Reasons Why Canadian housing prices will Continue to Increase
As Canadian housing prices climb higher, the supply of available homes for sale is not increasing at a pace that could satisfy the demand. However, some economists say the problem lies with a lack of inventory. As a result, fewer homes are for sale in many markets, including Ottawa.
Regardless of the cause, the shortage of housing is keeping prices high. Listed below are reasons why the supply of homes for sale is not keeping pace with demand.
Report from the Canadian Real Estate Association
The latest report from the Canadian Real Estate Association shows that home prices have appreciated at the fastest rate since the COVID-19 pandemic began in 2014.
The most significant increase was in the Toronto area, where typical home prices rose by nearly half to $811,700 last month. The gains were particularly impressive in cities outside the metro area, including Oakville, west of Toronto. Home prices have increased at a 26.6% annual rate in the past two years.
Increasing Supply-demand Gap
Although the first quarter of 2022 might be slower because of a lack of supply, it is actually at its lowest point in this year’s supply compared with previous years’ inventory at a national level.
There is currently less than two months’ worth of inventory on the national marketplace. These record-breaking low inventory levels have only been recorded four times, all of them in 2020-21.
The supply situation will be a critical issue to monitor over the coming months. It is unlikely that it can be fixed quickly. Affordable housing continues to fall behind demand.
This has been a problem in Canada for years. The pandemic only made it worse. P.M. Trudeau promised to build more affordable housing across the country. While the promises of election and government measures are admirable, they are too little too late.
To address the increasing supply-demand gap, we must act quickly. Construction faces challenges such as shortages of labor, supply chain problems, rising construction material costs, and new variations of the COVID pandemic. Many builders hesitate to begin new projects, fearing losing their stability and being interrupted.
Can Immigration Help to Solve The Problem?
Canada relies on immigration to fuel its economy and support our aging population. If one accepts that fact, then the number of immigrants admitted to the country will continue to rise.
Sean Fraser, the Honorable Minister of Immigration, Refugees, and Citizenship (IRCC), announced that in 2021, more than 401,000 permanent residents arrived in Canada. Canada sees 75% of its population growth through immigration.
This addresses the critical sectors of technology and healthcare in short supply. Canada hopes to receive 411,000 immigrants in 2022 and 421,000 in 2023. (Govt of Canada IRCC).
What does this all mean for the real-estate sector? Immigrants need housing. This will create and sustain demand. Investors will always exist in the rental property market.
For buyers, it is still affordable as many are highly educated and have 6-figure incomes. According to research, 26% of Canadians want to build their home or work in the pre-construction industry to benefit from the historically low mortgage rates.
The December 2021 average home price was $713,000. This is 17.7% higher than the December 2020 average (Source: CREA). Canada’s most expensive and active housing markets, Toronto, Toronto, and GTA, significantly influence the national average house price. Canadian cities have witnessed an increase in real estate supply, including new subdivisions that investors are renting.
Double-Digit Increases In Areas like Condos, Townhomes, and other Affordable Properties
Supply issues, rate hikes, and a COVID pandemic will continue to push up home prices. CREA predicts that national prices will rise 9.2% between 2022 and 2023. Save Max. CEO Raman Dua sees prices increasing north of 10%, double-digit increases. In areas like condos, townhomes, and other affordable properties, prices will rise the most, especially in Toronto and the GTA.
The national median price for single-family detached homes increased 21.1% over the previous year to 811,000. Condo prices rose 15.8% over the same period to $553,800.
Ontario saw the highest price rise, with detached homes increasing by 44.3%, and Kingston, ON, 38%. B. C saw a 25% increase year-over-year (outside Greater Vancouver). Markets outside the major provinces B.C., ON, and QC have also been fueled by the current trend towards migration within areas.
This trend will continue into 2022. Atlantic Canada is expected to be one of the fastest-growing markets with interprovincial migration between Moncton, Halifax, and 20%.
Buy Now If you Find Something you Like or Face Raising Interest Rates
Bank of Canada may not hike interest rates as quickly as expected. As a matter of fact, it’s on hold for the time being.
Let’s take a look at the current mortgage rate, which is currently 2.5% fixed and variable at 1%. To qualify potential home buyers, the BOC has recommended that banks conduct stress tests at 5.25%.
The Canadian home buyer is able to weather the rise in interest rates. Bank of Canada expects to announce 4 to 5 interest rates hikes per year, each around 0.25%, depending on key factors like inflationary trends, labour market conditions, pandemic situation, and others.
Bank of Canada will announce their next rate hike on January 26th 2022. There is a chance of a rate increase in March 2022, with a 50% chance. Fear of a recession preventing interest rates from rising rapidly is why they cannot be raised quickly. We expect strong demand for homes in the Spring as clients look to buy before rate hikes take effect.