The bank upgraded its forecast for the real estate sector Thursday, predicting that home prices will gain an average of five to six per cent by the end of 2014.
"More strength may be bubbling under the surface," said TD economist Diana Petramala, author of the report.
In February, the bank had expected Canadian home sales to flatten out, and called the market overvalued by about 10 per cent. It did not give an estimate on how much it thought prices would rise or drop. That earlier forecast was based on the belief that mortgage rates would creep up in the spring, but rates still sit near record lows and continue to prop up demand.
Low interest rates have helped with the affordability of condos, where prices are at their "most favourable." First-time buyers who may have been pushed out of the market earlier may also be returning back due to the rates, which have in part driven the demand for single-family homes.
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But looking past the short- to medium-term forecasts, Petramala said the Canadian real estate market is still expected to cool when interest rates rise and the number of available homes increase.
Those factors should be enough to "tip the market" back into one that favours buyers.
"Softer housing demand, combined with rising listings, will likely push the Canadian housing market towards a buyer’s market over the next year and a half," said Petramala. "As home buyers have more choice, they will also have more bargaining power and price pressure will ease. These features would be consistent with the makings of a soft landing in Canada’s housing market."
The report said the "soft landing" has already come to certain regions, like areas east of Toronto, while expensive cities "with more froth" like Toronto, Vancouver and Victoria will soon be seeing more weakness.
The Real Estate Board of Greater Vancouver reported Thursday that home sales rose 28.9 per cent to 3,406 in June. The total compared with 2,642 sales recorded in June 2013 on the Multiple Listing Service. Last month's sales were 0.6 per cent above the 10-year sales average for June.
Meanwhile, the TD report said home prices in Edmonton and Calgary were expected to post the biggest growth rate over the next two years, as those cities continue to see population and employment gains.
TD also noted that it expects condo prices to fall by about two per cent next year, as an estimated 135,000 units currently under construction become available. This in turn will help boost the rental vacancy rates, keep rents flat, and make buying condos for investment purchases less attractive.
It'll also make single-family homes — which are priced on average about $200,000 more than a condo — less viable for those looking to upgrade.
"As such, move-up buyers who would like to upgrade their condos to a single-family home may find it difficult," said Petramala, noting that prices for single-family homes have rose an estimated eight per cent this year, and were expected to go up by another two per cent in 2015.
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