Home prices will likely be on a steady upward trend for the foreseeable future, it says
![RBC on Canada housing market demand](https://cdn-res.keymedia.com/cdn-cgi/image/w=1000,h=600,f=auto/https://cdn-res.keymedia.com/cms/images/us/074/0270_637781759291359549.jpg)
Despite the Canadian housing market’s record-breaking performance in 2021, the Royal Bank of Canada said that there is still unmet demand in the market.
A total of 666,995 residential sales took place in Canada over the whole of 2021, setting a new record high and surpassing by more than 30% the average over the last 10 years, according to the latest data from the Canadian Real Estate Association.
“By December, home resales still ran at a 652,000-unit pace (seasonally adjusted and annualized), or 18% above the prior annual record, and little changed from November,” RBC Economics said. “In other words: still torrid. And even more transactions could have easily taken place had it not been for a 3.2% month-over-month drop in new listings.”
Due to these market dynamics, sellers remain “firmly in charge” across Canada, RBC said.
“A very high sales-to-new listings ratio (at 0.80 nationwide) in December attests to sellers maintaining a strong bargaining power at this juncture,” RBC said. “This is true in virtually every region of the country, including Alberta where conditions have tightened considerably through the fall.”
Read more: What’s hitting housing inventory in Canada?
RBC is not expecting this “supercharged” demand to dissipate quickly, which will keep prices on a steady upward trend for the foreseeable future.
“However, we believe interest rate increases will alter the market’s course later this year,” RBC said. “We expect the Bank of Canada to raise interest rates materially starting this spring.”
RBC is projecting the central bank’s overnight rate to increase by 150 basis points in less than a year and a half.
“Our view is the anticipation of higher rates is already impacting the market: currently bringing some activity forward as buyers hurry to lock-in lower rates,” RBC said. “This phenomenon should reverse by mid-year and work to cool demand. Higher interest rates will further erode already-poor housing affordability in Canada’s major markets.”