The housing sector shouldn’t hold its breath for a reprieve, TD warns
The end is nowhere near for the pronounced slowdown of the Canadian housing market, according to a new analysis by TD Economics.
With July figures slated to be released soon, “we are looking for another leg down in sales activity,” TD said. “And with listings holding up reasonably well, this will force the sales-to-listings ratio (currently at 51.7%) even lower.”
TD warned that this would place even greater downward pressure on home prices.
“Based on early readings of transaction data over July, we are expecting the peak-to-trough decline in prices since the first quarter to continue to push towards our forecast of 19%,” TD said. “With the Bank of Canada unlikely to pause on rate hikes until later this year, the real estate sector’s fall from grace isn’t done yet.”
Read more: Canada house prices – could a 25% drop be coming?
And while better-than-expected conditions south of the border would be welcome news for the Canadian economy, the housing market shouldn’t hold its breath for a reprieve.
“Though an improved inflation report will be welcomed news for the Bank of Canada, it is unlikely to cause policymakers to change course at its September 7 meeting,” TD said. “The BoC is poised to continue hiking its policy rate at a significant pace as it will need much more evidence that inflation is declining.”
TD is anticipating the policy rate to reach 3% by next month, and 3.25% by the end of 2022.
“That would bring the policy rate decisively beyond the BoC’s neutral rate – the interest rate that is neither accommodative nor restrictive – assumption of 2% to 3% and into restrictive territory,” TD said.
