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RBC Adds Two “Severe” Risk Scenarios, Including Canadian Real Estate

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Risk models from Canada’s largest bank shows a wider range of uncertainty for real estate. RBC’s latest models, shared with analysts this week, shows a general forecasted improvement. The downside hasn’t changed much, indicating a little more uncertainty. They also shared they are considering two new and “more severe” scenarios for energy and real estate. These downsides reflect the potential for a double-dip recession.

Macroeconomic Scenario Assumptions

Feel free to skip this if you’re familiar with IFRS 9 macroeconomic assumptions. For the rest of you folks, it’s a reporting standard used by most of the world’s banks at this time. One part of it requires assessing risk using unbiased, and possible outcomes. Typically you’ll see reports divided into three areas – base, best, and worst case scenarios.

The base, best, and worst case scenarios are exactly what they sound like. The base is what the organization will plan with, assuming things go along as they currently are. The best case scenario is if every banker’s wet dream comes true, and the economy is perfect. The worst case scenario is if every banker’s nightmare comes to reality, and it’s the worst realistic case. The organization needs to be ready for each of these scenarios.

The forecasts are used to prepare the organization for risk, so it’s important to be realistic. Too optimistic, and just a few hiccups can result in serious damage. Too negative, and they’ll be putting aside way too much capital, slowing the growth of the company. These aren’t just random numbers, but they’re considered reasonable outcomes. That said, let’s look at these scenarios.

RBC’s Base Case Shows Real Estate Rising 5%

Canada’s largest bank is more positive about the base case than they were last quarter. The base case forecasts prices will rise 4.9% over the next 12 months, from January 31, 2021. Compound annual growth of 4.5% is forecasted for the following 2 to 5 years.

RBC’s Canadian Real Estate Risk Scenarios

RBC’s macroeconomic scenario assumptions for Canadian real estate prices under various risk scenarios. Source: RBC, CREA, Better Dwelling.

This is a fairly big jump from the previous quarter. Last quarter, they were only forecasting an 0.6% increase over the next year. The market would see compound annual growth of 4.5% for the following 2 to 5 years. A more positive base case is typically a good thing. However, it may mean more uncertainty right now. We’ll circle back to this in a few seconds.

RBC’s Best Case Sees Real Estate Rising 8%

The best case scenario got small upwards movement, but it was still pretty big. The best case forecasts prices will rise 8% over the next 12 months. Compound annual growth of 11.1% follows for the next 2 to 5 years.

This quarter’s forecast is a big improvement short-term, but the same long-term. The previous quarter saw prices growing two points lower in the twelve month period. The following 2 to 5 years would see compound annual growth remain the same. Just so we’re clear on how optimistic this is, it would mean prices double every 7 years. That’s about as likely as getting a full-size downturn.

RBC Worst Case Sees Real Estate Falling Up To 30%

The worst case scenario for the next year remains the same, but the following years improve slightly. In the worst case, prices would fall 29.6% in this scenario over the next 12 months. Compound annual growth of 4.5% over the 2 to 5 years that follow. The 12-month downside remains the same, while the following 2 to 5 years are now higher.

Circling back to the two “severe” worst case scenarios, with energy and/or real estate. The indicators are still in the range, but these would imply a double dip recession. This is when one recession occurs right after another, after a failed recovery. In this scenario, they expect the economy to “deteriorate from Q1 2022 levels for up to two years, followed by a recovery for the remainder of the period.” That is, after the 2 years of down turn, things will bounce back, and recover by the fifth year.

The biggest takeaway isn’t the upside or downside, but the spread between the two. If looked at by itself, the increased forecasts for the base and best cases look like a huge positive. When you realize the downside is the same as the old forecast, you realize this isn’t necessarily a positive revision. Wider ranges of forecasts tend to mean a bigger degree of uncertainty as to where things are heading.

Source:- Better Dwelling

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PGIM Real Estate, Revera Affiliate Target UK Market in Newly Formed JV

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Real Estate Sales In September

PGIM Real Estate has been active in recent months providing capital to facilitate blockbuster senior housing acquisitions. Now the firm is looking to capitalize on demand for senior housing in the United Kingdom.

The Madison, New Jersey-based real estate investor and lender announced this week it is entering into a joint venture with Signature Senior Lifestyle, an affiliate of Revera, to develop and operate senior housing communities around greater London

Mississauga, Ontario-based Revera serves 20,000 older adults in long-term care homes and retirement residences in Canada. It is also the majority shareholder of Sunrise Senior Living, one of the largest senior housing providers in the U.S. The company operates a portfolio of 12 communities in the U.K. under the Signature Senior Lifestyle brand, with one community in development that is slated to open in autumn 2021.

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The JV has one development underway — a senior housing community, or “prime care” home, in southwest London. PGIM worked with Elevation Partners, a London-based investor and asset manager in U.K. health care real estate, in sourcing, structuring and executing the venture. Additionally, PGIM will retain the firm to leverage its expertise.

PGIM and Revera did not respond to requests for comment from Senior Housing News regarding details about its development pipeline.

London is emerging as a future hotbed of senior housing development, spurred by favorable demographic growth trends and a lack of available supply, and the PGIM-Revera venture will find competition.

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Maplewood Senior Living CEO Gregory Smith told SHN last month that demand for U.K. senior housing is comparable to major U.S. markets such as New York and San Francisco, where supply has historically been constrained.

Maplewood and its investment partner, Omega Healthcare Investors (NYSE: OHI) are looking to expand its luxury Inspir brand to the U.K., and identified five suburban markets around London with high barriers to entry that are favorable for the brand’s growth.

Revera CEO Tom Wellner sees similar untapped upside potential for senior housing in the U.K.

Source: – Senior Housing News

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Where in Canada are house prices increasing the most? Maybe not where you think – CTV News

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TORONTO —
Canada saw a surge in housing prices over the past year due to COVID-19, a market trend experts say is caused by people working from home more often and moving to rural and suburban areas.

Data released by the Canadian Real Estate Association (CREA) shows that when comparing the average market prices from February 2020 to February 2021, Canada had a 25 per cent year-over-year increase. The average price rose from $542,484 to $678,091.

“One factor is that with work-from-home even more generalized, many people don’t have to live within commuting distance from their jobs,” Shaun Cathcart, senior economist at CREA, told CTVNews.ca. “That means that folks who own condos and smaller homes can take out built-up equity and move to a property that better meets their needs – as over the past year, home is not only where you eat a few meals and sleep, but also the office, your kids’ school, playground, gym, etc.”

The largest year-over-year percentage changes came from the Northwest Territories (48.1%), Nova Scotia (30.4%), Ontario (24.5%), Quebec (22.5%), and New Brunswick (20.9%).

Cathcart noted that the higher percentage change in Northwest Territories is likely due to the fact that in both February 2020 and February 2021, six homes were sold throughout the entire territory and the ones that were sold in 2021 were marked at a higher price.

When looking at the provinces and territories that had the largest upsurge in terms of price difference, Ontario sits at the top of the list with an increase of over $170,000. Northwest Territories came next, followed by British Columbia, Nova Scotia, and Quebec.

The data also shows that prices in suburban and rural areas were impacted the most and saw the biggest changes, with regions like Rideau-St. Lawrence and Sarnia-Lambton in Ontario averaging about a 50 per cent increase from the previous year.

“With people no longer having to live within commuting distance to their jobs, as long as suburban and rural areas have decent internet, they become even more attractive to families looking for more space,” said Cathcart.

Find your region and the year-over-year price and percentage change below.

Cathcart says that Canadians can expect to see sales and prices increase this year, but forecasts sales to slow down in 2022 while prices remain high.

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