By Ketki Saxena
Investing.com -- A new report from TD (TSX:TD) Economics predicts that the Canadian housing market may encounter some turbulence as the Bank of Canada continues to hike rates, resulting in a downturn in sales activity and prices during the latter half of this year.
“We anticipate purchases growing at a slower quarter-on-quarter pace than previously envisioned in 2024,” writes TD Economist Rishi Sondhi in Tuesday’s report. “Sales could also be weaker-than-anticipated in the near term if hawkish central bank signaling drastically upends buyer psychology."
The report predicts that the Bank will opt to cut rates in the second quarter of 2024.
In addition to slowing sales, the report also predicts that Canadian housing prices will decrease in Q4 2023.
"Despite some support from tight supply-demand conditions, which should keep average price growth positive in the third quarter, a fourth-quarter slide is expected for prices as well" notes Sondhi. “Like sales, we’ve marked down our quarterly growth profile next year.”
"Weaker-than-expected economic growth could also weigh on prices, both through softer demand and the potential for a higher degree of forced selling by strained homeowners."
However, the report also that the forecasts face a significant downside risk driven by Canada's record population growth.
The report acknowledges that "Compositional forces pushing average prices up in Ontario and B.C. could persist longer than anticipated. Housing shortages stemming from very strong population growth could also pressure prices higher than we anticipate.”