The latest housing forecast from TD Economics leaves 2010 totals for sales and prices in Canada largely the same as its previous expectations in December, what has changed though is TD now expects a bigger change between a very hot first half of the year and a predicted cooler second half. The forecasting unit of Toronto-Dominion Bank released a report on Wednesday that maintained its call for housing resale’s this year to rise 2.1% to 475,000, and the average price to gain 9% to $349,000. "While sales in Q1 were slightly higher than our late-2009 forecast, we view the strength as borrowing from future sales in a move by buyers and sellers to pre-empt regulatory and interest-rate changes," TD said in its report. The bank said that the harmonized sales tax which takes effect in BC and Ontario July as the main culprit in the sudden increase in resale homes. With all the media attention that mortgages have been getting and the sudden increase in fixed mortgage rates have put pressure on homebuyers to rush into the market to avoid higher interest rates. Major banks have already started raising their borrowing costs, and the Bank of Canada is expected to start hiking its overnight target rate from a record-low 0.25% in June or July. The more accelerated cooling effect during the second half of this year will lead to lower prices than previously thought in 2011, TD said. It now expects the average home price to fall 2.7% to $339,700 next year; it previously called for a 1.6% price gain. TD said housing prices in Canada are currently overvalued by about 15%, based on longer-term economic factors such as income growth. That gap should narrow to 10% by the end of next year, it said. The gap will close further in the following two to three years, the report said, as housing prices grow at about the rate of inflation - after having averaged 8% annual gains over the last eight years - and household incomes catch up.
Paul Mangion
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