TD economist: Real estate slowdown ahead

The chief economist for TD Bank is now predicting those new, tighter mortgage rules, which came into force in July, will slow sales by as much as 5% in the waning months of 2012.

In addition, prices will be slashed by 3% on average in the second half of 2012, says Craig Alexander, right through to the beginning of 2013.

The assessment also comes with projections of a rate hike, which will result in a price correction of 10% on the national average.

That’s not the rosiest picture for homeowners, especially looking to pull equity out of their homes, but it may benefit investors across the country. The combination of lower prices and increased interest rates will likely bolster demand for rental units, and possibly lead to a bump-up in rental prices.

Still, investors looking to build their portfolios will have to grapple with the same challenges around price depreciation and the difficulties that presents to acquisition.

Although the new rules have been in effect since July, there are already some indications that sales and prices are beginning to cool down in some of Canada’s largest real estate markets.

In Toronto, the Toronto Real Estate Board reports that sales have tailed off by 12.5% since 2011, despite average prices increasing 6.5% to $479,095.

Vancouver was hit harder, as sales in that city dropped by 30.7 in August. Average prices also dipped slightly, falling 0.5% to $609,500.

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