sober, president and CEO of property giant Brookfield’s real-estate services.

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After enduring more than half a decade of collapsed real-estate valuations following the bursting of a massive property bubble, the U.S. market appears to be firmly rebounding, helping lift the overall economy in the process.

“It’s the end of a desperate and dark time in the United States,” Soper said. In Canada, we’re “well into a cyclical correction.”

“Homes got too expensive, and we need to give the market a breather,” he said.

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