Conditions in Ontario’s housing market have deteriorated to the loosest levels in over a decade, according to a report from TD Economics which warns of risk that market conditions could unravel even further.

TD economist Rishi Sondhi looked at Ontario’s ratio of sales-to-new home listings in his report published Monday. His analysis found that the province’s housing market is experiencing its loosest conditions since the 2008-09 financial crisis.

In October, Ontario’s sales-to-new-listings ratio hit around 37 per cent, according to charts in TD’s report. Recent data from digital mortgage lender nesto also reported that Ontario’s sales-to-new-listings ratio hit 37 per cent in October.

Sondhi also highlighted the possibility that the ratio could fall below levels experienced during the housing downturn in the 80s and 90s, when home prices declined by 30 per cent.

“In coming months, conditions in Ontario’s housing market could loosen to those last seen during the depths of the severe and prolonged 90s housing downturn,” Sondhi wrote.

However, the report highlighted “good reasons to believe” that this outcome will not occur, pointing to the probability that Ontario will avoid a “steep recession” and the possibility of a more favourable trajectory for interest rates.

The Bank of Canada has elected to hold its key policy rate at five per cent for its previous two meetings this year. TD said it expects the central bank is done with its hiking cycle and this should help the economy “avoid a deeper downturn.”

POPULATION GROWTH

The report’s authors also highlighted the fact that Ontario is in the midst of a housing shortage coupled with robust population growth.

Despite the lower probability of a 90’s style correction, the report said home prices in Ontario will likely fall further in the coming months.

“Indeed, prices could fall around 10 per cent from their third quarter level through the first half of next year,” the note said.

“Elevated borrowing costs are pressuring demand and straining homeowners who are renewing their mortgages, likely pushing up supply to some degree.”

Sondhi also highlighted in the note that homeowners in Ontario will continue to “face this pressure” until 2025-26 at the earliest, when people who took out mortgages at lower interest rates will experience a payment shock.