The TD has projected a 10% drop in home prices. According to Tony Wong of the Toronto Star dated August 16th: “Canada’s real estate market is due for a “moderate correction” with homes that are anywhere from 10 to 15 per cent overvalued, says the TD Bank.
“The excessive pricing of Canadian housing in relation to fundamentals is now clearly correcting,” TD Bank economist Grant Bishop said in an economic note Monday. “We expect a moderate correction in prices over the coming year.”
But are Buyers really going to expect to see lower prices? We have some real supply issues emerging in the GTA. Seasonally adjusted figures for New Listings show they have declined by 7.2% in July from June. Inventory is in decline. Buyers shopped early this year! The slow down is likely due to fear – and the widespread misperception about the HST, fear of higher interest rates (which caused a rush to market). It is anecdotal, but I had people approach me and say they were worried about the HST on resales. When I explained that the HST was only on the service portion, a parallel tax to the GST, they were very surprised. Just how widespread was this misnomer?
Ontario and BC have led the decline in sales activity. But the year to date transactions are still up by 5.6%. I don’t think we will see prices come down substantially. At the peak of the recession, sellers removed their homes from the market as opposed to reducing the prices. That is what aggravated the supply and caused the market frenzy in the first half of the year. We went from 1 in 12 MLS listings selling to 1 in 3. If the supply continues at this 3 month retreat, what is to say we won’t see another wave of multiple offers as supply retracts?