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Bigger, longer downturn expected in housing sales and prices: TD Economics

TD Economics reports a bigger and longer downturn in Canadian home sales and average prices than projected in June.

 

Home prices and sales to go down

 

They say home prices and sales will likely go down from Q2 levels during this year’s last quarter (Q4) and the early part of next – by 6 per cent and 8 per cent, respectively.

Population change and appropriate supply increase from previously low levels are at the root of the decline.

 

 

This doesn’t compare to the 20 and 40 per cent drops in prices and sales that happened – thanks to Bank of Canada rate hikes – from Q1 of 2022 to the same period this year. The group believes that the Bank of Canada will stop raising rates and lower the policy rate as of Q2 next year.

 

Bond yield decline, population growth, tight job market should boost Q2 2024 prices

 

By the end of this year, Canadian bond yields should go down from their current multi-year peak. TD Economics says this, plus healthy population growth and tighter job markets, should help to raise home prices and sales as of Q2 next year.

However, the increase will be slower-paced in most markets due to affordability challenges – we may not see national home sales stay above pre-pandemic levels until 2025.

 

 

Regional speculations

 

The highest price drops and sales in the near term are expected in Ontario and British Columbia, which is what we saw since the Bank of Canada boosted rates in June. Smaller decreases will likely happen in Quebec, Nova Scotia, New Brunswick and Prince Edward Island. 

Each of these provinces should see a limited bump in prices and sales by mid-2024, TD Economics believes. They point out that throughout the next few quarters, affordability in each market except New Brunswick will hover near record lows (back to 1988).

On the other hand, Newfoundland and Labrador and the prairie provinces will probably see prices and sales rise during the same period, because of better relative affordability. Sales-to-listings ratios have climbed in favour of sellers in the prairies since early 2023.

Of note is that, as of August, Newfoundland and Labrador’s ratio was 30 per cent higher than its long-term average, and Alberta has seen a huge influx of migrants from other provinces, contributing to its activity.

 

Canada’s weaker-than-expected economy will likely affect demand poorly and cause forced selling, creating an overall negative housing outlook.

Rates might stay higher than forecasted if inflation remains at higher-than-expected levels. At the same time, as the country’s population keeps growing, housing shortages will likely continue and raise prices higher than anticipated.

 

Read the full outlook from Rishi Sondhi here.

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