Recent analysis by TD Economics indicates a deeper and more protracted downturn in home sales and average prices than earlier envisaged. This unsettling trajectory is primarily driven by a notable demographic shift coupled with a delayed response in housing supply to meet the burgeoning demand.
TD Economics forecasts a downward trend in home prices and sales through the final quarter of this year and the early segment of the ensuing year. Home prices are anticipated to recede by 6%, while sales may tumble by 8% relative to the figures of Q2. This dip is chiefly tied to the ongoing demographic transition and the sluggish pace of housing supply augmentation. Yet, this fall is milder compared to the drastic 20% and 40% slumps in prices and sales, respectively, triggered by the Bank of Canada’s rate escalations from Q1 of 2022 to the corresponding period this year. TD Economics envisions a halt in rate hikes by the Bank of Canada, with a possible lowering of the policy rate by Q2 of the next year, which might lend some stability to the market.
Peering into the future, TD Economics foresees a retreat in Canadian bond yields from their current multi-year zenith by this year’s end. This scenario, melded with demographic growth and a snug job market, is likely to propel home prices and sales upward by the second quarter of next year. Nevertheless, most markets are set for a measured recovery due to affordability hurdles, possibly stretching till 2025 for national home sales to revert to pre-pandemic benchmarks.
The ramifications of these trends exhibit a diverse pattern across provinces. Ontario and British Columbia are bracing for the steepest descents in prices and sales on the near horizon, resonating with the repercussions of the Bank of Canada’s rate elevations in June. Less pronounced declines are forecasted for Quebec, Nova Scotia, New Brunswick, and Prince Edward Island, with a modest price and sales uplift anticipated by mid-2024. Yet, barring New Brunswick, affordability in these markets is poised to hover near record troughs.
Contrastingly, Newfoundland and Labrador, alongside the prairie provinces, might witness a surge in prices and sales due to relatively better affordability. The prairies have seen a tilt in sales-to-listings ratios favouring sellers since early 2023. Remarkably, as of August, Newfoundland and Labrador’s ratio soared 30% above its long-term average, while Alberta has been a magnet for migrants from other provinces, fueling heightened activity.
The lacklustre performance of the Canadian economy is poised to cast a shadow on housing demand, potentially ushering in forced selling and a bleak housing outlook. Should inflation cling to higher-than-projected levels, interest rates might remain elevated. Concurrently, as Canada’s population graph continues its upward climb, housing shortages may endure, possibly nudging prices higher than forecasted.
In sum, the Canadian housing market is grappling with a broader and more extended downturn than initially projected, with a myriad of factors shaping the landscape across various regions. While a glimmer of recovery is eyed for 2024, the housing vista is shrouded in uncertainty, steered by economic dynamics and demographic shifts.
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