Early data for Q2 has been consistent with TD's March forecast, which called for gains in Canadian sales and average prices in Q2, said the bank.
However, this only partially offsets a weak Q1, particularly in British Columbia and Ontario, noted the bank. Alberta is also cooling from elevated levels, tempering price momentum in that market.
TD's outlook remains for a gradual, modest housing recovery. On the plus side, there's some degree of pent-up demand in the resale market after a two-year lull in sales, with little churn in the market. However, the weak job market and slower population growth create a cautionary environment that limits a snap back even if economic uncertainty suddenly lifts.
The bank estimates 2027 will see the housing market gain more traction on improved economic conditions and better affordability in Ontario and B.C, particularly if CUSMA trade renegotiation concerns fade. Interest rate shifts aren't anticipated to be material to this outcome, with the Bank of Canada expected to remain on hold.
On the policy front, recently enacted measures include a federal GST cut on new homes for first-time buyers, and two Ontario-specific measures. These are a joint federal-Ontario initiative to remove HST on new homes for all buyers, and a new $8.8 billion plan to reduce municipal development charges by up to 50% over three years, both efforts to improve housing affordability. The GST cut is now in force, while Ontario's HST relief is pending implementation.
These measures should support new home sales -- through lower prices -- which would be consistent with evidence from the economic literature, and ultimately contribute to an expansion in the housing supply, pointed out the bank.
That said, the new home segment faces the same demand headwinds as the resale market -- including a soft labor backdrop, recent price declines, which keep buyers sidelined as they wait for cheaper entry points, slower population growth, cost-of-living pressures, and elevated economic uncertainty, it added.
These measures could also impact the resale market on the margin, by disproportionately pulling demand toward new homes, according to TD.