No bubble: At least one big bank says Toronto real estate is poised for a “soft landing”

The Toronto housing market isn’t likely headed for a crash, TD Economics suggests.

“We still believe that fundamentals will ultimately underpin a soft landing in Toronto’s home prices,” reads a special report from TD Bank’s economics department.

The report, titled Toronto Housing: The Heat is on, Buyers Caught up in the Action, comes in the wake of Scotiabank CEO Brian Porter and BMO Chief Economist Douglas Porter each stating that Toronto real estate is in bubble territory.

TD takes a different tone. Its economics team declines to comment this time around on where the Toronto market stands in terms of a bubble.

“Having a debate on whether there’s a housing bubble is a distraction, since this tends to be confirmed retrospectively,” the report, authored by Beata Caranci, the bank’s chief economist, Diana Petramala, TD’s real estate economist and its economic analyst Katherine Judge.

But last week, Petramala wrote more directly on the matter, staking out TD Economics’ position clearly in response to the Canadian Real Estate Association (CREA)’s latest monthly resale market figures.

“While TD Economics still doesn’t believe we’re in bubble territory, we do think that the market has the potential to increasingly approach one,” she wrote after CREA showed Greater Toronto Area home prices hit an average of $727,300 in February, up 23.8 per cent in 12 months.

In the latest report, TD Economics upwardly revises its forecast for Toronto home prices, citing the presence of increased speculation.

It says it has observed a higher share of homes reselling within two years, which hints at home-flipping activity.

TD Economics now expects home prices to increase anywhere from 20 to 25 per cent this year, followed by tamer gains of 3 to 5 per cent next year.

“To be clear, Toronto and the densification of populations within urban centers offer solid growth underpinnings, but this doesn’t mean the condition is sustainable in its extreme form,” TD Economics states in the report.

Population growth is often cited as one of the fundamental drivers of GTA real estate, with the region’s population increasing by around 100,000 people annually. While TD Economics agrees this partially explains the market’s frothiness, it also issues a warning.

“Be careful hanging a hat too firmly on the notion that the GTA’s current population profile mitigates downside risks to the housing market. History has demonstrated that reversals do occur,” the report states.


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