“Looking ahead to the next few years, we expect home sales and price growth to cool gradually as a moderate upward trend in interest rates continues to chip away at affordability and demand,” the report states. “And, given the overvaluation in the market, GTA home sales are likely more vulnerable to even small interest rate movements than they have been in the past.”
The report, released Monday, paints a bleak picture for the condo market in Toronto, which is expected to bear the brunt of the housing price correction burden.
“The combination of static demand and rising inventory of condos is likely to put downward pressure on prices over the next few years,” the report states. “Overall, condo prices are expected to fall on average by around 4% per year in 2014 and 2015.”
The drop in prices will also be influenced by a glut of condominium units set for completion over the course of the next two years.
“The condo market has been relatively balanced, but even there, one can’t paint all areas with one brush,” Low-rise units remain in short supply, while the high-rise segment is facing excess supply as some 70,000 units are completed over 2014 and 2015.”
And uncertainty about investors’ continued support of Toronto’s condo market is also stoking fears of an impending condo correction.
“Among the concerns surrounding the high-rise market is that a significant amount of these units are held by investors,” the report states. “Surveys suggest that 26% of condos in the GTA are used for rental purposes. Further evidence of increased investor activity is the decline in the average size of a condo.”
Toronto brokers may feel the pinch over the course of the next two years, with the GTA’s housing market expected to feel the effects of interest rate increases, according to a TD economic report.