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Vancouver and Toronto home prices will probably experience a relatively mild downturn - of about 15 per cent - in two to three years, but not the dramatic drop that hit the United States a few years ago, according to a report by the Toronto-Dominion banking group.

TD said Monday the 15-per-cent decline in Canada's two most expensive cities is likely in a few years but it will be gradual, rather than the sudden drop of 30 per cent seen in the U.S. real estate market after it peaked in late 2007.

The bank's analysis is consistent with other warnings that Vancouver and Toronto real estate is generally overpriced, but supported by low interest rates and a stable economy.

That's not likely to change this year unless there's a major economic shock from out-side the country, the TD report said.

In the meantime, TD says Vancouver's real estate market is stabilizing after soaring last year and Toronto prices appear poised for a robust increase.

"Some observers might point to the recent data in Vancouver as evidence that housing activity is going through a long-awaited correction. But the jury remains out. As we've pointed out, despite the recent pullback in sales, the market remains in balanced territory and underlying prices are continuing to expand," wrote TD economists Derek Bur-leton and Leslie Preston.

"In our view, Vancouver's market is likely to show increased stability over the remainder of this year. Meanwhile, there appears to be little stopping Toronto's market from recording robust gains and continuing to play catch-up with its West Coast counterpart."


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