Photo: James Bombales

Home prices in Toronto are falling, sales activity is drying up and anxious owners continue to list properties — all things that would likely be happening amid a full-on market crash.

But as TD Economics sees it, the Toronto real estate market isn’t crashing in response to Ontario’s Fair Housing Plan, which was announced in April and included a foreign-homebuyer tax as well as more robust rent control measures.

TD Bank’s economics department does expect prices to fall, sure, but only back to where they stood about a year ago.

“An important nuance to understand is that a critical feature of a market crash is missing in this cycle,” reads the report, authored by TD Chief Economist Beata Caranci and Senior Economist Diana Petramala.

“Listings shot up in the GTA following the policy measures, not because homeowners suddenly became incapable of affording their homes, but because speculative activity is being squeezed out,” the TD economists continue.

Missing ingredients of a potential Toronto housing crash include households increasingly falling behind on mortgage payments and rising unemployment rates, TD suggests.

Citing Equifax and Canada Mortgage and Housing Corporation numbers, TD says that as of 2016’s final quarter, 0.1 per cent of Toronto households had fallen more than 90 days behind on their mortgage payments.

“Canadians have been taking out record amounts of debt to fund the purchase of relatively expensive homes,” Caranci and Petramala cede. “But, what sometimes gets overlooked is the fact that low interest rates have allowed mortgage holders to pay down their principal at an accelerated rate,” they note.

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TD suggests on average mortgage holders should be able to shoulder higher mortgage payments that come as a result of rising interest rates.

“With the unemployment rate holding low, it is unlikely that households will be forced to sell in the near-term,” the TD economists state. “It’s important to remember that interest rates are rising because the economy is doing better,” the report reads.

The Bank of Canada increased its historically low overnight rate last month by 25 basis points — something it hadn’t done in seven years — in response to the economy’s adjustment to an oil price shock that roiled it.

With the overnight rate, an influencer of the mortgage market, currently at 0.75 per cent, many observers anticipate the central bank will hike the rate again before the year’s over.

But mortgage rates, still hovering at historically low levels, aren’t expected to rapidly rise, which bodes well for the market. “Should it prove otherwise, this could be a recipe for a harder landing,” the report adds.

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