Deteriorating affordability will have a substantial market influence, according to RBC Economics
Sustained market strength will fuel further home price growth in Canada this year, although a combination of factors will keep this trend at a slower pace, according to RBC Economics.
“Plenty of unmet demand remains and will continue to fuel tremendous activity across the country. Still, we expect the Bank of Canada’s rate lift-off to turn down the market’s heat in 2022 as deteriorating affordability sends buyers to the sidelines,” said Robert Hogue, senior economist at RBC. “Higher interest rates and the likelihood of new anti-speculation measures will also prove a tougher proposition for investors.”
RBC is expecting national home sales activity to moderate by 13.1% annually for a total of 579,600 transactions this year, its second highest level ever.
“The ongoing construction boom will bring much needed new supply to the market, helping to ease severe shortages,” Hogue said. “Most of that increase in supply and cooling of the market will take place in the second half of this year. We expect demand-supply conditions to become much less favourable – though still broadly positive – for sellers by then, reducing upward pressure on prices.”
Read more: Canada house prices – how will they grow in 2022?
However, these factors won’t be sufficient to alter the trend of price growth, Hogue warned.
“We project Canada’s benchmark price to rise 6.2% in 2022, or nearly a third of the record rate of 17.8% last year,” Hogue said. “The momentum will be even slower in 2023 with most markets returning to a better balance.”
The perennial lack of housing inventory will also have a major influence on the market.
“Sellers ended 2021 in full control of virtually every local market. That’s bound to keep property values rising rapidly in the initial months of 2022,” Hogue said. “Demand-supply conditions were so tight in parts of BC, Ontario, Quebec and Atlantic Canada at the end of 2021 that we wouldn’t be surprised to see prices accelerate even further at first. More moderate gains will set in once extreme tightness starts to unwind by mid-year.”
