If TD is right, Canadian home prices will tumble 24% from their spring 2008 highs to 2010. TD’s reasoning? Overbuilding and speculation.
In a recent report, TD states: “This overbuilding will likely weigh on markets over the next few years.” However, TD “(doesn’t) envision a U.S.-style crash for Canada.” It says, “Unlike south of the border, the supply of new housing was absorbed by new owners, and Canada has more robust mortgage lending structures.”
A 24% drop would lower average home prices from their peak of $324,000, to $246,000.*
With discounted 5-year fixed mortgage rates falling from about 5.50% in April 2008 to 3.95% today, a mortgage on the average house could therefore drop from $1816 per month to $1170 per month by 2010 (assuming TD is right and that average mortgage rates stay around 4%).**
That’s a gigantic improvement in affordability. Barring massive unemployment, a improvement of that magnitude could very well light a fire under buyers and support the market.