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Could the worst be over for Canada’s housing market?

Economic uncertainty and rising interest rates have sidelined many potential homebuyers and sellers. Prices are down, sales have slowed, and inventory remains low. 

The good news? Canada’s housing market may have already been through the worst of it, according to a new report from TD addressing issues impacting the economic and financial outlook.

TD Economics is forecasting the average home price will drop by just over 20 per cent on a peak-to-trough basis. If the forecast is accurate, prices may be nearing the bottom. In October, the average national selling price of a home was down 21 per cent to $644,643, well below the February peak of $816,348, according to data from CREA.

TD economists are predicting home sales should bottom at levels around 40 per cent lower than at the beginning of 2022. “With home sales already down about 30 per cent, the largest part of the sales adjustment has likely occurred,” the report states.

The company forecasts resale supply to remain sluggish over the next few quarters as many remain hesitant to list their homes amid a weak backdrop. “After which, an orderly increase in supply is expected to take place, as markets find a bottom next year, and demand and prices begin to recover.”

Mortgage rates are expected to head higher still, and TD says that will keep a weight on the markets. Economists expect another 50-basis point rate hike in December, followed by 25-basis point increments in early 2023 as needed. “The increase in carrying costs may force some overstretched owners to list their homes. We are cautiously watching how this dynamic unfolds and recognize that it represents a downside risk to the price forecasts.” Economists lay out a scenario where two per cent of homeowners with mortgages are forced into listing their homes, in which case “Canadian average home prices could be four per cent lower by the end of 2024 than our current baseline.”

Housing supply will continue to be a significant issue across Canada. With the government’s immigration target of nearly 1.5 million newcomers over the next three years, supply will continue to face tremendous pressure to keep up. If the government meets its targets, TD Economics says the demand for rental units will stay strong and eventually shift towards increased demand for ownership. 

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