2022 Canadian Real Estate Market Outlook
Canadian real estate in 2021 can be best described as riding a tsunami. Not a roller-coaster ride with predictable rises and drops. Not hanging on to a runaway train barrelling down a predetermined path. It feels like the market has ebbed and flowed like a giant wave, with buyers and sellers forced to quite literally sink or swim. As we move forward, looking forward accurately into the future requires looking back into the past. History is usually a trustworthy barometer. However, past years have included many unprecedented events which make predictions even tricker.
The main question is: will the wave of Canadian real estate continue or crash in 2022?
To answer this question, we must first look at how the 2021 Canadian real estate market performed. Then, we will include and analyze data and lifestyle predictions for 2022 from the Canadian Real Estate Association’s (CREA) Quarterly Forecast.1
Nobody has a crystal ball into the trends of the market. While we won’t provide a “real estate Taro” card reading, by the end of this article, our goal is to help you predict the year ahead with far greater certainty and comfortability than ones previous.
2021 Canadian Real Estate Market in Review
The 2021 Canadian real estate market did not see quite the frenzy that it saw in 2020. However, there were still historic months across the province spanning many statistical categories. Here are a few major things to consider from the past year.
**All data from this section pulled from CREA quarterly forecast. **
Monthly home sales unstable, but not as volatile as 2020
According to CREA, monthly home sales via Canadian MLS® Systems were unstable in 2021, but not as “volatile” as home sales in 2020. The association notes that this level of volatility is like the 2008-2009 financial crisis, but at an increased level.
For example, the seasonally adjusted annualized high of 807,250 sales in March dropped to a low of 585,250 sales in August, and then rose back up to about 650,000 in December 2021. CREA suggests this had less to do with lockdowns or drops in demand, but rather with the extreme lack of supply. End of month supply of homes set new record-lows every month this year. Therefore, spikes and dips in the market seemed to stem from the location and number of properties listed.
When the properties became available, they were snatched off the market quickly.
Prices rise more than 20% nationally in 2021
Considering the number of months inventory has only dipped below 4 months four times in Canadian history, all occurring during months in 2021, it makes sense that limited supply drove prices up over 20% nationally compared to 2020. In some regions in Ontario, price spikes are more drastic. For example, in October 2021, regions like Niagara and Hamilton saw prices rise 34% and 27% respectively year over year. In November, Niagara continued its upward trajectory jumping 35% year over year. Peel and Niagara spiked 25% and 27% in November respectively compared to the same month last year.
2022 Canadian real estate market outlook: data predictions
The past year has indicated record low supply numbers driving prices up across the country. With shifting pandemic regulation and looming political reform, here are some data predictions for the Canadian real estate market in 2022.
All data from this section pulled from CREA quarterly forecast. **
National average home price to rise 7.6% in 2022 (Figure 1)
Supply is hitting record lows every month, but the national average price is still expected to rise by 7.6% in 2022 to sit at around $739,500. This prediction is conservative given we may very well see similar conditions from the end of 2021 overlap in 2022, and estimates as of November 2021, indicate that national average price was already close to $721,000. To be clear, price growth is not expected to be as extreme in 2022 compared to 2021. But it’s true that many of the factors that supported price spikes throughout 2021 will remain on New Year’s Day.
National home sales to fall by 8.6% in 2022 (Figure 2)
As more buyers face supply shortages, affordability concerns, and battle the need to purchase accommodations to see the pandemic though, national home sales are projected to fall by 8.6% in 2022. However, if 2022 reaches the projected 610,700 units sold, it will still be the second-best year on record. Month over month and quarterly, sales are forecasted to remain historically strong in 2022, while coming back to earth and trending to more predictable levels.
2022 Canadian real estate market outlook: lifestyle predictions
Past data helps us logically estimate and model the future, but numbers aren’t the only thing that goes into an accurate look forward. Here are some real estate market and lifestyle predictions that can affect Canadians in 2022.
The looming danger of higher interest rates
We’ve felt the winds of change blowing and higher interest rates are a demanding force. The Bank of Canada has laid out the roadmap for when the increases are set to begin, some as early as April of next year. In fact, mortgage rates have already started to rise in spring of 2021 and more over the last few months. These rates are what Canadians will receive and must pay if approved for a mortgage. But citizens are currently getting tested at 5.25% above the listed rate with the new stress test. That’s 275 points above the typical 5-year discounted rate and very much an emergency mode factor by the government.
Re-evaluation by the Office of the Superintendent of Financial Institutions Due Soon
As they stand, interest rates only affect monthly payments. They are still affordable, even with a 275-basis point stress test. However, the level of the stress test is soon up for re-evaluation by the Office of the Superintendent of Financial Institutions. 2 This office governs what people can afford and what they are allowed to borrow. The result of this assessment can throw a major wrench in the plans of Canadians in 2022. If left alone, it could represent a cushion against rising rates for first time buyers or young movers. If decreased, we could see an unsustainable flood of activity as more Canadians have access to financing.
Political promises made in most recent Canadian federal election
The final and arguably most decisive wildcard in 2022 are the political promises made in the last federal election. While the liberals have recently submitted a letter to housing minister,3 Ahmed Hussen, to ban blind bidding and implement other processes, there is no telling which proposed bill will become policy in 2022. Moreover, its clear that a major increase in new supply is the main thing the Canadian real estate market craves to return to more balanced conditions. But it’s unclear if proposed changes like blind bidding will have any major effect in the short term.
While 2021 provided an interesting spotlight into limited supply, increased prices, and higher interest rates, 2022 is expected to cool compared to the previous year. COVID-19 will continue to impact an increased number of sales at the beginning of the year as many possible movements associated to remote work play out. Looking at the data, the Canadian market needs more supply before any real changes shift to buyer’s or balanced markets.
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