Further increases in mortgage regulations could see a significant cut in housing demand according to a new report from TD Bank.

In its regional housing outlook published Monday, TD chief economist Beata Caranci and economist Diana Petramala say that despite “unprecedented” housing policy changes in the past 18 months, the impact on demand so far from federal changes has been “flat relative to expectations” at around 2%.

However, they believe that this was due to the policies targeting insured mortgages, a shrinking share of the market as more borrowers move to conventional loans.

Provincial policy measures, such as the foreign buyers’ taxes introduced in BC and Ontario, have had a larger impact on housing demand, leading to sales declines.

The report notes that OSFI is proposing additional tightening on uninsured mortgages with income tests at 2 percentage points above the contract rate. If this happens, TD’s economists forecast a drop in demand of 5-10% and a drop in average house price level of 2-4% for 2018.

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