Hot housing market expected to cool by November
The Bank of Canada lowered rates to an all-time low with an aim to cushion the Canadian economy from external shocks. Instead, this aggressive easing has "proved to be more of a trampoline for resale housing markets," Toronto-Dominion Bank economist Pascal Gauthier said.
As of August, 50-60% of pent-up demand has been absorbed, and if the current pace persists, the demand will dry up by November, TD estimated in its Resale Housing Market Outlook. A sharp shift in consumer confidence has contributed to the rebound, combining with low and favourable interest rates that made home ownership affordable for many Canadians.
Between 45,000 and 53,000 potential sales late last year failed to materialize because consumer confidence froze up during the worst of the global financial crisis, TD estimated.
No other Canadian economic indicator in the past few months has recovered as strongly, and in fact, home sales have now exceeded pre-recession levels and matched the lofty volumes of 2007, TD said.
"After plummeting by nearly a third in the second half of last year, the seasonally-adjusted level of sales had climbed back by 61% as of August," the report said.
Overall, TD estimates national existing home sales will rise 2.4% to 445,000 units in 2009 from a year earlier, with the average price climbing 2.1% to $310,000. In 2010, sales are seen rising 2.2% to 455,000 units, while prices jump 5%. But in 2011, TD projects eroding affordability will dampen sales but the average price will still add a modest 2%.
TD also looked at nine Canadian cities and their prospects for existing home sales. All cities coast-to-coast were forecast to show gains from this year to 2010, but then retreat the following year.
On Tuesday, TD released a report that suggested the Bank of Canada could raise interest rates sooner and more aggressively than forecast if real estate strength did not cool.
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