# TD Economics forecasts 10% decline in house prices through 2013



## andrewf (Mar 1, 2010)

Highlights:

•	Relative to where they sat in CANADIAN HOUSING MARKET 2011 Q1, national resale activity and average prices are projected to decline by 15.2% and 10.2% respectively over the next two years.
• Restrained economic growth, higher interest rates, new mortgage borrowing rules and eroding home affordability help support our call for more moderate housing activity.
• Fewer new home buyers and reduced investor appetite should also simmer new and resale condo activity.
• In addition to our national perspective, we provide an in-depth overview of twelve major markets within this paper.
• Over 2011-13, Calgary, Edmonton and Regina housing markets are set to lead the way. Still, the term “leader” is relative as no
market is slated to experience a boom over our forecast. We simply have these regions doing better than the rest.
• Given their recent run-up in activity, new condo supply and only subdued economic growth forecast, Toronto and Vancouver are expected to see a larger than-average correction in both sales and prices relative to other regions.

Read the report in full


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## Square Root (Jan 30, 2010)

They say prices to decline by an average of 10% over 2 years. Vancouver about 15%. read the report and seems reasonable to me.


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## Jungle (Feb 17, 2010)

TREB reported that listings fell 24% in June 2011, there are 21% more sales and prices are up 9.5% year over year. 


If there are less listings and more home sales, how can a market crash ? (by crash I mean 20-30 + %


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## humble_pie (Jun 7, 2009)

*let's stop with the panic*

no it isn't 25%. TD did *not* write that a housing decline will be 25%.

from the td report:

_" Canada’s housing market appears set for a moderate correction, with resale activity and average prices projected to decline by roughly 15.2% and 10.2%, respectively, over the next two years."_

the above sentence means that resale activity is projected to decline 15.2% over the next 2 years, and average prices are projected to decline 10.2% over the next two years.

that's what the word "respectively" means.

it does *not* mean prices will drop 15.2% in year one of next 2 years, and another 10.2% in year two of next 2 years, as andrew has unfortunately understood it.

the forecast drop in the housing sector is not especially remarkable or unsettling. The figures TD has issued have been around for months now. There's really no news here.

looks like square root understood it right. Ten percent decline over 2 years, higher in certain markets like vancouver. Yawn.


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## andrewf (Mar 1, 2010)

My apologies, I read 'over' as 'in'. My reading comprehension issue was not with the word respectively, respectfully. 

Nonetheless, a 10 - 15% decline is not really yawn-worthy. Most Canadians have forgotten that house prices can fall.

Capital Economics, on the other hand, has been more aggressive, forecasting a 25% decline. Their reports are available by subscription only.


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## slacker (Mar 8, 2010)

haha, I misread that too. But TD could had phrased that better.


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## KaeJS (Sep 28, 2010)

It was all phrased perfectly fine.

I hope it corrects 15% in the GTA area.

I'll be in the market for a house in the next 2 years.


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## humble_pie (Jun 7, 2009)

*actually TD economics forecast 10.2% decline in housing prices thru 2013*

up to 15% in certain hot areas like vancouver.

that's a decline of 5% per annum, yawn.

let's not get all berserk about this.


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## Jungle (Feb 17, 2010)

I think you meant to post reply but instead started a new thread?


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## andrewf (Mar 1, 2010)

Either that or he's being passive aggressive.


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## andrewf (Mar 1, 2010)

Me too, Kae. Confirmation bias FTW!

It was phrased correctly, if awkwardly. I misread it. If the mods could please correct the title, I would appreciate it.


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## humble_pie (Jun 7, 2009)

oh, isn't that great. The moderators corrected the title pronto.

i deliberately posted a new title to try to neutralize the shockingly wrong previous title, because it was giving a false impression to everyone. It's my understanding that forum members cannot edit titles, and that not even the original poster could have changed what he had written.

there are many members of this forum who are, understandably, very alert to the market values of their homes these days. Some are even a bit anxious.

it's a serious matter because so much is at stake for so many families, so i for one feel it's not right to scare people with alarmist headlines that are false to boot. And i knew that many would read nothing except the fake headline.

it's gratuitous - but typical - for this OP to cover his grave mistake with an insult. May i be precise. The mistake was not so much the failure to understand what the word "respectively" means in standard written english, although he should learn that.

the mistake was taking it upon himself to blow his misreading up into a screaming tabloid-style headline lie.


