The “fever” in Canada’s housing market will break in 2022, but don’t expect things to come crashing to the ground.
RBC Economics says higher interest rates, tougher rules for would-be investors and a construction boom will all work to help satiate demand and take the heat out of some of the country’s hottest markets. It expects prices to increase 6.2 per cent in 2022 (down from 17.8 per cent in 2021) and said the increase would be “even slower in 2023 with most markets returning to better balance.”
Before any of that can happen, there needs to be more supply.
“The supply side will continue to be crucial to Canada’s housing story,” the report reads. “So far in the pandemic, supply has been dwarfed by supercharged demand. Inventories of homes for sale have plummeted to historical lows as a result, leaving few options for buyers. We estimate the Canadian market was short 180,000 to 250,000 listings at the end of 2021. To reach a better balance, with exceptionally strong demand, active listings would need to at least triple.”
Bidding wars
The report said bidding wars will continue in 2022 as buyers scramble to get in on markets across the country. It also expects the number of immigrants looking to buy in large urban areas – Toronto, Montreal and Vancouver – to intensify.
Meanwhile, the report says new construction will add far more inventory to the market than in the past.
“There’s reason to believe 2022 will finally be the year more supply makes its way to market. Housing starts have surged in the last year, reaching levels unseen since the mid-1970s. Some of those units have recently been completed and barring prolonged construction delays (supply chain bottlenecks and labour shortages pose significant challenges), we expect builders to boost completions materially in 2022 to nearly 250,000 units.
This would be up significantly from an average of 190,000 units annually over the past five years. The increase is unlikely to fully address the supply shortage on its own. But alongside calmer demand, we believe it will noticeably reduce the imbalance.”
