As we navigate the difficult waters of the Covid era, the economy has certainly experienced its share of ups and downs, since the dreadful onslaught of the virus in March, 2020.  Think of the many changes that evolved – working from home, limits on gatherings, curbside pickups, store closures, masks, vaccines. It has been, in a word, tumultuous.

On the contrary, the real estate market in much of Ontario said “never mind”.  As society had to adjust to the new realities of pandemic – including much of those previously mentioned, plus copious hand washing and sanitizing – you would think real estate activity might diminish somewhat.  Not so, at least not in terms of pricing.  In fact, quite the opposite happened.  It was already a seller’s market across much of the urban spread of the province; demand far out-stripped supply.  Any covid hesitancy on the part of either side of the equation simply drove up the value of the housing that was on the market.  The fact that interest rates remained stable added to fuel to the fire.

Heading into the New Year – 2022

We have learned through covid that nothing during a pandemic is predictable.  More than once now, we have figured the worst was behind us, only to see surges and flare-ups in case counts and hospitalizations.  Currently, we are muddling through another one, the Omicron variant, which is both much more contagious than ones before it, but at the same time, much less severe in terms of health impacts. It’s yet another curve ball, but hopefully one of the last, seeing as how vaccination rates and testing continue to do their part.

The Ontario Real Estate Market in 2022

All this seems to indicate that life will, hopefully, start to return to a somewhat more normal state as we head into the New Year.  Businesses and institutions have both learned to adapt, and more and more, we’ve seen a return to previously limited activities, such as shopping and house-hunting.  

In theory, a return to a more active society should mean additional supply in the real estate market.  People who have put off either buying or selling for pandemic related reasons will jump back into the game.  Any additional supply may take some pressure off pricing, although if demand also increases, it could all be a wash.  Nevertheless, it will be heartening for home buyers to peruse the listings and see more of them than in the past couple of years.  At the very least, they may feel like they stand a chance at finding, if not their dream home, at least one they can live with.

The big wildcard for 2022 will be interest rates.

Interest Rates and Ontario Real Estate in 2022

We’ve seen that despite the pandemic, less supply, less demand, and everything else, real estate prices in this province and across the country have increased unrelentingly.  That means that real estate is still considered a good if not great investment, both domestically and from beyond our borders.  But the real determinant for the buoyancy has been the continued stability of low, low interest rates, as pegged by the Bank of Canada.  

The Bank of Canada is a Crown Corporation which serves as the nation’s central bank.  They set monetary policy for the country, and importantly, this includes setting of the interest rates which all financial institutions use as their own benchmark.  Any move the central bank decides to make on rates will have an impact on the real estate market, including new construction, resale, and even rentals.  

Interest rates have been remarkably stable, and low, in this country for a long time now.  In fact the Bank of Canada interest rate has not been above 2% in many years.  This has been a primary driver in the roaring real estate market over the same time period.  Think back to where home prices in the Greater Toronto Area, for example, were in 2008-2009, compared to 2021.  Some of it has to do with the GTA being a very desirable place to live and work, of course.  But it’s the availability of “cheap money” in the form of low mortgage rates which has spurred both buyers and sellers on.  Surveys and polls confirm this – the majority of us consider the cost of borrowing, or a tighter monetary policy as the single biggest impact on home prices.

There now seems to be an indication that change might be in the air for 2022.

What’s in Store, Interest Rate-wise

The latest predictions are that there may be several interest rate hikes by the Bank of Canada in the coming months.  The anticipation has been such that there has been a flurry of activity in the real estate market which, once again, resulted in another boost to home prices across the province and country.  The mere mention of potential higher costs of borrowing triggered increased activity.

There is general agreement the interest rates will rise in 2022. There is less consensus on exactly when it will happen, and by how much.  Some analysts are predicting several rate hikes, as many as five, over the course of the next year.  Others suggest that nothing much will happen until after mid-year, even as late as post-third quarter.

What’s in Store, House Price-wise

Despite all this, very few crystal balls are saying house prices in our neck of the woods will drop in 2022, or even remain the same. For those looking to get into the real estate market, the one glimmer of hope is that the rate of increase in prices will be at a slower pace than in years previous.  Some of the numbers being suggested include a 5% increase over 2021, as opposed to the double-digit surges we’ve experienced over the last couple of years.

Coupled with low interest rates, a slowing housing market may allow some first-time purchasers to get their foot in the door of home ownership.  If the predicted interest rate increases materialize in the coming months, however, borrowing costs could put a damper on that opportunity.

In short, it’s going to be tough, like always.  Complicating the entire scenario could be inflation in general.  We have been blessed, for years now, with exceptionally low rates of inflation.  This very stable situation has meant that price pressures on just about everything, including all things home-related have been kept largely in check.  That’s all changed over the last few months – we’ve experienced price rises in just about everything, from cars, to food, to home-related services and products of all kinds.  That inflationary pressure will certainly drive up costs for housing, over and above the traditional drivers we’ve talked about – supply and demand, and interest rate levels.

Getting into the Real Estate Market in 2022

We’ve mentioned crystal balls – let’s just say they are very murky at the moment.  Trying to predict anything with accuracy during turbulent times is near impossible.  On the bright side, if you are already in the real estate market, things are looking reasonably well, particularly if you’ve locked into a low interest rate for a long term.  Carrying a big mortgage on the other hand, on the cusp of predicted rate hikes, could be a big problem – perhaps even a bubble burst.

The general consensus seems to suggest a “cooling” of the housing market in this country.  Another term being bandied about is a “levelling off” of the market.  The ferocious pace of price increases over the last few years will slow to zero, or even a slight decrease in home values, as the market achieves balance.  This prediction may be validated by the fact that Toronto is considered the second worst real estate market in the world, in terms of risk.  In other words, analysts feel our housing in the GTA is way overvalued.

At the end of the day, it’s a mixed bag.  No one can say with certainty what’s around the corner.  If the past is any indicator, it will remain difficult for anyone looking to buy their first home.  Some of the most bear-ish predictions still have house prices outpacing inflation.

Then again, we’ve talked about the potential impacts on Canadian real estate coming in 2022:

• Inflationary pressures
• Interest rates
• Supply and demand
• Covid

To put a positive spin on it, we are blessed to live in a prosperous, peace-loving, and generally orderly country that values its citizens and institutions.  It’s seen its share of tough times, but we have weathered through them, with general stability at the core of our economy and the mechanics that keep it moving forward.  

For an aspiring homeowner, there are certainly challenges on just about every level, including the ones we’ve listed above, and others.  To achieve their goal, it may require a mix of a waiting game, some heavy saving – even penny pinching, and some creativity to get over the finish line.  Counting on a collapse of real estate prices, especially in red hot areas of Ontario, such as the GTA, is probably not realistic.  On the other hand, watching the market and interest rates carefully, and making the move at an appropriate time, when all your finances are in order, the rates are right, and the price is within reach, could well result in entry into the world of home ownership – touchdown!  It’s not an easy game to play, real estate, but it is well worth the effort.

Here’s hoping for a prosperous 2022 for all of us, in real estate and everything else. For more expert advice on real estate investments, consider contacting a real estate advisor today.

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