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Toronto, Vancouver to Face Price Drop, says TD

12 June 2012

It looks as though the two hottest markets in Canada can expect a downturn in the next several years. That is, according to TD economists anyway, who say that both Toronto and Vancouver will experience a drop in prices within the next two to three years. But those who are worried about underwater Vancouver and Toronto mortgages needn’t be; the drop will only be about 15 per cent, which is half of the 30 per cent seen in the States before their complete housing collapse.

The report comes from TD Bank’s Derek Burleton and Leslie Preston and in it the two say that while Vancouver is already experiencing a slight downturn in prices, that’s not going to happen in Toronto any time soon, meaning any time this year, unless something drastic happens to the global economy outside of Canada. In fact for the time being, Toronto home prices are going to rise before they start to fall.

“Some observers might point to the recent data in Vancouver as evidence that housing activity is going through a long-awaited correction,” the two economists said in their report. “But the jury remains out. As we’ve pointed out, despite the recent pull-back in sales, the market remains in balanced territory and underlying prices are continuing to expand. In our view, Vancouver’s market is likely to show increased stability over the remainder of this year. Meanwhile, there appears to be little stopping Toronto’s market from recording robust gains and continuing to play catch-up with its West Coast counterpart.”

The economists also agreed in their report that if there is any segment of the market that’s at risk in either city, it’s the condo market. The report indicated that with 20 – 25 per cent of condo units in both cities being purchased by investors and then rented out, there may be enough demand to meet the supply. However, the two also say that if there’s not a slowing, there could be many condos left sitting empty – a concern Jim Flaherty mentioned himself when speaking about mortgages in Ottawa and how he was concerned about the “last condo buyer in Toronto.”

The TD report continued on to say, “For now, the rental markets in Toronto and Vancouver are both quite strong with low vacancy rates, helping to mitigate the risks in the near term. Farther out it depends on the underlying strength of the economy and migration into each city. Nonetheless, even if demand stays robust, we suspect that a share of the bulge in units currently under construction will remain unsold and lead to growing inventories.”

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