Highly contested markets will see particularly feverish activity
Canadian home sales will likely reach 579,000 this year, down by roughly 13% from 2021 but still the second highest level on record, according to Robert Hogue of the Royal Bank of Canada (RBC).
This will accompany six interest rate increases that will push the Bank of Canada’s overnight rate up to 1.75%, Hogue predicted.
The combination of these factors will fuel sustained home price growth in highly contested markets, particularly Toronto and Vancouver. These markets will be disproportionately affected by rate hikes and supply issues, Hogue said.
“Most of that increase in supply and cooling of the market will take place in the second half of this year,” Hogue said. “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: What will influence the Canadian housing market’s 2022 activity?
This is despite a recent spike in construction, with new home builds starting at a pace not seen in more than four decades.
“The increase is unlikely to fully address the supply shortage on its own. But alongside calmer demand, we believe it will noticeably reduce the imbalance,” Hogue said.
At this point, only a significant boost in housing inventory will moderate the influence of bidding wars in the hottest markets.
“So far in the pandemic, supply has been dwarfed by supercharged demand. Inventories of homes for sale have plummeted to historical lows as a result, leaving few options for buyers,” Hogue said.
