TD Economics forecasts “some cooling” in real-estate market by second half of 2021

    1 of 1 2 of 1

      A report by TD Economics expects home prices to continue increasing.

      Bank economist Rishi Sondhi wrote that “with markets remaining historically tight, more near-term gains are in the cards”.

      But the situation may not last for long.

      “This frothy price backdrop could prompt a response from policymakers in coming months,” Sondhi stated in a report last week.

      Already, the federal banking regulator has moved to tighten mortgage rules for certain borrowers.

      On April 8 this year, the Office of the Superintendent of Financial Institutions announced that it is proposing to increase the qualifying rate of uninsured mortgages from the current 4.79 percent to a new rate of 5.25 percent.

      The OSFI plans to implement a new qualifying rate starting on June 1, 2021.

      Sondhi’s report came out last Thursday (April 15), and it noted that the “recent uptrend in interest rates (to still low levels) wasn't enough to derail momentum” in the real-estate market.

      Sondhi indicated that March 2021 was “yet another hot month for Canadian home sales and prices”.

      The TD economist stated that average home prices in Canada increased 4.4 percent month-on-month in March.

      This brought average prices to a “sizzling” 31.6 percent increase year-on-year.

      Sondhi related that home sales rose 5.2 percent month-on-month in March, “bringing them up a towering” 76.2 percent year-over-year.

      Sondhi stated that such sales are “unsustainable”.

      “Accordingly, we anticipate some cooling in sales starting in the second half of the year, as rising interest rates begin to bite,” the economist wrote.

      Interest rates started to rise in late February.

      At that time, the lowest rate for a five-year, fixed-rate mortgage increased by around 25 percent to 1.64 percent.

      As of Monday (April 19), the cheapest rate for the same type of mortgage on the site was 1.79 percent.

      Rising interest rates may affect not only sales.

      “This should also sap some steam from price growth,” Sondhi wrote in the report.