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## KaeJS (Sep 28, 2010)

Oh, boy...

Do you two ever stop bickering back and forth? 

You'd think you were brother and sister


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## humble_pie (Jun 7, 2009)

not really, i don't have any bitter relatives


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## andrewf (Mar 1, 2010)

It seems I do!

Maybe the pie and I need to have a beer or something. I don't bear him any ill will, but that sentiment doesn't seem to be mutual.

I already pointed out that 'respectively' applies to both interpretations of what was written. My error was in reading 'over' as 'in'. If I'm going to be nit-picked, I'd appreciate if it was done correctly. I don't appreciate being accused of lying. That implies an intention to mislead. It was an honest error.


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## sags (May 15, 2010)

"Revised projections".........

I think these are words that will be often used in the years ahead.

They will be accompanied by another word........"downwards".


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## Jungle (Feb 17, 2010)

Add that to the word "bubble, correction and over priced real estate. "


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## the-royal-mail (Dec 11, 2009)

Is it possible there are enough people who are waiting for a decline, that it will basically pre-empt any actual decline account higher demand?


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## Square Root (Jan 30, 2010)

i thought the report was straightforward, easy to understand, and reasonable in it's conclusions. This is typical of TD Economics reports. Obviously the future cannot be known with certainty, but their predictions seem most likely in my view.


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## andrewf (Mar 1, 2010)

the-royal-mail said:


> Is it possible there are enough people who are waiting for a decline, that it will basically pre-empt any actual decline account higher demand?


In the report, these discuss one of the factors contributing to the decline being the exhaustion of first time buyers, who have in large part already jumped in to take advantage of loose credit, home buyer tax credit, home renovation tax credit and the looser mortgage eligibility rules before they tightened. I'm sure there will be some people induced into the market, but it won't be enough to prevent some softening. 

The report seems to be projecting that house prices will be flat over 2009-2013. That's a pretty mild correction. I'm not sure why we wouldn't see a bigger correction in Vancouver than 15%. It sure seems to me that once prices start falling, people will be hesitant to make million dollar bets that housing will bounce back. The report predicts that Vancouver will remain absurdly unaffordable. I feel bad for Vancouverites!


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## kcowan (Jul 1, 2010)

I would expect the TD report to be conservative.


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## sags (May 15, 2010)

I wonder how a 10% decline will affect the recent 'collateral mortgages" banks have been issuing.

Info on TD collateral mortgages.

http://gailvazoxlade.com/blog/archives/2230

The way they are described, the TD Bank registers 125% of the house price as a lien against the property. They can arbitrarily raise the interest rate to as high as prime+10% if they think there is any danger of a default. The mortages cannot be transferred to another lender. The mortage must be paid out and a new one drawn up with the new lender. If the mortgage is higher than the home's value, no other lender would approve the mortgage anyways.

Anyone who borrowed some of that extra 25%, will suffer significant losses if their home value falls even 10%.


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## andrewf (Mar 1, 2010)

I need to think about it some more, but on the face of it, this could be a PR disaster for TD.


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## KaeJS (Sep 28, 2010)

andrewf said:


> I feel bad for Vancouverites!


I don't.

After the riot they caused, they made Canadians look like fools.

I bet all the other countries are laughing still.

"Look at those Canadians... paying high taxes and then destroying their city in a riot because their brother in the south beat them at a hockey game. What a bunch of fools. Now they will have to pay even more tax to make up for all the damage they caused. Everyone is so nice in Canada that even the police didn't try to stop the riot! The police probably didn't want to hurt anyone's feelings!"

I would never join the army or fight for my country, but that doesn't mean it isnt bothersome when people in Canada act like morons.


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## andrewf (Mar 1, 2010)

Well, that was only a few people hundred people causing the majority of the ruckus. Beyond that, the world almost completely ignores us.


