Canada's housing market facing 'modest' correction over next two years, says TD

Canada's housing market is set to undergo a "modest" correction, with resale activity poised to drop 15.2 per cent and average prices likely to fall 10.2 per cent over the next two calendar years, according to a report released by TD Economics Wednesday.

"A combination of more subdued job and household income growth, rising interest rates, the recent tightening in borrowing rules for insured mortgages and fewer first-time home buyers are expected to be the chief culprits behind the slowdown," said the report, prepared by deputy chief economist Derek Burleton and economist Sonya Gulati.

But the national numbers will hide considerable regional differences, they added.

Vancouver, which they describe as "the poster child for those individuals worried about a real estate bubble here in Canada," is destined for a thumping 25.4 per cent peak-to-trough decline in sales activity and a 14.8 per cent drop in prices.

Toronto will also be among the hardest hit. Burleton and Gulati expect a gradual correction in sales on the order of 25 per cent over the next seven to eight quarters and a price decline of 11.7 per cent, "as the number of first-time home buyers and investors settle back down to more normal levels."

Prospects are "considerably better" for housing markets in Calgary, Edmonton and Regina, the report said, although it cautioned that means price and sales activity declines will merely be less pronounced.

In Calgary, sales are expected to decline 8.8 per cent from peak to trough over the two-year outlook and prices are expected to dip 6.4 per cent.

In Edmonton, sales are expected to drop 9.5 per cent from peak to bottom and prices to fall 6.6 per cent.

In Regina, sales are forecast to edge down 3.8 per cent and prices by 6.1 per cent.

In the immediate future, TD expects demand to be supportive and that the brunt of the adjustment will take place in 2012 and 2013.

Over the forecast period, the report said the market will be constrained by national economic growth that is expected to slow from 2.8 per cent in 2011 to 2.3 per cent in 2012 and 1.9 per cent in 2013.

"With the forecast growth performances below historical trends, economic activity should not generate enough momentum to sustain above average price and sales gains," Burleton and Gulati wrote.

By 2013, the average resale home will be priced at $334,000, while sales activity will average 416,400 units.

Canada Mortgage and Housing Corporation said Tuesday that housing starts are also expected to slow in the months ahead, as new home construction moves back to align itself with demographics.

Source: John Morrissy, Postmedia News