One of Canada’s major banks is forecasting a steeper drop in home prices amid a “sudden surge” of supply in some real estate markets.
TD Bank updated its forecast calling for a 10 per cent drop in home prices from their third-quarter level through the early part of next year. In September, it pegged that drop at five per cent.
Its economists said there are two reasons for the change: its upgraded bond-yield forecast and a “larger-than-anticipated” loosening in British Columbia and Ontario’s housing markets.
“Ontario’s sales-to-new listings ratio has plunged to 39 per cent in October from 63 per cent in May. A sudden surge in supply is largely behind the deterioration in the ratio, abetted by a more prolonged drop in sales,” they said.
“However, some perspective is warranted. A 10 per cent decline in average home prices would still leave them 15 per cent higher than pre-pandemic levels. Our expectation that the Bank of Canada will be cutting rates towards the end of the second quarter of next year prevents a steeper decline.”
TD’s update comes after the Canadian Real Estate Association (CREA) said last week that Canada’s biggest housing markets saw a “sizable decline” in sales in October.
Bank of Canada Governor Tiff Macklem said the “excess demand” that was fuelling inflation is gone from the economy. The Bank of Canada has raised its benchmark interest rate rapidly since March 2022 in an attempt to cool the economy and dampen demand for spending — efforts that Macklem said are expected to continue pushing inflation down in the months to come.