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## nathan79 (Feb 21, 2011)

KaeJS said:


> I don't.
> 
> After the riot they caused, they made Canadians look like fools.
> 
> ...


Because obviously everyone in Vancouver was rioting. 

Don't be an idiot. The same thing could happen in Toronto, and has if you count the G20.

Oh, and I guess you must really hate Montreal -- they riot when their team WINS. How's that for foolish.

Anyway, no one outside of Canada really cares about Vancouver... and they probably care even less about Toronto.


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## Financial Cents (Jul 22, 2010)

Let's make one thing clear - nobody knows what the weather is going to be like tomorrow, let alone a housing forecast. Forecasts are nothing more than some educated guess, which doesn't mean its right and doesn't mean its wrong


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## dogcom (May 23, 2009)

Actually the type of people who rioted in Vancouver would probably benefit from a fall in home prices. The ones who would be hurt by it probably wouldn't be involved in the riot.

So to some a nice price drop in places like Vancouver and Toronto would make a riot worthwhile to make prices more affordable.


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## beginner (Jul 29, 2011)

*will mutual funds be affected?*

I wonder, if the estimation from TD happens, there is a 10% value declination in house market in the coming two years, how would that affect Canadaian indexed mutual funds? I heard real estate is a major part of Canadian economy. --- will the indexed mutual funds (such as the couthpotato model portofolio) perform better than GIC? --- dummy question... I know.... I am still learning... thank you for your sharing your analysis


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## emperor (Jul 24, 2011)

I also wondered if Babyboomers might down grade to condos and buy vacation property in the states. It might free up a lot of family houses.


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## dubmac (Jan 9, 2011)

KaeJS said:


> I don't.
> 
> *After the riot they caused, they made Canadians look like fools.
> I bet all the other countries are laughing still.*


I agree KaeJS that the Cup Riots in June are an embarassment to someone living in vancouver- as someone who lives in Vancouver for the past 17 yrs (I am from Milton Ont.), it greatly weighed on people here. I would suggest that the most damage was done by a few (say 100-150) disaffected youth and thugs from areas beyond Vancouver proper. Many caring people went to clean up the mess the next day after this embarassment. No doubt the same issues that triggered the riot are prevalent in Toronto, London England and other cities where large issees create a tinderbox of resentment among many disaffected youth. 

I'm not so sure that a drop in house prices would improve the circumstances for these angry rioters. Some sociologists suggest that they need to feel that their futures need not be as "doomed" as they feel that they are. I have no idea how to change this tho.


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## donald (Apr 18, 2011)

Winnipeg and saskatchewan,i know nobody gives a ****,flat land and farmers,nothing to see,nothing to do,these two provinces are poised for growth and higher home prices,according to numerous articles ive read,so not all of canada.


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## hystat (Jun 18, 2010)

I think a lot of these "market corrections" are mislabeled.
I think sometimes it's just a sober return to common sense real estate values.

like in most real estate corrections, the homes affected the most will be "stupid" ones...

over sized for the lot
oversized for the community
full of potlights and stainless appliances, bells and whistles, but no real fundamentals


Some homes never correct in any serious way:

amazing location
amazing lot
near ammenities like hospitals and good schools
good waterfront
etc.

Buy smart and forget the fear.


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## petea4 (Dec 24, 2010)

hystat said:


> Some homes never correct in any serious way:
> 
> amazing location
> amazing lot
> ...


Agreed. 

I just bought a waterfront detached house in Toronto. Some people think I'm nuts buying in this market, but I see value in it's location.


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## peterk (May 16, 2010)

I have a friend starting out their career that just bought a 600k place based on the thinking that a mortgage at 2.2% for 30 years is cheaper than rent! I tried to compell them to rent, but it fell on deaf ears. Man I hope they don't get screwed over when/if the market drops out.


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## kubatron (Jan 17, 2011)

petea4 said:


> Agreed.
> 
> I just bought a waterfront detached house in Toronto. Some people think I'm nuts buying in this market, but I see value in it's location.


bluffs?

etobicoke?

under a mil'?


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## Cal (Jun 17, 2009)

I read yesterday in the Toronto Star that in the pat 10 years the average home price has doubled, yet the average salary has only increased 10%.

