Canada’s housing market performed unexpectedly well in 2013 when compared to business investment and exports, according to TD Economics’ Quarterly Economic Forecast.
In the report, released today, TD held steady on its projection that the Canadian economy will grow by a modest 1.7 per cent rate in 2013.
“The unchanged economic picture for this year hides unexpectedly strong showings from consumer spending and housing activity, while exports and business investment have been disappointing,” the report’s authors said in a press release.
The Canadian housing market was also described as resilient, with the authors noting the “strength in recent sales.”
TD attributed the strong sales activity to the significant rise in longer-term residential mortgage rates, which have caused pre-approved buyers to enter the market to beat rate increases.
TD’s economic team also said in the report that sales activity will dampen in the coming months and will be kept in check by higher mortgage rates and the Canadian government’s tightening of lending restrictions.
“We continue to view the Canadian housing market as roughly 8 per cent overvalued based on fundamentals, but this will adjust over the longer term through both softer house price growth and rising household income,” said Craig Alexander, SVP and Chief Economist at TD Bank.
“A larger-than-average adjustment is likely facing the condominium segment, where a large number of units under construction and growing inventories pose a major challenge.”
Residential construction starts have slowed, but remain above demographically supported levels.
“Home construction has exceeded demographic requirements in recent years, which will eventually require a decline in residential investment, which is forecast to come in the second half of 2014,” the press release said.
The bank is forecasting economic growth to rise to 2.5 per cent in 2014-15.