TD has been warning of a 10%-15% price correction in the Canadian real estate market for a while now. Below are some examples from the past year:
July 13, 2011
TD: Calgary to Outperform A Correcting Canadian Market
August 23, 2011
TD: Canadian Home Prices 10-15% Over-valued
September 15, 2011
TD Forecasts 10% Correction, Other Banks More Optimistic
December 22, 2011
TD: Calgary Not Immune To Volatility, But Set To Outperform
March 16, 2012
TD: Canadian Housing “Ripe for a Correction” – But No Bubble
March 22, 2012
TD Warns Of Overvalued Canadian Housing
So it’s interesting that TD still expects the same 10-15% correction, despite the recent mortgage rule tightening that is said to have a “substantial” or “significant” impact.
Below is the portion of the reported relating the housing market:
An anticipated 10-15% correction in the Canadian housing market starting in early 2013, and extending over the next two years, will further weigh on consumer spending and residential investment…
While these new lending rules are not intended to severely impede household spending and housing demand, their impact will be substantial. In particular, the previous rule changes had a signiﬁcant impact on home sales, particularly in the six months following implementation.
The policy changes, combined with modestly higher interest rates and a gradual deterioration in affordability, are expected to trigger a welcomed unwinding of excesses in the Canadian housing market.
In our view, average home prices will likely contract 10-15% over the next two years, with markets that are generally viewed as more overvalued, such as Toronto and Vancouver, experiencing the largest adjustments.
The anticipated housing slowdown will feed into real economic activity through a number of channels. First, as home prices stop increasing, households will become more reluctant to go out and spend.
Second, fewer home sales will reduce consumer purchases of housing-related goods and services, such as renovation supplies and furniture and equipment. Overall, housing-related consumer purchases account for just under 10% of overall personal consumption expenditure.
In addition, the blend of softer sales and rising inventories of unsold new homes is likely to bring down the pace of homebuilding activity starting in the second half of this year, with residential construction expected to detract from growth in 2013.
You can read the entire report here