Market Update for December 17

So, what do we see in our crystal ball for real estate next year? The Canadian Real Estate Association says housing sales will moderate next year, but prices aren’t expected to ease any time soon. The association said in its 2022 forecast released on Wednesday that it expects tightening supply conditions to push housing costs even higher in 2022. “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,” the association said in a release.

While interest and mortgage rates are expected to rise and temper some market activity, the forecast suggests appetite for home ownership will still be strong and the lack of properties available will mean people won’t get much of a break on costs. CREA has projected that the national average home price will have risen by 21.2 per cent on an annual basis to $687,500 by the end of this year. This is higher than its previous forecasts and CREA said it reflects the unprecedented imbalance of housing supply and demand, which has left the country with about two months of inventory instead of it’s typical five months.

CREA said the highest prices will be seen in B.C. and Ontario, where it forecasts average home prices to reach $990,038 and $971,080 respectively. The lowest will come in New Brunswick and Newfoundland where average prices are predicted to hit $275,190 and $286,341 respectively.

In the GTA the average price of a home is forecasted to increase by 11% to $1,256,500, the average single-family home is estimated to increase by 10% to $1,564,200 and the median condo price is predicted to rise by 12% to $763,800.

The gap between the price of a detached home and a condominium grew larger and larger to the point that for someone, a family or a first-time buyer looking to get into the market, there will be more interest that swings towards condominiums.

Limited supply, and rock-bottom interest rates have been the catalyst for frenzied activity in Canada’s real estate market, because money that is cheap to borrow offsets exorbitant home prices.

The next test for the housing industry will be rising interest rates and 100 basis points of tightening is expected from the Bank of Canada next year. Is that enough to seriously cool the market? It will certainly be a dampener, but the job market is very strong, wage growth is picking up and, after adjusting for inflation or house-price growth expectations, those mortgage rates would still remain negative in real terms.