The country's second largest bank foresees reduced home prices in British Columbia and Ontario. TD Economics modified its price outlook after its downward revision regarding home sales. Economists at TD predict an "unprecedented" drop in home prices, namely in pricier markets. The decline won't erase all of the price growth seen since early pandemic rate cuts, though.
TD is calling for a drastic drop in Canadian home prices following 2020's unforeseen price run-up. “Our forecasted decline in national home prices would only partially retrace the 46% run-up over the course of the pandemic,” explained Rishi Sondhi, a senior economist at the bank.
The most significant price cutback in history won't fully wipe out the feverish price increases seen over the last two years. As per TD economists, approximately 10% of gains will be retained by the market.
Canada has never seen a price correction this serious. “Our projected price drop represents an unprecedented decline (at least from the late 80’s onwards, when the data began). However, it follows an equally unprecedented runup during the pandemic,” said Sondhi.
In referring to the impact in prices due to financing, the bank is calling it a "recalibration." It is an appropriate description for their forecast, since they don't see prices rebounding to their all-time high in the near future. A newfound elevated cost of financing is expected to constrain home prices for the next few years.
The bulk of price correction will be concentrated in BC and Ontario, according to Sondhi. The bank expects very small corrections in regions like the Prairies and Atlantic Canada, as those markets are priced much lower and consequently, less sensitive to interest rate increases.