One of Canada’s major banks is predicting further declines in home prices due to a “sudden surge” in supply in some real estate markets.
TD Bank updated its forecast on Wednesday., called for house prices to fall by 10% from the third quarter level until early next year. In September, the rate of decline was fixed at 5%.
Economists at the firm said there were two reasons for the change: an upward revision to its bond yield outlook and “more than expected” easing in the housing markets in British Columbia and Ontario.
“The ratio of sales to new properties in Ontario fell from 63 per cent in May to 39 per cent in October. behind the deterioration,” they said.
“However, some perspective is justified. Even if average house prices fall by 10 per cent, they will remain 15 per cent above pre-pandemic levels. With our expectation that the Bank of Canada will cut interest rates at the end of the second quarter of next year , further declines will be avoided.”
TD’s update comes after the Canadian Real Estate Association (CREA) announced last week that Canada’s largest housing market saw a “significant decline” in sales in October.
According to CREA, home sales recorded in October decreased by 5.6% from the previous month. On a non-seasonally adjusted basis, the national average sales price for a home in October was $656,625. This is an annual increase of 1.8%, slightly higher than September’s figure.
Sean Cathcart, senior economist at CREA, said while demand for housing remained “very high” nationally, October’s figures showed pressures were likely to be subdued until spring 2024 “at the earliest”. He said it shows.
“Ultimately, it will just be a question of whether the Bank of Canada has to raise rates again, or how quickly the Bank of Canada makes its first rate cut before next March,” Cathcart said. This was stated in a paper dated November 15th. statement.
He said the level of activity seen this spring, when sales and prices soared in many markets as the Bank of Canada’s interest rate cycle was paused, is a sign that the central bank is ready. I predicted that this might happen in six months. Interest rate cut.
Bank of Canada Governor Tiff Macklem said Wednesday that the “excess demand” that was driving inflation has disappeared from the economy.
Statistics Canada reported Tuesday that annual inflation slowed sharply in October to 3.1 per cent, down from 3.8 per cent the previous month and five per cent lower than the June 2022 peak of 8.1 per cent.
The Bank of Canada has been rapidly raising its benchmark interest rate since March 2022 in an effort to cool the economy and dampen consumer demand, a move Macklem said is expected to continue to push inflation down in the coming months. .
Macklem said rising interest rates are “squeezing” Canadians even though inflation is slowing. But he argued Wednesday that “the rewards will be worth it” if the Bank of Canada achieves price stability and inflation returns to its 2 per cent target.
Macklem said interest rates “may be sufficiently restrictive” to contain price pressures, but the central bank is prepared to raise rates again if high inflation “persists.” I repeated.
The central bank has left the policy rate unchanged at 5% in the past two decisions. The Bank of Canada’s final interest rate decision for this year will be made on December 6th.
In a question-and-answer session after his speech, Macklem said the Bank of Canada is closely monitoring trends in underlying inflation to determine when the central bank’s policy interest rates will start to decline.
TD economists said Wednesday they expect the job market to “bend” but not collapse under the weight of high borrowing costs, supporting demand and limiting forced selling.
“Slower growth and the possibility that interest rates may be higher than expected are key downside risks to the outlook. On the positive side, the 16% increase in new listings observed in the third quarter has been factored into our forecast. “This could potentially be mitigated even more than it already is,” they said.
“In a scenario where new listings record a modest decline through the first half of next year (compared to the modest increase we expect), average Canadian home prices would still decline, but the decline would be about 1 percentage point smaller. will do.”
— With files from Craig Lord of Global News
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