After an unprecedented price runup that ended in February, a housing market correction is underway, with home prices falling all across Canada. From the first to the second quarter of the year, the national average home price fell 9% as sales dropped by 20%. Prices are continuing their decline into the third quarter, falling to $629,971 in July — down substantially from the $816,720 average seen in February.
“More middle-of-the-road retrenchments are likely in Alberta, Quebec, and the Atlantic Region,” the report reads. “Meanwhile, we expect prices to hold up better in Manitoba and Saskatchewan over this period.” With national home prices having shot up 46% during the pandemic, a 20-25% decline would only partially retrace their recent growth. Because of this, the report notes that TD’s predictions “can be more aptly described as a recalibration of the market, instead of something more severe.” Their forecast is within the range of past housing market downturns, and is below the 38% reversal seen during the Global Financial Crisis that began in 2007.
Canada’s mortgage stress test, which requires buyers to qualify at a higher rate than they will actually pay, has also added a layer of safety against rising interest rates, protecting both buyers and lenders. These factors, combined with personal income growth, have Canada on track for a soft-landing rather than a collapse, the bank says.