Canadian Home Prices Expected to Continue to Rise Upwards – National Prices Rising 9.2% by End of 2022
Posted On February 4, 2022
5 Major Factors That Will Influence the Housing Market
The latest 2021 statistics released by the Canadian Real Estate Association (CREA) show an extraordinarily strong past year with home sales reaching higher than expected figures, despite property supply hitting an all-time low. On a year-on-year basis, Canadian home sales were at 666,995 (residential properties) with completed transactions crossing the previous year’s record by 20%. With the COVID pandemic affecting the Canadian and global economy, not many people expected this past year to be so strong.
We, at Save Max, expect the robust growth story to continue well into 2022. The top 5 factors that will influence the Canadian housing market this year will be:
1. The first quarter of 2022 may be slower due to a lack of supply. In fact, at a national level, supply is at its lowest point this year when compared to the previous year’s inventory. At present, there are less than two months of inventories on the national market. These record-breaking low levels of inventory have occurred only 4 times previously, and all 4 times have been in 2020-21. Low supply will be an extremely critical area in the next few months and it certainly will not be a quick fix. Affordable housing units continue to lag way behind demand; this has been a chronic issue in Canada and the pandemic has only exacerbated and brought it to the forefront.
P.M. Trudeau has promised to build more affordable homes across the country. While election promises are all well and good, Government measures are just too little and too late. We need to act fast to address the growing supply-demand gap. Construction is beleaguered with labour shortages, supply chain issues, rising costs of construction material – all linked to the lingering COVID pandemic, with its new variants. As a result, many builders are still sitting on the fence, hesitant to start new projects without some concrete signs of more stability and fewer interruptions.
2. Canada needs immigration to further drive the economy and to support our ageing population; if this fact is accepted, then there will be an increase in the number of immigrants admitted into the country. The Honorable Minister of Immigration, Refugees and Citizenship (IRCC), Sean Fraser, announced that more than 401,000 new permanent residents landed in Canada in 2021. 75% of Canada’s population growth comes from immigration, which directly addresses shortages in the crucial sectors of healthcare and technology. In 2022, Canada aims to welcome 411,000 immigrants, with about 421,000 in 2023. (Govt of Canada IRCC).
What does this mean for the real estate sector? The first basic requirement for immigrants is housing, whether it is to rent or buy, and this will drive up and sustain demand. There will always be investors in the rental properties market, and buyers will find properties affordable because many of them are highly skilled, with 6-figure incomes. Research indicates that 26% of Canadians would like to build their own homes or prefer the pre-construction sector to take advantage of the historic lower mortgage rates (before BOC raises the rates). The national average home price was $713,500 in December 2021 which is up by 17.7% from December 2020 (Source CREA). The national average price is influenced by Canada’s two most active and expensive housing markets, Greater Vancouver and GTA, including Toronto; excluding Vancouver and Toronto, the average housing price goes down by $150,000. Canadian cities have seen upward trends in new real estate supply (including new subdivisions), with investors looking for properties that can be rented.
3. Home prices will continue to rise upwards because of supply issues, rate hikes and the COVID pandemic. According to CREA, national prices will rise 9.2% by end of the year 2022. Mr. Raman Dua, CEO and Founder of Save Max., sees prices rising north of 10% (a double-digit increase). Affordable homes like condos and townhomes will see the highest price increases going into the Spring market, especially in Toronto and the GTA area.
Delving deeper into the housing types, the national median price of a single-family detached home rose 21.1% year over year to $811,900 while condo prices rose 15.8% year over year to $553,800. The highest price increases were seen in Ontario where detached homes gained 44.3% and Kingston, ON where it saw a 38% rise. Outside of Greater Vancouver, BC saw an increase of 25% year over year.
The current trend of migration between provinces has also fueled up markets outside the major provinces of BC, ON and QC, and will continue well into 2022. Atlantic Canada is slated to be one of the fastest growing markets with Moncton and Halifax at 20% and 16% respectively.
4. Bank of Canada’s interest rate hikes may not be as steep as expected. The current mortgage rate is 2.5% fixed and variable about 1%. Keeping this in mind, the BOC has advised banks to conduct stress tests at 5.25% to qualify potential home buyers. This means that the Canadian home buyer can weather the upward rise in interest rates. Expectations from BOC for 2022 are set between 4 to 5% interest rate hikes, each approximately 0.25% depending on key factors such as inflationary trends, labour market, pandemic situation, etc. The next BOC announcement is due on 26th Jan 2022. However, there is a 50% chance that rate hikes will be seen only in March 2022, as interest rates cannot go up rapidly due to fear of causing a recessionary phase.
Clients looking for homes will want to get in before the rate hikes, so we expect a strong and early Spring market.
5. Technology in the real estate sector has sped up buying and selling transactions and will continue to play a significant role going forward. With online virtual tours for listings on real estate apps becoming de rigueur with the pandemic restrictions and lockdowns, we must change the way we do business and move with the times. Clients are not going to go back to the traditional ways any time soon, with Canadian real estate portals reporting a 200% to 500% increase in requests for virtual home tours in 2020 – 2021. Last year, in just about a month, Springtime saw a decline of 35% in users reaching out to agents. Success for real estate agents will increasingly depend on their online presence – transitioning into the digital and virtual spaces for promotions and listings, processing transactions not only in the buying/selling markets but also in the rental markets. Landlords and property managers across Canada are requesting 3D virtual tours for potential clients to view floor plans, rental leases and street views for their rental listings. Technology and transaction software has resulted in speeding up of closings and shortened the times between the different stages of listing, offer, and the sale/purchase of a property. This results in less time spent on manual document processing and physical visits to properties. Realtors can focus on closing deals and taking on more clients, thereby increasing their sales for the year.
As Raman says, “Save Max is building new platforms and adapting to the changing times to increase sales on a year-over-year basis. We have realized and embraced the potential of implementing technology and applications in real estate. In 2022, the focus for Save Max will be incorporating a seamless digital CRM platform increasing end-to-end efficiencies. This is a win-win situation for all, right from real estate agents to lead generation to back-office processing. Save Max is forging new pathways to redefine the real estate industry and will emerge as a strong leader.”