Property Market Outlook: 2022
December 9, 2021 | Posted by: Keith Leighton
PROPERTY MARKET OUTLOOK: 2022
It is predicted that Canada's double-digit house price inflation will drop-off next year, but the cost-effectiveness may still decrease in one of the world's hottest property markets. A rush to purchase homes ahead of expected increases in Canadian interest rates next year is boosting the housing market in the final quarter, with prices skyrocketing over 18% in October compared to the year-earlier period.
Over enthusiasm, driven by investors fueling perceptions that prices will keep rising, has prompted the Bank of Canada to recently warn of an increased risk of a correction. Although housing affordability is unlikely to improve next year as prices increase and with rising interest rates, it is expected housing inflation rates will shrink considerably next year. It is anticipated that rate hikes will continue, but the demand should remain steady with underpinning sales.
Average house prices in Canada are expected to approach 19% this year, up from a 16.0% rise predicted previously. However, increases were forecast to drop-off significantly, to 5.0% in 2022 and 2.0% in 2023, while some expect prices to fall in 2023, and by reasonable amounts.
The biggest impact on house prices next year will be higher interest rates or stiffer monetary policies not to mention the supply constraints. Canada's central bank is expected to start raising interest rates by the end of the third quarter next year.
Small rate increases will have minimal effect; however, major rate increases in 2022 will reduce the market demand, especially from those investors who are interest rate sensitive. Home prices have risen beyond the reach of many first-time home buyers and a housing supply shortage has exacerbated the situation. Investors and speculators account for over 20% of home purchases and have aggravated the severe demand-supply imbalance, boosted prices even higher and made housing more vulnerable to a correction. It is anticipated that over the next two to three years home affordability would diminish.
More Canadians will move to rentals to be closer to where they work because of higher home prices. However, people who can work remotely will continue to migrate out of more expensive urban centres and until they are able to qualify for a mortgage.
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