By Ketki Saxena
Investing.com – A report from TD (TSX:TD) Economics forecasts a drop of 10% for Canadian home prices for the third quarter and into early 2024. In September, TD Economists had forecast a 5% drop in home prices.
“There are two main culprits underpinning this change”, the report stated. “The first is our upgraded bond yield forecast. The second is the larger-than-anticipated loosening in B.C.'s and Ontario's housing markets.”
Despite expecting the sizable drop in prices, the report notes that “some perspective is warranted”, given that “a 10% decline in average home prices would still leave them 15% higher than pre-pandemic levels.”
The report also added three key factors that will prevent Canadian home prices from sliding further. First, their expectation that the Bank of Canada will begin cutting rates by the end of Q2 next year. Secondly, the report notes that “Robust population growth cushions the downside potential on prices.”
Finally, and “most importantly”, they “expect job markets to bend (but not break) under the weight of high borrowing costs, underpinning demand and limiting forced selling.”
They also expect that with the labour market remaining relatively resilient, “the mortgage renewal cycle is unlikely to trigger an economic crisis.”The authors of the report expect that 38% of Canadian households with mortgages should be able to weather the higher interest rates.
However, the report does cite data from the Bank of Canada, which shows that “roughly 50% of mortgages that were initiated before interest rate hikes began will face rates that will be 1.5-3.5 percentage points higher than what they signed up for.”
“For an average household with a mortgage, the cumulative increase in payments will be 28% by the end of 2024.”