TD is the latest bank to ask “is a bubble brewing in Canadian real estate?” TD Bank Financial Group released a report today on the Canadian housing market, and their conclusion should not surprise any readers here:
Call this housing cycle a blip if you like. But we feel that is misleading, especially because of what this suggests for the future. While the market looks remarkably unperturbed from start to end of this sharp cycle, existing home sales and prices cannot sustainably stay on their current path. Markets are currently very tight and favour sellers, as evidenced by multiple competing offers and bidding wars, but we expect them to rebalance over the course of 2010. As the central bank begins to hint at a tightening monetary policy cycle in the second half of next year, sales could well see a last gasp of strenght. Moreover, by that time, the availability of units on the supply side should provide a relief valve helping to cool price growth. And, by 2011, while the overall economy will have improved signiﬁcantly, housing markets will be losing momentum.
They also mention the concept of borrowing demand from the future:
A more difﬁcult issue relates to how much of the current demand is simply being brought forward, i.e purchases in recent months that advanced sales to take advantage of low rates, which raises the risk of a dip in ensuing quarters. Because the pool of potential buyers is not ﬁxed and itself depends on affordability, it is not possible to satisfactorily address this issue in a precise quantitative fashion with the current data available. There is little doubt as to the direction of this effect, however. The prevailing ‘now or never’ mentality will weigh on future demand.
The full PDF of the report can be found on the TD site here.
Hat-tip to Donald for the link!