A new report suggests that home prices across Canada will continue to rise throughout 2022, with not even the expectation that higher interest rates will slow the trend.
Royal LePage’s latest home price survey found that the median home price in Canada rose 17.1 percent year-over-year in the fourth quarter of 2021, to $779,000. In the majority of housing markets, prices are up three percent or more compared to the third quarter of last year, a trend the real estate company says is not typical of the fourth quarter.
“We finished 2021 on an extraordinarily strong footing,” said Royal LePage President and CEO Phil Soper. “The winter has been very active…and we expect that to continue into the spring.”
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Many of the largest price increases were observed in most of Ontario — primarily the Greater Toronto Area — and most major cities in British Columbia, according to the report. Calgary, Edmonton, Saskatoon and St. John’s were among the only markets to see a single-digit increase between 2020 and 2021.
The increase this year was also driven much more by single-family detached homes — whose average price grew 21.1 percent compared to the end of 2020 — than condominiums, which jumped 15.8 percent.
Sober says there has been much more interest in larger homes due to the pandemic, which has forced homes to become offices and classrooms in the era of remote work and learning. He predicts a “swing of the pendulum” as Canada emerges from the impact of COVID-19, sparking interest in small apartments once again.
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Across the country, the report says, real estate markets are facing the same problem that demand far outstrips housing supply. With not enough homes to go around, prices keep rising.
Royal LePage already revealed last month that it expects the median housing price to exceed $860,000 by the end of 2022, an increase of 10.5 percent year on year.
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Although the increase this year is expected to be less than it was from 2020 to 2021, Soper says the rate remains worrisome.
“Anytime we get into a double-digit price estimate, we are moving outside of what I call the comfort zone,” he said, adding that long-term growth in the housing market is usually around five or six percent per year.
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The report links these double-digit increases primarily to the housing shortage, which Suber describes as “one of the major social and economic challenges of our time.”
A report released this week by Scotiabank Economics shows that Ontario alone will need to build 650,000 new homes quickly just to meet the national average per capita housing stock, already the lowest among the G7 nations.
Echoing the Scotiabank report, Soper says the main home-buying population in Canada – both young Canadians leaving their parents’ homes and recent immigrants – is growing at a higher rate than usual.
“We are among the most successful economic countries in the world in terms of immigration, and building our homes is not keeping up,” he said.
Moreover, this new generation of young home buying is bigger than before and they are all trying to enter the market as well.
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While prices are expected to continue rising until spring, the expected – albeit modest – rise in interest rates will “abruptly” end the rally, most likely in mid-2022.
But economic analysts said the Bank of Canada is likely to raise borrowing costs earlier than expected to help counter rising inflation, which has reached an 18-year high in Canada.
However, other economists say the central bank may want to allow inflation to rise rather than raise interest rates, which could slow economic activity into a recession if done quickly or sharply.
“Given the current political environment, I think they may wait for rates to be raised, or at least very slightly,” said Andrey Pavlov, a professor at Simon Fraser University’s Bede School of Business.
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For now, Pavlov says, the wide gap between low interest rates and high inflation has only benefited existing homeowners with mortgages.
“If your asset value is going up at inflation — or hopefully better — and your mortgage rate is lower, you are essentially borrowing for free,” he said.
For anyone else still looking for a home to buy, Sober says next year will finally bring a period of relative moderation in home prices. However, he adds that the need for more housing stock remains the most pressing issue and potential fix for the surging market.
“In the meantime, things will be more troublesome in 2022 for young people, but it will be better than in 2021,” he said.
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