I wish people would look at a potential RE market correction (assuming 5-10%) as a good thing...otherwise, too many people will be committed to pay too much for too long, hurting the economy in general.


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## kcowan (Jul 1, 2010)

peterk said:


> a mortgage at 2.2% for 30 years is cheaper than rent!


What state do they live in? Mortgages in Canada are limited to 5 years.


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## peterk (May 16, 2010)

Yes, I meant over a period of 30 years for the amortization. The person doesn't seem to be accounting for the fact that interest rates could very well be 6% in a couple years - Hopefully not too many canadians think this way...


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## InfraRed (Apr 20, 2011)

kcowan said:


> What state do they live in? Mortgages in Canada are limited to 5 years.


b/s
there are mortgages for 7 or 10 years: http://www.redflagdeals.com/deals/main.php/financial/mortgagelong/


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## Guigz (Oct 28, 2010)

Purchasing a home MUST be cheaper than renting a comparable one. Otherwise, everybody would be renting and nobody would be buying.

It is probably a sign that the market is wacko wacko when it starts to be more affordable to rent then a comparable buy (over a long period).


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## Cal (Jun 17, 2009)

You should check out mls.ca and compare what it would cost to finance some of these places, factoring in property taxes. There are some great places to rent.

A buddy of mine is currently renting a condo for about $200 less than the owner is paying for the mortgage.....

Owning property is such an emotional thing. It is too easy to become irrational, or impractical with such an emotional attachment to it.


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## kimufalcon (Feb 12, 2011)

[Toronto - 416 district, resale - price history]
mid-Apr/11 avg price $540，229
mid-May/11 avg price $543，787
mid-Jun/11 avg price $515，052
mid-Jul/11 avg price $481，200
mid-Aug/11 avg price $443，078
Compared to May 2011 peak, avg price has dropped $100，709 or -18.5%

mid-apr/11 avg SFH $772，721
mid-may/11 avg SFH $774，046
mid-jun/11 avg SFH $744，747
mid-jul/11 avg SFH $720，808
mid-aug/11 avg SFH $597，963
Compared to May 2011 peak, avg SFH price has dropped $176，083 or -22.7%

http://www.torontorealestateboard.com/market_news/release_market_updates/news.htm


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## peterk (May 16, 2010)

Guigz, people lose money all the time in endeavours they truely think will be profitable. Real estate is just one of those endeavours - A rather popular one, swarming with mis-information at that..
There is no "must"


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## Dmoney (Apr 28, 2011)

Cal said:


> You should check out mls.ca and compare what it would cost to finance some of these places, factoring in property taxes. There are some great places to rent.
> 
> *A buddy of mine is currently renting a condo for about $200 less than the owner is paying for the mortgage.....*
> 
> Owning property is such an emotional thing. It is too easy to become irrational, or impractical with such an emotional attachment to it.


How much of the mortgage payment is equity going towards the condo though? It could be cash flow negative building equity at the same time.

There's no absolutes in any case, in some cases it's much better to rent, and in some cases it's much better to own. It depends on way too many factors to make a blanket statement.


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## Cal (Jun 17, 2009)

I don't have his LL's numbers, but I would assume the bank is making out better than the LL.


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## petea4 (Dec 24, 2010)

kubatron said:


> bluffs?
> 
> etobicoke?
> 
> under a mil'?



Etobicoke.

Just over. 

Lakefront with city view.


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## Dmoney (Apr 28, 2011)

Cal said:


> I don't have his LL's numbers, but I would assume the bank is making out better than the LL.


 That's why I own bank stock. The bank can borrow from us at 0% and lend from 2-5% on a mortgage, up to 10%+ for LOCs to individuals with weak credit.

Although a LL can do better than 10% if his/her stars are aligned. If the LL can do what the bank does, borrow at 3% and rent at a 5,6,7% cap rate, not only will he/she be cash flow positive, but the tenants are building the LL's equity as well.


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## andrewf (Mar 1, 2010)

There is a maximum interest penalty for breaking a mortgage, which is why lenders don't like to offer longer term mortgages. The US mortgage market is messed up.


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