A TD Economics report published this week predicts a Canadian housing market downturn within two years.

“We anticipate an eventual modest price correction as we approach 2018,” writes Brian DePratto, a TD economist, in the four-page report.

The correction would be in the range of 5 to 10 per cent and would mostly play out in the Greater Toronto and Greater Vancouver markets, DePratto tells BuzzBuzzNews in a followup interview.

“This is not a crash. I want to make that clear. This is more of a normalization,” he adds.

In the report, DePratto cites the main causes of the correction that TD is calling for: “The impetus provided from past downward movements in interest rates will fade, while a number of macro-prudential measures will further weigh on activity.”

The macroprudential measures include increasing the minimum down payment on homes in the $500,000 to $1 million range, as well as the recently implemented 15-per-cent tax on foreign residential real estate buyers in Metro Vancouver, DePratto explains.

Also, he notes “there’s a change in how the insurance premiums are paid on Canadian mortgage-backed securities,” adding lenders are likely to pass added costs stemming from this down to consumers.

Recently, Canada Mortgage and Housing Corporation (CMHC) raised fees it charges some financial institutions.

Low interest rates, which have boosted homebuying activity, will begin to have a fizzling effect simply because “so many people have already taken advantage of the increased affordability [low rates] have offered,” DePratto suggests.

Over time, the pool of would-be buyers who can benefit from lower mortgage payments shrinks.

“The increasing of rates would be a headwind,” DePratto says, but the economist doesn’t expect this to happen until 2018 as Canada’s economy has been performing sluggishly.

Many policymakers and observers alike had expected the relatively weak Canadian dollar to boost exports, making up at least in part for the economic ramifications of the struggling energy sector. Instead, “export volumes pulled back” through the first half of this year, the TD report highlights.

Even after the kind of housing market correction TD is forecasting, GTA and Greater Vancouver home prices would still be soaring.

“We’re still talking about a very, very high overall level of house prices, especially when you benchmark that against the median income,” DePratto says.

Last month, the benchmark price of a Metro Vancouver home was $930,400, a roaring increase of 32.6 per cent compared to July 2015. Meantime, the average price of a Toronto home hit $709,825 in July, up 16.6 per cent year-over-year.

“The end result [of the correction] should be a housing market share of economic activity more in line with historic experience. However, this will be a drawn out process, likely to take several years to occur,” DePratto notes in the report.

“It’s not an overnight process.”

Canada’s Housing Market Headed for “Modest Price Correction” — But When? by Buzz Buzz Home