TD Forecasts ‘Significant’ Gain in Housing Activity This Quarter

TD Bank economist says he expects housing market activity to pick up significantly between now and the end of the year as more buyers enter the market in the wake of the Bank of Canada’s interest rate cuts.

In an interview with BNN Bloomberg, Rishi Sondhi said he expects homebuyers to return to the market in large numbers in the fourth quarter as lower rates boost affordability across the country.

“In our latest forecast, which we issued in mid-September, we projected a fairly significant rebound in home sales in the fourth quarter of this year, reflecting the rate cuts that have already occurred and the rate cuts we expect to see,” he said.

The Bank of Canada has cut its key rate by a quarter of a percentage point (0.25%) at each of its last three meetings.

Experts are forecasting another cut when the bank meets again next week, and Tuesday’s favorable inflation report has many, including most of Canada’s largest banks, forecasting a “massive” 50 basis point (0.50%) cut.

Szondi said the 50 basis point cut would likely “have some psychological value” for potential buyers in addition to the tangible relief it would bring, leading to a “significant uptick in activity” in the next few months.

Szondi noted that Canadian home prices have largely remained flat for months since the Bank of Canada first cut rates in June, so potential home buyers who decided to wait have yet to pay the price of their decision to do so.

As for the potential for home values ​​to rise in the coming months, some areas will be more likely to see prices rise than others, Szondi noted. “We do think that Ontario and British Columbia will be a little bit behind the sharper price increases in the Prairies and Alberta, at least over the longer term, say through next year and into 2026, because prices are already so high here.”

Two recently announced changes to mortgage rules by the federal government are also expected to boost sales activity in the near term, the TD Bank economist said.

First-time homebuyers will soon be able to pay off an insured mortgage over 30 years, up from the current maximum of 25 years, and homebuyers will also soon be able to take out insured mortgages on properties worth up to $1.5 million.

Szondi noted that while the measures will help make homeownership more affordable in theory, home prices will ultimately be higher than they would have been without the changes.

“It will definitely add momentum… especially in the first half of next year. “I think it’s worth noting that prices are going to be higher than they would have been without these changes. That implies a decline in affordability,” he said. “That erosion of affordability will quickly offset the benefits of the mortgage rule changes that are being introduced.”

The findings from TD Bank economists above align with our predictions about the window of opportunity for homebuyers still considering whether the time is right to buy. We expect many more homebuyers to qualify for a mortgage and enter the housing market in the coming months! The announced changes, which take effect in November (stress test waiver), December 15 (30-year amortization and 1.5 million), and January 15 (easier refinance rules), could have a much greater positive impact on housing market activity than even rapidly falling mortgage rates. If you are thinking about buying a home, now is your chance to choose from a good selection of properties, get a good price, take a falling mortgage rate and perhaps avoid the bidding wars that are likely to return to the Canadian housing market soon.