What’s driving real estate demand as we start 2022?
The GTA market continues to be affected by a housing supply crunch and an ongoing demand. While 2021 was the best year for new housing starts in Ontario since 1977 buyers won’t likely see the benefit from added inventory for at least a couple of years. Across the province, we have a long way to go in terms of adding housing inventory to meet demand. Currently, a large number of buyers from 2021 are still trying to make a purchase in 2022 and that will keep demand high to kick start 2022.
Expect to see a very strong return of international immigration further increasing demand for housing in the GTA throughout 2022. Canada reached its 2021 target adding 401,000 new permanent residents and plans on adding 411,000 new immigrants in 2022 to support economic growth and shore up labour shortages across the country. The influx of new residents will keep the housing market competitive.
So what’s the bottom line? 2022 will continue to be a good year to sell with high demand and prices forecast to increase.
What could slow the housing market in 2022?
The obvious answer is an increase in lending rates. Mortgage interest rates have already seen slight increases in 2021 and the Bank of Canada has hinted that it will be tightening its policies in 2022. In 2021 we saw changes to the mortgage stress test moving from 4.79% qualifying rate to 5.25% and a 0.5% increase in mortgage rates, in 2022 we may see more increases.
“Doug Porter, chief economist and managing director at BMO Financial Group, says financial markets are bracing for as many as five 25-basis point increases in the Bank of Canada’s lending rate next year, which would take it to 1.5 percent from 0.25 percent today.” - Financial Post
The key factors impacting potential rate increases could be the impact of inflation on the economy, the impact of COVID-19 variants like Omicrom as well as the US Federal Reserve who have already positioned themselves for a rate hike in 2022. As a general rule of thumb, US interest rate changes tend to have an impact on longer-term loans like mortgages in Canada.
Look for mortgage rates to increase throughout the year. As prices rise and borrowing costs grow we could see a slow down in sales volume and there is potential prices level off but even a 1.5% bump in interest rates would still be below the qualifying rate for mortgages. With inventory so low it may not have a huge impact on prices.
So, what’s the bottom line? Mortgage rates will affect borrowing costs but not necessarily impact pricing and there will still be lots of buyers competing for a limited supply. If you’re thinking of making a move start preparing now. Talk with your lender about how rising rates could impact your actual borrowing costs as the year unfolds and start looking for available homes in your desired areas. It may take time to find what you’re looking for so being proactive will put you in a more favourable position.
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What else could impact the market in 2022?
There are a few unknowns that may have an impact on the GTA real estate market in 2022. Government intervention into the housing market is always a cause for concern and the mortgage stress test is also being revisited in 2022. In 2021 the housing market was front and centre during the federal election and it will be a defining issue in this year’s provincial election but regardless of the outcome, we’re not likely to see the effects of federal and provincial elections in the form of intervention in 2022.
Covid-19 and the uncertainty surrounding the Omicron variant is also an unknown factor. Although if history is any sort of predictor COVID-19 should have little impact on the trend in real estate prices. Recall in 2020 when the CMHC predicted a 9-18% drop in housing prices at the beginning of the pandemic and since that time the market has been on fire with the average price for a home in Ontario increasing by 44% (CREA). In Durham Region, the average sold price of a detached home in December was $1.178MM and in Toronto $1.69MM.
So, what’s the bottom line? If you’re planning on buying in 2022 a change to the mortgage stress test could impact what you can afford so getting out ahead of any changes could help. So far COVID-19 has not had a negative impact on real estate prices and we’re not seeing policy changes impacting housing yet, but these are factors to watch.
TRREB Market Watch December 2021
Most experts agree that the GTA real estate market cannot continue on its current trajectory forever and feel 2022 should start off strong with similar sales numbers to 2021 yet they expect the market to slow as we move into the second half of the year and rising interest rates take effect. That may be true but don’t expect a reverse in pricing trends. As per Clayton Jarvis of Financial Post’s Moneywise column “People have been calling Canadian real estate’s upward trajectory ‘unsustainable’ for almost a decade now.”
So, what’s the bottom line?
You decide what’s best for you. If you’re waiting for the perfect timing to make your move you could be waiting a while. The reality is that there is never a perfect time to move. It’s about what’s right for you and your goals for homeownership. If you’re thinking about making a move in 2022 your best bet is to speak to a Realtor® and get the lay of the land in your community. We can help you with 40+ combined years of experience helping people just like you buy and sell in the GTA. We can connect you with trusted lenders and support you through the process from start to finish.
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