It’s nothing new. TD has been warning of a 10% correction in the Canadian housing market for quite some time and it was reiterated in their Quarterly Economic Forecast released today.
TD sees residential construction as a “soft pocket” in the Canadian economy with an average contraction of 2% over 2013-14. Interestingly, that’s the only sector of the economy expected to see an outright decline.
The report continues:
“In the resale market, we continue to expect sales and price declines in the order of 10% over the next 2 to 3 years as the market unwinds a slight overvaluation, but the adjustment is unlikely to occur in a straight line.
“For example, we anticipate continued near-term weakness in the housing market as the recent tightening in mortgage insurance rules continue to cool housing demand. However, these measures often prove to be temporary and average prices and sales are likely to stabilize by mid-year as low interest rates support demand. Most of the unwinding of the overvaluation should occur in 2014-2015 as interest rates start to grind higher.”
“Major urban markets, such as Toronto and Vancouver, are likely to face somewhat larger than average corrections.”
“Ultimately, a cooling housing market will slow economic growth by curtailing spending on housing-related goods and services. Softer home prices also reduce household wealth, thereby tempering spending further. The largest source of
savings for Canadians is their home, which accounts for almost 70% of household assets. As a result, the ability and willingness of households to spend and borrow is tightly tied to home values.”
“As low interest rates and modest income gains combat high indebtedness and a cooling housing market, consumers are likely to grow their spending at a modest clip of 2% over the forecast horizon. Debt growth is expected to moderate
to a 3-4% pace, helping to stabilize the debt-to-income ratio – albeit at an elevated level. Overall, while we are not anticipating a U.S.-style deleveraging, Canadian households are becoming increasingly vulnerable to an economic or
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