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Being the hottest housing markets in Canada, both Toronto and Vancouver have seen home prices appreciate at break-neck speeds in recent years, but a big Canadian bank has very different short-term forecasts for the major cities looking ahead.

“Vancouver has embarked on what is expected to be a modest correction,” write TD economists Derek Burleton and Diana Petramala in a report published today. “In contrast, Toronto has more room to accelerate over the near term,” they say.

“As such, Toronto and Vancouver’s housing markets are likely to head into 2017 on different trajectories,” the economists add.

The recently implemented 15-per-cent tax imposed on foreign buyers of residential real estate in Metro Vancouver will reinforce the correction expected for the market, the economists say, while eroding affordability also takes a toll on activity.

That very same tax could further fuel Toronto’s housing market, they note, mirroring comments Petramala made earlier last month. “Barring the levying of a similar tax, foreign investors could switch focus to the more affordable Toronto market,” Burleton and Petramala explain.

By mid-2017, TD now expects to see Vancouver region home prices that are 10 per cent lower than they were in April, the market’s peak. The benchmark price of a Metro Vancouver home that month reached $844,800, up 25.3 per cent from April 2015.

But even a double-digit price decline plays out, Vancouver home prices would remain relatively high, as the report makes clear. “This setback would still leave average prices well above their levels of 1-2 years ago,” the report says.

Through the rest of this year, the TD economists wouldn’t be surprised if double-digit price growth persisted in Toronto, they say. In July, the benchmark price of a home in the Greater Toronto Area was $656,000, an increase of 16.7 per cent compared to the same month last year.

But taking a longer view, the forecasts for the two cities start looking a lot more alike. “We still expect a sustained, rate-induced soft landing as the most likely outcome in these two markets in [the] 2017-18 timeframe.”

That’s partly because, as is the case with Vancouver, over the next two calendar years TD predicts eroding affordability will hamper sales and prices in Toronto.

Yet if no catalyst (like an interest rate hike, for instance) emerges, TD says “there is a strong likelihood that Vancouver’s market could reheat while Toronto’s remains on an unsustainable track over the medium term.”

In that case, the report suggests policymakers might need to implement new measures to cool the market.

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