The bank's Canadian market forecast has now been changed
TD Economics said that it has updated its Canadian market forecast in the wake of significant Q2 surprises in both Canadian home sales and average home prices.
“Our modelling had suggested that sales had undershot levels consistent with underlying fundamentals (such as income and population growth, for example),” TD said.
“However, with the recent surge, this gap has effectively been closed. The sharp rise in prices also deteriorated affordability by more than we thought would take place, which is also a negative for go-forward activity.”
Anticipating another Bank of Canada rate hike on top of the 25-basis-point increase in early June, TD said that the central bank will have piled on an additional 50 bps of tightening relative to prior predictions by the time July is over.
“Beyond the direct hit to affordability from a higher policy rate, a more hawkish central bank should chill the psychology of buyers who were previously rushing into the market after the bank went on pause earlier in the year,” TD said. “Indeed, Bank of Canada signalling appears to be playing a major role in shaping housing market dynamics.”
TD is now expecting the BoC to begin cutting rates only by Q2 2024. At the same time, “population growth will continue to run at a robust clip,” it said. “Job markets should continue to deliver positive income gains, even with some deterioration in the unemployment rate.”
Still, the impact of the elevated-rate environment will continue to reverberate through the rest of 2023.
“We expect Canadian home sales to decline in the second half of this year, reversing part of their recent strength,” TD said. “Furthermore, we anticipate purchases growing at a slower quarter-on-quarter pace than previously envisioned in 2024. Tight markets amid restrained supply should keep Canadian average price growth positive in the third quarter, but we anticipate prices dropping slightly in Q4.”
