After a strong two years of price appreciation, Canadian home prices are said to increase significantly in 2022. While it’s not as intense as previous years, a new forecast is showing that Canada’s average home price is set to rise over 10% in 2022.
An increase in prices accompanied an increase in sales. CREA’s house price index reported a year-over-year increase of 25.3 per cent in November. Prices grew at a much faster rate in smaller towns near popular urban centres. For example, the housing price index in Greater Vancouver increased 16 per cent year over year, while prices in Fraser Valley were up 30.3 per cent.
At the onset of the pandemic in 2020, many housing market forecasts thought sales and prices would decline, but the reverse happened. Record high sales and prices were the talk of 2021.
During a health and economic crisis, the strength and resilience of Canadian housing markets should have been a welcome sign. Many are still wrapping their heads around the rapid increase in housing prices over the past 20 months.
In order to forecast the future, its important to first study the past, or at least determine why the gloomy housing market forecasts have been proven wrong. Firstly, governments globally decided not to let the pandemic kill the economy and responded by collectively injecting trillion of dollars into the economy. Income support programs and mortgage and rent relief during the early stages of the pandemic strengthened the residential real estate sector.
Ultra low mortgage rates also made monthly mortgage payments very affordable even as housing prices climbed. As a result, new homebuyers rushed in, and existing homeowners traded up.
Intelligent investors would have correctly anticipated the impact of lowering interested rates on housing markets. However, others missed how the pandemic really altered the valuation for housing. Covid-19 drastically increased demand for homeownership and, as a result, working from home increased the intrinsic value of housing and having more space. Housing has become an extension of one`s workplace, classroom for children, leisure, and all of the above. Housing now means much more than it ever did before, so prices merely reflect the greater significance of dwellings in pandemic-infected markets. Therefore, higher sales and prices are essentially an outcome of the demand and supply of housing.
What To Expect In 2022?
Many buyers who failed to purchase a property due to being outbid in 2021 will re-enter the market next year. The demand for housing will get an additional boost as immigration is expected to resume, putting an upward price pressure on a market already suffering from a chronic supply shortage. Canada`s strong economy, full time employment rates, and the new Omicron variant should all contribute to the strength of Canada`s real estate market.
Interest rates are expected to rise, but their impact on housing prices is likely to be modest. Short of a significant policy change resulting in tighter lending standards, the likely scenario for 2022 is an increase in housing prices, with demand continuing to outpace the supply. Royal LePage has already projected housing prices “ to rise strongly again in 2022 , however at a slower pace compared to 2021.”
While the pandemic lockdowns and mandates to work remotely drove up demand for larger homes with more space from buyers who typically might have purchased condos prior to the pandemic, the condo segment has significantly rebounded. The price appreciation gap between condos and detached homes is narrowing, and this trend will continue into 2022 as first time home buyers are priced out of the more expensive property types.
There is a lot in store for the 2022 housing market in Canada, and it will be very interesting to see how it unfolds.