CIBC forecasts 2022 Canadian home sales to drop 15 percent

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      CIBC Capital Markets projects a 15 percent drop in Canadian home sales in 2022.

      For perspective, the anticipated decrease is “relative to the elevated level seen in 2021”.

      Which means, “when the fog clears, the housing market will look very familiar”, CIBC economist Benjamin Tal wrote.

      Note that based on the recent account by the Canadian Real Estate Association, year-to-date sales from January to October 2021 have already exceeded the entire annual record of 2020.

      Specifically, some 581,275 residential properties traded hands across the country in the first 10 months of this year compared to the 552,423 sales for all of 2020.

      Additionally, sales for November and December 2021 have yet to be tallied, which will bring the 2021 number even higher.

      CIBC Capital markets released Tal’s report titled “Canadian housing: What to expect?” on December 1.

      In the paper, Tal predicted five to six interest rate hikes from the Bank of Canada in the next two years.

      Tal expects buyers to act in anticipation of these rate increases, thereby leading to a flurry of home purchases.

      The bank economist recalled that before the onset of COVID-19 in 2020, Canadian home sales averaged about 40,000 per month.

      Sales peaked at 70,000 monthly during the pandemic, and have fallen to over 50,000.

      Still, Tal noted, that’s more than 10,000 units above pre-COVID levels.

      The economist wrote that it is “reasonable to assume that over the coming few quarters, sales activity will average close to 55k [55,000] a month and possibly higher—supported by the increased inflow of new immigrants—before slowing notably in the second half of 2022”.

      “Overall, we expect sales to fall by 15% in 2022, relative to the elevated level seen in 2021—an environment that is consistent with a notable deceleration in home price inflation next year,” Tal wrote.

      Tal stated that higher rates will “bring the market back to balanced conditions, and cities will remain the center of activity”.

      In a previous November 4 report, Tal noted that the Bank of Canada may raise rates “starting as early as March” 2022.

      “Potential buyers will face a higher interest payment trajectory, leading to reduced demand for new and existing units, potentially resulting in some slowing in the important construction industry,” the economist stated at the time.

      To illustrate, Tal noted that with an average housing loan of $450,000, a one percent increase in mortgage rates from current levels will cost an average new homebuyer $230 or 12 percent more in additional monthly interest payments.

      In his recent paper on December 1, the CIBC economist provided a picture of how next year will end.

      “By late 2022, the housing market will look and feel more like it did in late 2019,” Tal wrote.

      Tal continued, “The discussion will shift back to the lack of supply in light of immigration driving increased demand, and to the need to provide a permanent rental solution to Canada’s affordability crisis via increased purpose-built activity.”

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