TD Economics cuts home sales forecast as bond yields climb
The bank now expects national sales to fall 5.3% this year, a steeper drop than previously forecast, with a recovery dependent on yields easing.
TD Economics has cut its outlook for Canadian home sales, warning that climbing bond yields will keep the resale market subdued through 2027.
The Provincial Resale Market Outlook projects national home sales will fall 5.3% this year, a far steeper decline than the 1.8% drop TD projected earlier in 2026.
Average home prices are expected to finish the year roughly flat, up 0.1%, before rising 1.7% in 2027.
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Economist Rishi Sondhi, the report's author, linked the downgrade to a global selloff in government bonds, which set the price of fixed mortgage rates.
National sales slipped in August for the first time in six months.
TD now expects yields to stay higher through next year than it forecast in June, even though its baseline assumes the Bank of Canada holds its 2.25% policy rate until the end of 2027.
The pressure has been building for weeks. The five-year Government of Canada yield had climbed about 90 basis points year over year by mid-September.
"Now, I'm comfortable with the 5-year yield. I do think that there's room for it to begin to pull back, probably not till next year," said Derek Burleton, vice-president and deputy chief economist at TD Bank Group, during his MortgageFest Canada keynote on the Bank of Canada outlook in Mississauga, Ont., on September 23.
He added that yields would not return to March 2025 levels. "They're going to remain more raised for longer," he said.
The modest quarterly gains TD expects in sales and prices next year depend on a major condition: yields starting to ease in the fourth quarter of 2026 and falling further through 2027.
Pent-up demand and a slowly improving job market should also help, though TD trimmed its labour outlook after the latest escalation in the Canada-US trade dispute.
Even under TD's baseline, sales are expected to stay well below pre-pandemic levels next year.
Provincial outlook uneven
The provincial outlook is uneven. Ontario's sales are forecast to fall 3.0% this year and then rebound 7.4% in 2027, the strongest gain of any province.
British Columbia sales are expected to drop 5.6% before recovering 5.4%.
Prices in both provinces are expected to lag. After declines of 2.6% in Ontario and 1.3% in B.C. this year, TD sees gains of just 0.6% and 0.9% in 2027, held back by weak population growth.
Prince Edward Island faces the deepest sales drop this year, at 11.0%, and Alberta follows at 9.3%.
Saskatchewan leads on prices, with gains of 4.5% this year and 3.8% next year.