Rising interest rates, low housing supply in store for Canada in 2022: report

After nearly two years of historic lows, aspiring Canadian homeowners will have to keep an eye out for rising interest rates in 2022.

A recently released report from real estate agency Zoocasa outlined five major predictions that Canadians should anticipate in 2022 — including rising interest rates.

As to be expected as we continue to move through the pandemic, there will be some less-than-exciting changes coming to the real estate market. But unfortunately, when it comes to the aspects of the market that buyers across Canada would actually like to see changed — namely, the surging home prices and lack of inventory — it seems like 2022 will bring more of the same.

To get a glimpse of what’s to come, here are Zoocasa’s five major predictions for Canada’s 2022 housing market.

1. Rising interest rates

Back in March 2020, the Bank of Canada reduced its interest rates to a historic low of 2.5%, making mortgage borrowing cheaper than ever and enticing more buyers to jump into the market. But in the most recent announcement, the Bank of Canada confirmed that it plans to raise interest rates in mid-2022.

The last time rates rose in 2018, real estate activity slowed with prices dropping nearly 5% and sales falling 19%. This cooling, however, was largely affected by the simultaneous introduction of the mortgage stress test, which reduced affordability for the average homebuyer by 20%, according to Zoocasa.

“Based on the current rules of the stress test, which OSFI officials have opted to leave unchanged heading into 2022, fixed mortgage rates would need to rise to 3.25% before the amount buyers are qualifying for under the test will change,” the report reads.

2. Low supply is here to stay

The past year has seen month after month of waning real estate inventory, despite higher-than-ever demand from buyers.

“Put simply, we are seeing record-breaking low levels of inventory, where there are significantly more buyers in the market than there are properties to buy” said Lauren Haw, CEO of Zoocasa. “Supply will be a critical metric to watch heading into the new year – especially knowing that we may see a hotter January and February than usual, as buyers look to lock in a mortgage rate before next year’s anticipated increases.”

Based on recent market data, Zoocasa is predicting that only 4,345 new listings will come on the market next month, which would be the lowest number in two years.

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3. Home prices will keep rising

The Canadian Real Estate Association’s 2022 forecast featured a projected 7.6% growth in home prices all across Canada, with Ontario in particular seeing a massive 11.5% increase. Although larger homes with more space have led the charge on price growth throughout the pandemic, that may not be the case next year.

“Taking cues from 2018, when interest rates rose last, we can predict that the most affordable price points in the market, like condos and townhomes, will lead growth in 2022 as a result of higher borrowing costs,” said Haw.

In 2018 Toronto, for example, prices for condo townhomes and apartments grew by 9% and 10% respectively while detached home prices decreased by 4%.

4. Buying homes virtually will continue

The spread of COVID-19 meant that both realtors and clients had to get creative about how to continue buying and selling homes. Enter: virtual home tours.

And despite restrictions surrounding home tours and open houses having relaxed in many areas of the country in recent months, the tech-focused real estate experience is here to stay, the report says.

“Over the course of the pandemic we’ve seen a massive shift in how buyers want to engage with new properties,” Haw said. “We’ve noticed this especially with our app — the users who have downloaded it use it frequently to quickly check in on the state of the market.

“The desire for buyers to quickly review the latest homes for sale, instantly out of their pocket, is just one example of how consumers have really adapted a virtual-first approach to real estate. This adoption has been supercharged from pandemic restrictions.”

5. Housing as a key election issue

Housing was a top election issue for every party during the 2021 federal election. And as we head into 2022, it will continue to be an important part of the political discourse, particularly in Ontario where provincial and municipal elections are soon approaching.

“Many of the policy matters most critical to housing and real estate are managed at a provincial or municipal level, like the Provincial Policy Statement, which governs how land is to be used in the province, and Municipal Planning and Zoning laws, that regulate density, accessory buildings, and areas for new development,” the report reads.

“Not to mention, the rules for how the real estate industry operates are also regulated on a provincial level. This year’s elections will be ones to watch.”