Rising interest rates could have a massive impact on the Toronto housing market in the future, TD economist Diana Petramala told the Toronto Star in a recent interview.

Petramala indicated that the prices of resale homes could plummet by as much as 25 per cent. However, she added that a “gradual unwinding of excesses” would be far more likely over the next few years.

Along with Vancouver, Toronto comprises 40 per cent of the country's housing market,  A report released by TD Economics indicates that home prices in Canada's largest city are already overvalued by 10 to 15 per cent.

In 2012, Toronto home prices increased by 6.8 per cent and another 5.4 per cent in 2013. In 2014, prices are forecast to jump only 2.7 per cent, but to drop by 1.2 per cent in 2015 when interest rates, as expected, begin to tick upward.

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