Steady national and global economic recovery will be major influences on the market’s dynamics, new report says
The stricter mortgage stress test implemented on June 01 will likely be a near-term headwind on borrowing and purchasing activity, and any increases in borrowing rates over the next few quarters are likely to be relatively modest and gradual, according to TD Economics.
The steady pace of national and global economic recovery has continuously pushed inflation forecasts upwards. As a result, “an upward trend in bond yields will likely reassert itself, taking mortgage rates along for the ride,” said Rishi Sondhi of TD Economics.
Any Bank of Canada policy rate adjustment is likely to take place only once in 2022, during the second half. “At the same time, however, each quarter point increase in rates is likely to have outsized impacts in today’s high-priced market relative to the past,” Sondhi wrote in TD’s latest analysis, Canadian Housing Outlook: Comin’ Down the Mountain.
Additionally, Canadian home sales have been steadily unwinding after reaching a peak during the first quarter.
“Tighter stress test rules and eroding affordability should continue to push sales lower moving forward,” Sondhi said. “One thing was abundantly clear about the first quarter’s stratospheric pace of Canadian home sales: that it was unsustainable.”
Read more: Industry leaders weigh in on stress test hike
However, at the same time, “high household savings rates, rising incomes, and stronger population growth will likely keep sales well above their pre-pandemic levels,” Sondhi elaborated.
This will be particularly apparent in the condo sector, which is once again accounting for an increasing share of the market “as their affordability vis-à-vis detached housing has dramatically improved and investor demand has been on the rise.”
“This trend is likely to continue in the coming quarters as re-openings and return-to-office improve the attractiveness of urban centres,” Sondhi said. “A rising condo share will also be supported by ample available supply. Higher sales of these relatively inexpensive units should help restrain average home price growth. Note that this is the reverse of what happened earlier in the pandemic, when sales of relatively expensive detached units dominated, upwardly pressuring average home prices.”
