Brace for Vancouver, Toronto housing slowdown: TD

The housing markets in Ontario and B.C. will decelerate in 2017, TD Economics forecasts, and the biggest impact will not be the federal government’s latest measures to cool down the Toronto and Vancouver markets.

TD, in an economics report on Tuesday, says higher interest rates in the U.S. will flow-through to Canada over the next couple of years, affecting mortgage rates.

“Since late October, Canada’s five-year government bond yield, a proxy for longer-term mortgage rates, has increased by 45 basis points,” TD says. “While less than half of the increase has been passed through to mortgage rates, we expect further gradual increases in lending rates over the next two years, which will act to take some steam out of regional housing markets.”

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The bank identifies rising U.S. yields in the U.S. as a more immediate concern for Canada’s economy than softwood lumber under Donald Trump or government intervention in the Toronto and Vancouver housing markets. Among new measures introduced this year, the federal government is bringing in stricter rules for mortgage lenders and foreign buyers. B.C. also introduced a tax on foreign purchases of homes.

“The impact of the foreign buyer tax in Vancouver since its implementation has been sizeable, with high-end sales in the city cooling sharply in recent months. Meanwhile, with some of the foreign investment likely flowing east, sales and prices in the Toronto market have climbed even higher,” TD says.

It adds: “The changes afoot reinforce our long-held view of a soft landing both nationally and in the two markets of Toronto and Vancouver.”

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The bank forecasts that Ontario’s 2017 GDP growth will slow to 2.1% from 2.6%, and B.C.’s will decelerate to 2.0% from 3.3%.

As oil prices start to recover, the bank sees energy-rich provinces Alberta and Saskatchewan making the biggest GDP gains. Alberta will reverse from a 2.8% contraction in 2016 to 2.1% growth in 2017, TD estimates, while Saskatchewan will move from negative growth of 0.5% to a gain of 1.5% in 2017.

The bank sees WTI benchmark crude prices in the range of US$50 to US$60 per barrel through 2018.

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Staff

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