Canada’s 2022 forecast: Higher prices, low inventory

Written by Posted On Tuesday, 21 December 2021 00:00

Canada’s soaring real estate market isn’t going to become more affordable soon, according to most industry forecasts.

After 2021 saw the most real estate transactions in history, the Canadian Real Estate Association says sales should ease next year due to supply and affordability constraints – but average prices will rise by 7.6 per cent (to $739,500), which CREA says is a “somewhat conservative forecast.”

CREA says one of the key issues driving up prices is the lack of supply. The time it takes to sell all the houses currently listed for sale has dropped below two months just four times in history – all in 2021, says the association. “It is not surprising that prices nationally rose by more than 20 per cent in 2021 compared to 2020. While price growth is not expected to be as extreme in 2022, many of the conditions that supported it right up until the end of 2021 will still be there on New Year’s Day,” CREA says in its latest forecast.

The country’s largest real estate companies also see prices going up in 2022. Royal LePage says  prices nationally will rise by 10.5 per cent (up by 11 per cent in Toronto and 10.5 per cent in Vancouver). Re/Max predicts prices will rise by 9.2 per cent.

With the Bank of Canada signalling that mortgage interest rates will rise in 2022, sales are expected to slow.

Robert Hogue, senior economist at RBC Economics, says, “Our view remains that deteriorating affordability (arising from soaring prices or higher interest rates or both) and easing pandemic restrictions will gradually cool demand in 2022. We expect extremely tight demand-supply conditions will keep prices under intense upward pressure in the near term though we see such pressure easing significantly by the second half of 2022 as markets achieve a better balance.”

Hogue’s comments came just before the emergence of the Omicron variant, which Royal LePage says may delay interest rate hikes.

“While the emergence of another COVID-19 variant is disheartening, we can’t ignore its probable impact on our nation’s real estate market,” says Royal LePage president and CEO Phil Soper. “While Omicron appears certain to delay the inevitable, monetary policy will eventually tighten in the face of uncomfortably high inflation,” he says. “When policy makers signal that a rate hike is on the way, we expect a pull-ahead effect, with buyers rushing to market before borrowing costs increase materially. Those who have pre-qualified with lower mortgage rates will also be under time constrains to transact.”

At TD Economics, economist Rishi Sondhi says three rate hikes are expected in 2022, followed by three more in 2023. That would take the overnight rate to 1.75 per cent from its current 0.25 per cent. 

“Only time will tell, but we are not convinced that higher rates will be enough to prevent another year of elevated sales activity and home price increases in 2022,” says Sondhi. “We expect strong economic, employment and income growth to take place in 2022. In addition, population growth is likely to improve….In addition to these positive drivers, households are holding significant excess savings, some of which could be funneled into down payments…What’s more, a large chunk of the Canadian population has aged into what has historically been prime homebuying years, offering demographic support to demand. Finally, expectations of future price gains may continue to stoke demand, by causing potential buyers to act now rather than later.”

Re/Max says some of the highest price increases will come in the Atlantic Provinces. Moncton average prices will rise by 20 per cent, while Halifax will see a 16-per-cent increase, the company says.

The British Columbia Real Estate Association says that following a 17 per cent increase in 2021, prices will rise by another three per cent in 2022. It says there are signs that the market is flattening and is forecasting a recovery of active listings.

In Quebec, Charles Brant, the director of market analysis for the Quebec Professional Association of Real Estate Brokers, says the Montreal market has become overheated.

“With more than half of sales concluded after overbidding, half of which in turn showed a difference of more than 10 per cent between listed and the final selling price, it’s clear that prices have risen too fast and too high,” he says. “It’s important to note that the increase in prices has come at a much higher rate than economic fundamentals would suggest, even if we consider that household incomes grew at a substantial rate and outpaced inflation in 2021.”

But Brant says, “The rising costs of financing and homeownership will temper sales and price increases in the markets that have seen the most overbidding and hyperactivity. This will not, however, prevent other markets like Trois-Rivières and Quebec City – which are more affordable and playing catch-up – from seeing still more transactions and price increases, albeit much more moderate ones.”

In the recreational property market, Royal LePage says the price of single-family detached homes in Canada’s popular ski areas will increase 9.5 per cent next year.

“For those who can continue to work at home indefinitely, home can be just about anywhere in the country with a decent Wi-Fi connection,” says Soper. “Despite the easing of travel restrictions and the reopening of some international borders, the global pandemic, which confined millions of people to their own homes in 2020, remains a real concern…Many Canadians are choosing to take advantage of local recreational markets over travelling abroad.”

Rents are also forecast to rise. A report by Bullpen Research & Consulting and Rentals.ca says average monthly rents will rise by 11 per cent in Toronto; seven per cent in Mississauga, Ont.; six per cent in Vancouver; five per cent in Montreal and four per cent in Calgary annually.

But Ben Myers, president of Bullpen Research & Consulting, says, “Despite the continued upward trend, Toronto, Mississauga, Montreal and Calgary are expected to finish next year below their peak levels from late 2019 and early 2020.”

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Jim Adair

Jim Adair has been writing about Canadian real estate, home building and renovation issues for more than 40 years. He is the former editor of Canada’s leading trade magazine for real estate professionals, as well as several home building, décor and renovation titles. You can contact him at [email protected]

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