After an unprecedented start to the decade, 2021 has turned out to be a record-smashing year in real estate.  What can we expect from the market in 2022? As we look towards the new year, here are five housing trends that we’ll be keeping our eye on:

1) Rising Interest Rates Are Top of Mind

Since the pandemic hit, interest rates have been at historic lows to support the economy, which has made mortgage borrowing cheaper than it’s ever been for Canadians. But in 2022, the era of extremely low-cost borrowing is slated to come to a close – which has many Canadians wondering what impact, if any, this will have on the real estate market.

In their most recent interest rate announcement, the Bank of Canada stayed firm on its intention to raise interest rates in mid-2022, depending on how COVID-19 recovery is shaping up across the country.

To help understand the potential impact this may have on the real estate market, we can look back to the last time that rates rose in 2018. There were three interest rate hikes that year, in response to a strong Canadian economy, with the final raise taking place in October. Overall, real estate activity that year slowed, with average prices declining 4.9% year-over-year and sales volume down by 19% – but many experts say this was largely caused by the introduction of the stress test, which reduced affordability for the average home buyer by 20%. Prior to these changes taking effect, December 2017 saw an unseasonably hot market as buyers rushed to secure their home purchase.

“Although the last time interest rates rose we saw sales activity cool down, it’s important to remember that this change went hand in hand with the implementation of the mortgage stress test, which dramatically impacted the amount that prospective buyers could qualify for” explains CEO of Zoocasa, Lauren Haw. “And, because Canadians have been stress tested to qualify for their mortgages at rates upwards of 5%, we have been prepared as best as possible to weather an increase in rates.”

Based on the current rules of the stress test, which OSFI officials have opted to leave unchanged heading into 2022, fixed mortgage rates would need to rise to 3.25% before the amount buyers are qualifying for under the test will change.

2) Low Supply, and its Influence on the Market, Isn’t Going Anywhere

2021 will be remembered by its record-breaking sales numbers. For instance, in March sales hit an all-time record in the Toronto Region and all of Canada, breaking the previous records by a considerable margin. By October, 2021 had already topped the annual record for a number of real estate sales, beating out the previous record set in 2020. Quite simply, this has been the hottest year in Canadian real estate history.

Although sales were consistently high this year, in quieter months, it was clear that it was low available inventory (not waning buyer demand) that drove a decrease in sales volumes. According to the Canadian Real Estate Association (CREA), there have only been four times in history where the national total months of inventory on the market dropped below 2 months – all of which happened in 2021. The long-term average for this metric is more than five months.

“Put simply, we are seeing record-breaking low levels of inventory, where there are significantly more buyers in the market than there are properties to buy” explains Haw. “Supply will be a critical metric to watch heading into the new year – especially knowing that we may see a hotter January and February than usual, as buyers look to lock in a mortgage rate before next year’s anticipated increases.”

Based on current market activity, we’re not anticipating the trend of too few homes for sale dissipating anytime soon. After comparing five years of market data in the Toronto Region, analyzing how inventory levels usually change between November and December of each year, we predict that only 4,345 new listings will come to the market this month. If this prediction rings true, it will be the lowest number of new listings coming to the market in two years.

“Housing cycles can be very long, so market trends do not care that we’ve put new 2022 calendars up on our refrigerator doors,” said Shaun Cathcart, CREA’s Senior Economist. “The fact is that the supply issues we faced going into 2020, which became much worse heading into 2021, are even tighter as we move into 2022”

Chart showing number of new listings in the Toronto Region throughout 2021, including a prediction for December 2021's total number of new listings.

3) There’s No End in Sight for Rising Home Prices

“There are a lot of factors coming into the market in 2022 that we’ve seen, historically, create a lot of urgency in buyers to get into the market. Things like trying to lock in a mortgage rate before rates increase, choosing a home to weather stronger pandemic restrictions from Omicron, or competing in a market with extremely low supply are all factors that are on the table for next year, and could contribute to making a highly competitive real estate landscape with strong price growth” says Haw.

In CREA’s 2022 forecast, they predict pricing will rise to $739,495 by the end of the year – an estimated increase of 7.6%. Their predictions show Ontario to be the most rapidly growing province, with a projected price increase of 11.5% to an average of 971,080 next year.  

Rising interest rates play an important role in conversations pertaining to pricing in 2022. But, looking back again to 2018 when rates rose last, although sales velocity was down across all types of homes in response to these market changes, it’s important to know that the more affordable types of homes on the market still saw price growth. In the Toronto Region, pricing for condo townhomes and apartments grew by 9% and 10% respectively while detached home prices decreased by 4% year over year.

“Taking cues from 2018, when interest rates rose last, we can predict that the most affordable price points in the market, like condos and townhomes, will lead growth in 2022 as a result of higher borrowing costs” explains Haw.

4) Consumers Will Continue Shopping for Real Estate in New Ways

Although COVID-19 restrictions loosened in the latter half of the year, which allowed for more traditional real estate shopping methods like open houses to resume, buyers have shown a continued interest in a virtual, tech-focused real estate experience – and aren’t necessarily in a rush to go back to the old way of buying houses. Virtual tours, high-quality videos, and browsing listings on an app are just a few examples of pandemic-fuelled buyer tools we believe are here to stay.

“Over the course of the pandemic we’ve seen a massive shift in how buyers want to engage with new properties,” says Haw. “We’ve noticed this especially with our app – the users who have downloaded it use it frequently to quickly check in on the state of the market.”

“The desire for buyers to quickly review the latest homes for sale, instantly out of their pocket, is just one example of how consumers have really adapted a virtual-first approach to real estate. This adoption has been supercharged from pandemic restrictions.” 

5) Housing Will Become a Key Election Issue – Again

This year, housing affordability became a key election issue when the Federal Liberal government called a snap election in August. Although the timing of this federal election came as a surprise to many Canadians, Ontario residents should be prepared for more talk of housing and election promises next year as the province gears up for both provincial and municipal elections in 2022.

Many of the policy matters most critical to housing and real estate are managed at a provincial or municipal level, like the Provincial Policy Statement, which governs how land is to be used in the province, and Municipal Planning and Zoning laws, that regulate density, accessory buildings, and areas for new development. Not to mention, the rules for how the real estate industry operates are also regulated on a provincial level. This year’s elections will be ones to watch.

TRREB CEO, John DiMichele said earlier this year, “Much of the heavy lifting required to bring more housing online, from a policy perspective, happens at the provincial and local levels. These levels of government need to be on the same page. This should be an important topic for debate during the upcoming elections”

If the federal election was any indication, Ontarians can expect to hear various political parties and leaders propose new ideas on how to overcome the affordability issues impacting their local housing markets in 2022.

For more information about this report, please contact [email protected]

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