TD Bank Releases Latest Data on Canadian Real Estate- Provides Optimistic Outlook
TD Bank released their latest data on the Canadian Real estate markets and provided their outlook on what’s to come. To little surprise, TD Bank forecasts a soft landing equivalent to that of Captain Sully’s landing of American airlines flight 1549 on the Hudson River. Below are some of the highlights from the report. You can read the full version here.
New OSFI Stress Test to Weaken Demand
OSFI has proposed a stress test on all uninsured mortgages which is widely believed to be implemented this fall. TD estimates “this new rule could depress demand by 5% to 10%, and shave 2% to 4% off of our current forecast for the average price level in 2018.”
Interprovincial Migration Has Peaked
People migrating from other provinces such as Alberta, Saskatchewan, and Newfoundland into BC & Ontario has now peaked. This is likely due to rising housing costs and a lack of overall affordability.
How will higher interest rates impact the market?
After 7 years the Bank of Canada finally increased interest rates, and is expected to continue on that path. TD says Canadians have seen a 40 basis point increase since July on the best 5-year mortgage rate available and they expect this to increase another 45 basis points by the end of 2018.
For obvious reasons, TD believes Vancouver is the most sensitive to interest rate increases and further expects these increases to weaken demand. It forecasts mortgage payments to increase in the coming year.
Canadians Are Paying Down A Record Amount of Principal
While Canadian debt levels are egregious, and house prices ridiculously high, low interest rates are allowing homeowners to pay down a record amount of principal. TD believes this will help cope with rising interest rates as “debt holders can adjust how much principal they are paying off and maintain stable payments by adjusting the type of mortgage (fixed versus variable) and/or changing the amortization period. However, these measures could incur additional costs and reviews to homeowners.”