Home prices to decline by more than originally expected, say TD economists

Mounting borrowing costs and consistent declines in sales-to-new-listings ratios would be the major drivers of the price drops

Home prices to decline by more than originally expected, say TD economists

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.

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.