Between rising interest rates, the COVID-19 pandemic, and the incoming spring market, home buyers and sellers might feel slightly overwhelmed by all of the changes happening in the 2022 housing market. 

Last year was one for the books as home inventory sank to its lowest levels ever recorded. Meanwhile, the Bank of Canada (BoC) is preparing to increase its overnight rate again, spelling potential changes for new and existing mortgage holders. With these trends in play, it leaves a lot of questions for those looking to make a move in the real estate market in 2022. 

Shaun Cathcart, Senior Economist and Director of Housing Data and Market Analysis at the Canadian Real Estate Association (CREA), has the answers to some of your important real estate questions.

What are the factors that cause the housing market to react? Is it the economy, COVID-19, buyer behaviour, or a combination?

Shaun Cathcart: “It’s always a combination of multiple factors. The difference right now is that they all seem to be pulling in the same direction, which is why the market is so strong.” 

Since the COVID-19 pandemic began, home buyers have sought out larger living spaces as working and schooling from home remains common. In some cases, buyers have migrated to outer city communities or other provinces in search of more affordable prices. Other homeowners have chosen to stay put and renovate their homes. Rising inflation with the cost of living, looming interest rate increases, heightened immigration targets, and improving employment rates are all trends that could influence the market in 2022. 

The 2021 housing market was characterized by record-low supply, pushing sold prices to new highs as 666,995 properties traded hands. This year, CREA predicts home sales will fall about 8.6% to 610,700 transactions. Although this would still be the second-best year on record for sales, the urgency to buy a home base to ride out the pandemic will continue to fade in 2022, having an impact on market competition.

The stress test for uninsured mortgages remains the same for now. What are Canada’s other current mortgage qualifications that buyers and sellers should know about?

SC: “The stress test isn’t just the interest rate you have to qualify at. You have to qualify at that rate, along with having a minimum credit score, minimum down payment, and gross and total debt service requirements. Those are the main elements of the stress test, it’s not just the interest rate.”

In December 2021, Canada’s Office of the Superintendent of Financial Institutions (OSFI) announced the minimum qualifying rate for uninsured mortgages would stay at the mortgage contract rate plus 2% or 5.25%, whichever is greater. An uninsured mortgage applies when the borrower has a down payment of 20% or more. Those with a down payment under the 20% threshold are required to pay mortgage insurance in addition to their principal payment and interest fee. 

Thanks to high household debt and low interest rates, OSFI opted to leave the qualifying rate unchanged so mortgages could continue to be paid during more adverse market conditions.​​ As Cathcart points out, there’s a lot more to consider than just rates.

Inflation is expected to be high in 2022. What impacts will this have on the housing market and mortgage rates?

SC: “Interest rates are going to rise in order to keep inflation under control, but the impact on the housing market will be muted by the stress test.”

Since the onset of the COVID-19 pandemic in spring 2020, borrowers have been able to take advantage of some of the lowest rates in history, a perk for new home buyers and those looking to negotiate their mortgage. Now, the BoC is looking to increase rates again carefully in line with its inflation target of 2%. Although the BoC did not raise its mortgage-influencing overnight rate during its first 2022 policy rate announcement in January, it seems like the next rate hike could be coming in March. 

Inflation, which has reached a 30-year high, has caused the price of goods and services to rise faster than normal. Although a boost to the interest rate hasn’t happened yet, the BoC says it remains committed to controlling inflation, and expects interest rate increases in the near future. Cathcart has previously predicted raising interest rates could cause mortgage holders to lock into rates before an anticipated increase. For new mortgage owners, the stress test will act as a “major cushion” against rising rates, he says.

Real estate prices have continued to rise. How much higher could they go in 2022, and what would it take for growth to level off?

SC: “Housing prices are expected to continue to rise in 2022. The main reason is demand/supply conditions are the tightest they’ve ever been. As interest rates rise, prices will likely start to level off, but we’ll likely measure that full impact in years, rather than months.” 

Chronically low housing supply against comparatively high demand was a recipe for rising home prices in 2021. Last year, the national average home price was $713,500.

In its updated housing market forecast published in December 2021, CREA predicted the national average will rise 7.6% annually to around $739,500 in 2022. Although price growth isn’t expected to be as extreme this year, many of the factors that contribute to upward momentum are expected to linger in 2022, such as the ongoing home supply shortage. By the end of December 2021, for instance, there were just ​​1.6 months of inventory nationwide. 

How are national home buying policies, such as the stress test, influenced by the trends in leading markets such as Vancouver and Toronto?

SC: “Policy makers were clear to point out when the stress test was brought in that it was not a policy to control any activity in any housing market. It’s a financial stability tool.” 

Although national policies like the stress test aren’t directly influenced by the Vancouver and Toronto markets necessarily, Canada’s largest and more expensive real estate communities have been making local changes to help affordability and home supply. 

In January, Vancouver approved its Making HOME plan that would allow for more densification in areas currently zoned for single-detached homes or duplexes. Meanwhile in Toronto, new inclusionary zoning bylaws will require certain residential projects to include affordable housing units.

If I’m a buyer or seller in 2022, what can I expect when the spring market comes around? When does that period typically start?

SC: “A typical spring market in Canada usually starts in March. In 2021 it was February, and if 2022 is anything like last year, you may see a burst of new listings in the spring, but because the overall stock of supply is so low and demand is so strong, they will likely be gobbled up very quickly.”

The spring market is known as one of the busiest times to buy and sell real estate, and 2022 doesn’t appear to be an exception.

On the heels of the tightest market conditions ever recorded in 2021, the upcoming spring market is expected to see little supply compared to buyer demand. Some REALTORS® anticipate affordability and the work-from-home movement will drive buyer motivations this spring, like pushing purchasers to the outskirts of major urban areas which tend to offer more space for fewer dollars. Those moving back to city areas due to reopening offices might also influence the condo market this spring.

Is there potential for traditionally smaller markets to surge in 2022 due to peoples’ mindsets and desires around housing changing?

SC: “To some extent, that’s already happened. The question is to what extent will that continue in 2022 and to what extent will it reverse. It’s possible that people could continue to move out of cities while others start to return. This would mean a lot of activity in resale markets.”

Known as the Urban Exodus, buyers have been migrating to smaller communities during the pandemic, often in search of more privacy, space and savings. Although this trend was happening before COVID-19 was prevalent, working and schooling from home accelerated the exodus.

With that, prices in rural and cottage country markets shot up in 2021 by more than 40% in some areas, according to research published in the 2021 RE/MAX Recreational Property Report. As urban workplaces reopen their offices for full- or part-time use, some home buyers could make the journey back to cities while others continue to work remotely. 

If you’re looking to buy or sell a home in 2022, consult the advice of a local REALTOR® to get the most up-to-date advice on all of your real estate questions. 

The information above is for informational purposes only and should not be used as investment or financial advice.


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