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TD Economics sees government moving in to cool down "white hot" real estate market
TD Economics has added its own take about rising concerns regarding Canada’s overheated real-estate market.
The bank says in a new report that unless the sales and prices start trending down, the government is likely to step in to cool down the “white hot” market.
This projection is contained in a broader report Tuesday (March 30) by senior economist Sri Thanabalasingam the country’s economy one year after the COVID-19 pandemic arrived.
Thanabalasingam noted that in February 2021, home sales were 43 percent higher than in 2020.
In addition, prices have climed 25 percent above last year’s levels.
“The rapid increase in activity indicates some segments of Canada’s housing market, at the very least, have moved well above their levels supported by fundamentals, something the Bank of Canada has also acknowledged in recent weeks,” the TD economist wrote.
Thanabalasingam sees that the “current pace of housing activity is unlikely to last into 2022”.
The economist noted that rising mortgage rates as well as affordability constraints will “probably bite, likely in the second half of this year, leading to a tapering off of price growth”.
“Barring this, regulators and governments will probably implement additional macroprudential or tax policies to slow down this juggernaut,” Thanabalasingam.
“Either way, we are likely to see a significant cooldown over the next 2-3 quarters,” the TD economist added.
Thanabalasingam also referred to a TD Economics housing forecast update released on March 3.
The forecast written by bank economist Rishi Sondhi noted that the current pace of “robust sales” is expected to “hold up in the near-term”.
“However,” Sondhi noted, “these levels are likely unsustainable and moderation still appears to be in the cards later this year amid poor affordability in several provinces, an upward grind in interest rates, and a lack of supply.”
The federal Canada Mortgage and Housing Corporation on March 25 released a housing market assessment that noted “vulnerabilities”.
“Sales remained elevated relative to new listings in several regions and there is now evidence of overheating at the national level,” CMHC stated.
On March 24, RBC Economics came out with a report categorically stating that the market is overheating.
RBC economist Robert Hogue noted in that report that Canada hasn’t had a market “overheating of this scope since the late 1980s”.
Going back to the TD Economics report on March 30, Thanabalasingam noted that housing starts are up, as well as housing-related spending for renovations and goods.
"These trends are likely to continue as long as the housing market remains white hot," Thanabalasingam wrote.