Resale Housing Outlook

The TD Bank Financial Group says: The Canadian resale housing market has held up to its ‘first in – first out’ (FIFO) billing in this recession. Its downturn and recovery were also as Vshaped as can be. Sales and average...

The TD Bank Financial Group says:

The Canadian resale housing market has held up to its ‘first in – first out’ (FIFO) billing in this recession. Its downturn and recovery were also as Vshaped as can be. Sales and average prices have more than recovered. As of October, each stood 5% higher than its prior peak in late 2007.

Viewing this sharp two-year cycle as a ‘blip’ is misleading. The 12% price adjustment seen in the downturn was partly warranted by fundamentals, which leaves the current market in a state of mild over-valuation similar to that of late 2007.

While current price levels are not worrisome, the current market momentum has the potential to lead to significant price overshoot.

2010 should mark a transition from tight to balanced markets. Current price growth will elicit a positive supply response, while demand will ease as a result of the ongoing erosion of home affordability. By 2011, housing and the overall economy will experience a role reversal. While the economy will strengthen, resale housing market conditions will weaken.

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