Varun Kohli September 10, 2022 No Comments

TD Bank just released a Q&A document on the state of the housing market, zeroing in the recent cooling we’ve seen from higher rates. Here’s a summary of its findings for our Tembo readers. The first portion of the report focused on price declines. The biggest declines were noted in Ontario, followed closely by BC. Prince Edward Island and Newfoundland saw price increases in the period of Feb. to July. Nationally, sales declined by 20% on a quarter-on-quarter basis, while prices fell just under 10%. TD compares the declines to the phenomenon in 2017-2019, but suggests that this period will be worse. The report also predicts coming declines in condo prices. TD is forecasting that prices could fall 20-25% from 2022 Q1 to 2023 Q1. Even with a worse case scenario, national average home prices will return to their late 2020 levels, at just over $600K. TD is most bearish on outcomes in BC and Ontario, where investor related activity was the greatest. The report also predicts a big fall in demand for the kind of houses that were most sought out through the pandemic: large, expensive, and luxurious.

The bank is calling all of this bad news a “recalibration.” The tone of the report is not all that negative, and it avoids harsh language or words like crash or bubble. Like CIBC, TD is predicting that the Bank of Canada will be forced to pause the hiking of interest rates in Q4. By that point, TD suggests that the worst of the rate tightening will be over and behind us. The bank points to mortgage stress tests that were implemented for precisely the scenario we now find ourselves: a hopefully temporary period of higher interest rate and greater mortgage costs than the norm we were used to. TD sees the stress tests as a critical buffer in this time. Wage growth and demand for skilled workers are other reasons the bank is avoiding a doom and gloom prediction. Like most of its peers and the mainstream financial press, TD is pointing to the large pool of savings that Canadians amassed through the pandemic as a good sign of security. Our population continues to grow and immigration will pick up strongly as the pandemic continues to edge its way out of the headlines.

Finally, TD points to low inventory. Few houses are on the market, many sellers are waiting for greener pastures, and builders are cancelling or cutting back on development proposals. So supply will continue to drive up prices over the longer term. This has been a perennial driver of high prices. We’re building 250,000 homes a year in the country, but are welcoming over 400,000 new Canadians at the same time – along with native demand for housing, this places huge pressures on the supply side. 2021-2022 saw a big decline in new home and resale home supplies across the country. TD is bullish on 2024, specifically pointing to the 450,000 people that are expected to settle in the country through the near future. TD sees housing troubles slowing growth by 1-1.5% over the next few quarters.

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