House prices to drop 10.2% over next two years: TD Economics

Toronto and Vancouver, which the report pointed out are the least affordable cities in the country, are expected to be hit hardest, with Vancouver dropping 14.8% from its peak, and Toronto dropping 11.7%.

TD Economics’ prediction is modest compared the one offered by Capital Economics. The group has been saying for years that Canadian house values are going to plummet by 25%.

Still, TD Economics’ warning is a sobering one for a Canadian housing market that’s been performing above expectations for years. (Average national resale prices were up 8.3% in May year-over-year.)

“Restrained economic growth, higher interest rates, new mortgage borrowing rules and eroding home affordability help support our call for more moderate housing activity,” said report co-authors Derek Burleton and Sonya Gulati of TD Economics.

Prices will meet falling demand

Sales are already well off their peak from 2009, and prices will soon catch up, said the report authors.

Any exception to the national trend will be Calgary, which TD Economics predicted would reach four consecutive years of gains in prices from 2009 through 2013, up 3.3%, 1.2%, 0.5% and 1.2% respectively to reach an average of $410,500 in 2013 from a low of $385,900 in 2009.

“Relatively strong employment and wage prospects, and gradual increases to net in-migration numbers are expected to accompany the solid economic showing,” said the report. “

One of the top performers of the past two years in Canada, Saskatoon, will eventually hit a wall this year, according the report.

While prices were up 6.2% last year and are set to rise 4.2% this year, they expected to drop 3.4% in 2012 and another 0.3% in 2013 to return essentially where they were in 2010, said TD Economics. The reason given is that the economy won’t be able to support the recent housing price gains.

A similar picture is expected in Winnipeg, which is coming off a 10.3% gain in average prices in 2010, and is expected to rise 5.2% this year, but will drop 3.9% in 2012 and down 0.1% in 2013 to reach $231,000.

No Canadian market is expected to experience a boom over the medium term of the future, said the report.

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