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.

Not everyone agrees that Toronto has been in a housing bubble but BMO’s chief economist is in no doubt.

“By any traditional definition, we were in the grips of a full-on bubble earlier this year,” Doug Porter told CBC’s Metro Morning on Friday. He backed that up with stats on house prices rising 40% in around 15 months, a situation last seen in the late 1980s which was widely accepted as a bubble.

Porter continued that the Ontario government’s measures to cool the market helped burst the bubble.

Although prices remain elevated in the GTA, there has been a 13% drop in four months and Porter expects softening to continue with a “full-blown buyer’s market ahead.”

He believes that further interest rate rises will continue to affect affordability even as prices ease, with first-time buyers still facing challenges to homeownership.

Housing costs and other expenses such as food and clothing may have increased in recent years but the average Canadian family spent more on taxes in 2016 according to a new study by the Fraser Institute.

Average family earnings in 2016 were $83,105, the study says. Housing including rent and mortgage payments, together with food and clothing totalled $31,069 while total taxes came to $35,283.

Housing costs accounted for 22.1% of Canadian household costs while taxes took a 42.5% share. Other necessities made up 37.4%.

“Taxes help fund important public services that Canadians rely on, but the issue is the amount of taxes governments take compared to what Canadians get in return,” said Charles Lammam, director of fiscal studies at the Fraser Institute.

“With more than 42% of their income going to taxes, Canadians might ask whether they’re getting good value for their tax dollars,” added Lammam.

Think tank crunches mortgage stats, urges policy makers to take a close look at mortgage habits and the impact of interest rates.

Canadians have qualified for much larger mortgages over the past two decades due to record-low interest rates, and that has impacted affordability according to the Fraser Institute.

“Increased borrowing power, brought about by falling interest rates and rising incomes, is potentially the most overlooked and least understood factor influencing home prices across Canada,” Niels Veldhuis, president of the Fraser Institute, said.

In its new study, Interest Rates and Mortgage Borrowing Power in Canada, the institute found mortgage interest rates fell from 7% to 2.7% between 2000 and 2016 and increased the maximum mortgage for Canadians by 53%.

“Based on average family incomes in 2000, falling interest rates resulted in increased mortgage borrowing power in the four main regions over the same period: Vancouver from $183,751 to $280,893; Calgary from $221,214 to $352,671; Toronto from $221,214 to $338,161; and Montreal from $171,692 to $262,459,” the institute said in the study.

Incomes increased in lockstep, jumping 53% nationwide – and contributing to even more purchasing power among Canadians.

And the results have the Fraser Institute warning policymakers about the potential implications of increased borrowing power.

“This increase in borrowing power — in simple terms — means that an average Canadian family, dedicating the same share of their income to monthly mortgage payments, can afford a mortgage that’s more than twice as big now as it would have been in 2000,” Veldhuis said. “As would-be homebuyers and governments contend with rising prices across Canada, policy makers should look closely at the impact of interest rates, rising incomes and increased mortgage borrowing power on home prices.”

Canada’s red-hot jobs market took a breather in July, posting employment gains of 10,900, up just 0.1 percent following much stronger job gains since late last year. As the labour force participation rate edged downward, the jobless rate fell 0.2 percentage points to 6.3 percent, its best reading in almost nine years. Canada’s economy remains strong, causing the Bank of Canada to raise interest rates last month for the first time in seven years and we believe that another rate hike is likely later this year despite still muted inflation. According to Bloomberg News,”traders were pricing in 64 percent odds of a Bank of Canada interest rate increase in October” following the release of this morning’s employment report, “versus 60 percent yesterday”.

In recent weeks, the Canadian dollar has risen sharply and borrowing rates have increased significantly. Canada’s economy is now the strongest in the G7, posting growth of 3.7 percent in the first quarter, likely followed by a whopping 4 percent gain in the second quarter. Consumer spending, business investment, exports and residential construction all contributed to the strength in the first half.

With the Canadian dollar near 80 cents U.S. and a slowdown in home resales–particularly in the Greater Toronto Area–growth in the second half is likely to come in at about 2-1/4 percent, still above the potential long-term pace estimated by the Bank of Canada at about 1-3/4 percent. Indeed, in a separate release today, the government reported that exports fell 4.3 percent in June due mainly to lower exports of unwrought gold and energy products. In consequence, Canada’s merchandise trade balance posted a $3.6 billion deficit in June, a sharp increase from May.

Ontario and Manitoba enjoyed hiring gains, while employment declined in Alberta, Newfoundland and Labrador as well as in Prince Edward Island (see Table below). Nevertheless, Alberta’s job market is still in recovery mode as payrolls in the province increased by 35,000 (+1.5 percent) compared to year-earlier levels, led by gains in natural resources.

July saw continued job strength in the retail and wholesale trade sectors as well as in information, culture and recreation. Manufacturing gains were notable as well.

Hours worked increased sharply in the past year, a reliable indicator of rising incomes, as employment shifted from part-time to full-time jobs. However, wage rates continue to rise only modestly, up 1.3 percent in July, unchanged from the prior month, but still better than the record-low gain of 0.7 percent in April.