Last year was one for the real estate history books. The pandemic helped usher in a buying frenzy that led to a record number of home sales and a historically-high rate of appreciation, as prices soared by a national average of 19.9% year over year, according to the Canadian Real Estate Association.¹

There were signs in the second quarter that the red-hot housing market was beginning to simmer down. In June, the pace of sales slowed while the average sales price dipped 5.5% below the springtime peak.²

But just when the market seemed to be cooling, home prices and sales volume ticked up again in the fall, leading the Royal Bank of Canada to speculate: “Canada’s housing market run has more in the tank.”³

So what’s ahead for the Canadian real estate market in 2022? Here’s where industry experts predict the market is headed in the coming year.

The Bank of Canada has signalled that it plans to begin raising interest rates in the “middle quarters” of this year.⁴ What does that mean for mortgage rates?

Expect higher variable mortgage rates to come. In fact, according to industry trade blog Canadian Mortgage Trends, some lenders have already begun raising their variable rates in preparation. And according to the site, “Current market forecasts show the Bank of Canada on track for seven quarter-point (25 bps) rate hikes by the end of 2023, with Scotiabank expecting eight rate hikes.”⁵

Since September, fixed mortgage rates—which follow the 5-year Bank of Canada bond yield—have also been climbing.⁵ Fortunately, economists believe the housing sector is well-positioned to absorb these higher interest rates.

Derek Holt, Scotiabank vice president and head of capital markets economics, told Canadian Mortgage Professional magazine in November, “The large increase in cash balances that occurred over the pandemic combined with the record-high amount of home equity on Canadian balance sheets, to me, paints a picture of a household sector that can manage the rate shock we’re likely to get.”⁴

What does it mean for you? Low mortgage rates can reduce your monthly payment, make it easier to qualify for a mortgage, and make homeownership more affordable. Fortunately, there’s still time to take advantage of historically-low rates. We’d be happy to connect you with a trusted lending professional in our network.

A record number of homes were sold in Canada last year. The Canadian Real Estate Association estimates that 656,300 home purchases took place, which is an 18.8% increase over 2020.⁶ So it’s no surprise that the pace of sales would eventually slow.

The association predicts that, nationally, the number of home sales will fall by 12.1% in 2022, which would still make 2022 the second-best year on record.¹

It attributes this relative slowdown to affordability challenges and a lack of inventory but expects sales volume to remain high by historical standards. “Limited supply and higher prices are expected to tap the brakes on activity in 2022 compared to 2021, although increased churn in resale markets resulting from the COVID-related shake-up to so many people’s lives may continue to boost activity above what was normal before COVID-19.”⁶

What does it mean for you? The frenzied market we experienced last year required a drop-everything commitment from many of our clients, so a slower pace of sales should be a welcome relief. However, buyers should still be prepared to compete for the best properties. We can help you craft a compelling offer without compromising your best interests.

In 2021, we experienced one of the most competitive real estate markets ever. Fears about the virus, a shift to remote work, and economic stimulus triggered a huge uptick in demand. At the same time, many existing homeowners delayed their plans to sell, and supply and labour shortages hindered new construction.

This led to an extreme market imbalance that benefitted sellers and frustrated buyers. According to Abhilasha Singh, an economist at Moody’s Analytics, “almost all indicators of housing market activity shot through the roof.” But, she continued, “The housing market is now showing signs of returning to earth.”⁷

The Royal Bank of Canada expects to see demand soften gradually as rising prices and interest rates push the cost of homeownership out of reach for many would-be buyers.³ And while the supply of available homes continues to remain low, according to Singh, “the pace of building in Canada remains elevated compared with historical averages thanks to low interest rates.”⁷

What does it mean for you? If you struggled to buy a home last year, there may be some relief on the horizon. Softening demand could make it easier to finally secure the home of your dreams. If you’re a seller, it’s still a great time to cash out your big equity gains! And with less competition and a slower pace of sales, you’ll have an easier time finding your next home. Reach out for a free consultation so we can discuss your specific needs and goals.

Nationwide, home prices rose an average of 19.9% in 2021. But the rate of appreciation is expected to slow down in 2022. The Canadian Real Estate Association forecasts that the national average home price will increase by 5.6% to $718,000 in 2022.⁶

Singh of Moody’s Analytics agrees that price growth will slow this year and could “reach a near standstill in late 2022 but avoid any significant contractions.”⁷

However, some experts caution against a “wait and see” mentality for buyers. “Affordability is unlikely to improve [this] year as prices should march higher, even as interest rates creep upwards as well,” Rishi Sondhi, an economist at TD Economics, told Reuters. “We think rate hikes will weigh on, but not upend, demand, as the macro backdrop should remain supportive for sales.”⁸

What does it mean for you? If you’re a buyer who has been waiting on the sidelines for home prices to drop, you may be out of luck. Even if home prices dip slightly (and most economists expect them to rise) any savings are likely to be offset by higher mortgage rates. The good news is that decreased competition means more choice and less likelihood of a bidding war. We can help you get the most for your money in today’s market.

While national real estate numbers and predictions can provide a “big picture” outlook for the year, real estate is local. And as local market experts, we can guide you through the ins and outs of our market and the local issues that are likely to drive home values in your particular neighbourhood.

If you’re considering buying or selling a home in 2022, contact us now to schedule a free consultation. We’ll work with you to develop an action plan to meet your real estate goals this year.

1. Toronto Sun -
   https://torontosun.com/life/homes/real-estate-market-on-track-to-break-records
2. National Post -
   https://nationalpost.com/life/homes/the-great-real-estate-cool-down-has-come
3. Royal Bank of Canada -
   https://thoughtleadership.rbc.com/canadas-housing-market-run-has-more-in-the-tank/
4. Canadian Mortgage Professional Magazine -
   https://www.mpamag.com/ca/mortgage-industry/industry-trends/how-likely-is-a-canada-housing-crash/315742
5. Canadian Mortgage Trends -
   https://www.canadianmortgagetrends.com/2021/11/fixed-rate-increases-costing-todays-homebuyers-over-10000-more-in-interest/
6. Canadian Real Estate Association -
   https://www.crea.ca/housing-market-stats/quarterly-forecasts/
7. Moody's Analytics -
   https://www.moodysanalytics.com/-/media/article/2021/10-canada-housing-market-outlook.pdf
8. Reuters -
   https://www.reuters.com/article/canada-property-poll-idCAKBN2IM06V