Mounting borrowing costs and consistent declines in sales-to-new-listings ratios would be the major drivers of the price drops
Canadian home prices are likely to decline at a rate twice as large as previously expected, according to Toronto-Dominion (TD) Bank.
TD’s economists are now expecting home prices to fall by as much as 10% in the first quarter of 2024, up from the 5% prediction in their prior assessments in September and October.
The economists said that the revised projection was spurred by mounting borrowing costs, combined with substantial pressure from a recent surge in residential listings.
Another major driver was an observed consistent decline in sales-to-new-listings ratios. For instance, in Ontario, the ratio has seen a precipitous drop from 63% in May to 39% in October.
At the same time, the TD economists are sceptical of the larger-than-anticipated price declines actually improving affordability, since average home prices would still be at least 15% higher than pre-pandemic levels even after the drops.
The lack of housing affordability remains a top concern for Canadians for the second consecutive year, according to a survey by Habitat for Humanity Canada.
— Canadian Mortgage Professional Magazine (@CMPmagazine) November 16, 2023
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Affordability has significantly improved recently, says Ratehub.ca
A recent report by Ratehub.ca said that housing affordability has improved in eight of 10 major urban markets across Canada.
“Home prices have indeed decreased by a large enough margin to ease qualification for many buyers in October,” Ratehub said. “This is despite the fact that mortgage rates rose slightly on a month-over-month basis, with the mortgage stress test hitting a new average high of 8.47%.”
Ratehub cited Ontario as a key factor in this trend, with the average Toronto home price declining by $23,400 in October. Hamilton, which was the market that saw the greatest improvement in affordability last month, saw its average fall by $25,100.
“As a result, home buyers in those cities require roughly $4,000 less to qualify for a mortgage for a home at the average price of $1,103,600 and $829,100, respectively,” Ratehub said.
