Back to Blog
6 May

House prices to cool in 2011, says TD

General

Posted by: Kimberly Walker

House prices to cool in 2011, says TD

Financial Post 

OTTAWA — The latest housing forecast from TD Economics leaves 2010 totals for sales and prices in Canada largely the same as its previous expectations in December, though that masks a wider discrepancy it now expects between a hot first half of the year and cooler second half.

The forecasting unit of Toronto-Dominion Bank released a report on Wednesday that maintained its call for housing resales this year to rise 2.1% to 475,000, and the average price to gain 9% to $349,000.

“While sales in Q1 were slightly higher than our late-2009 forecast, we view the strength as borrowing from future sales in a move by buyers and sellers to pre-empt regulatory and interest-rate changes,” TD said in its report.

The bank said that people in Ontario and British Columbia are pushing ahead with home purchases to avoid higher costs associated with harmonized sales taxes that take effect in those provinces in July.

As well, it said homebuyers across the country have felt rushed to avoid higher interest rates. Major banks have already started raising their borrowing costs, and the Bank of Canada is expected to start hiking its overnight target rate from a record-low 0.25% in June or July.

The more accelerated cooling effect during the second half of this year will lead to lower prices than previously thought in 2011, TD said. It now expects the average home price to fall 2.7% to $339,700 next year; it previously called for a 1.6% price gain.

TD said housing prices in Canada are currently overvalued by about 15%, based on longer-term economic factors such as income growth. That gap should narrow to 10% by the end of next year, it said.

The gap will close further in the following two to three years, the report said, as housing prices grow at about the rate of inflation – after having averaged 8% annual gains over the last eight years – and household incomes catch up.
Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2990374#ixzz0n98RQoRI