TD ‘significantly’ downgrades home sales, price forecasts

New TD report says Canadian home sales could fall in almost a quarter on average this year and will remain low in 2023.

The report, prepared by TD Economics and released on Wednesday, says the bank has lowered its forecasts for home prices and sales “significantly” compared to March “as monetary policy has tightened more than anticipated.”

TD Economics expects rising borrowing costs to “weigh heavily on housing activity,” with a decline from peak to trough, or the high and low points of the business cycle, between the first quarters of 2022 and 2023 reaching 33 percent.

Real estate activity should begin to “firm up” beyond that, the report says, but remain subdued as interest rates fall.

This will result in a 23 per cent average annual decline in Canadian home sales in 2022, before regressing to an 11.9 per cent average decline in 2023.

Average home prices in Canada between the first quarters of 2022 and 2023 should also fall due to cooler demand, with TD Economics projecting a peak-to-trough decline of 19 percent followed by modest growth.

The report comes after a series of interest rate hikes by the Bank of Canada amid record inflation.

The bank raised its key interest rate by 50 basis points, or half a percentage point, to 1.5 percent in June.

The bank previously raised its key interest rate in March and April, with the next rate announcement scheduled for July 13.

The TD Economics report says it expects the key interest rate to hit 3.25 percent in the fourth quarter of this year.

Bank of Canada Deputy Governor Paul Beaudry said last month that the key interest rate could exceed the previous target of 3 percent.

The TD Economics report also breaks down Average annual growth and decline in home sales and prices by provinceand BC and Ontario are expected to see some of the largest declines in 2022 and 2023, which TD Economics says is a reflection of “significant deteriorations in affordability during the pandemic.”

Quebec will see similar modest price growth, with sales in Alberta expected to “reduce significantly from their all-time highs” but remain closer to pre-pandemic levels through 2023 compared to BC and Ontario.

“Prices should hold up better elsewhere in Canada, with better affordability conditions in the country dampening other markets in the Prairies and Newfoundland and Labrador,” the report says.

“Strong population growth and tight conditions should offer near-term price support for the rest of the Atlantic, although activity in this region should cool off as rates rise.”

A report published last month by Desjardins suggested Canadian house prices could fall 15 per cent to about $675,000 in December 2023, down from their peak of just over $790,000 on average in February 2022.

Despite this, Desjardins says that $675,000 is nearly 30 percent higher compared to December 2019, when the median home price in Canada was $530,000.

With archives from CTV News and The Canadian Press

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