An RBC Economics report offers a ray of hope for frustrated Canadian homebuyers.
New home supply is “already on the horizon”, economist Robert Hogue writes in a recent housing market forecast.
“There’s reason to believe 2022 will finally be the year more supply makes its way to market,” Hogue predicts.
Although the “increase is unlikely to fully address the supply shortage on its own”, that is good news just the same.
Alongside with this, Hogue expects “calmer demand” for homes in 2022, and this is due for a variety of a reasons.
Foremost of these is the anticipated series of interest rate hikes by the Bank of Canada, which the RBC economist described as a “turning point”.
Hogue believes that the central bank will increase its interest-setting rate by a total of 1.5 percent in six moves over an 18-month period.
“This increase, on its own, will have a significant cooling effect on demand,” he wrote in his report dated January 26, 2022.
So that’s the part where homebuyers can finally feel some amount of relief.
But it’s not coming very soon.
“Most of that increase in supply and cooling of the market will take place in the second half of this year,” Hogue explained.
Meanwhile, homebuyers in the near term should “brace for more bidding wars in 2022”.
“Competition between buyers will remain fierce beyond the always-hot Toronto and Vancouver markets,” Hogue wrote.
The RBC economist noted that 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,” he wrote.
Moreover, “Demand-supply conditions were so tight in parts of B.C., Ontario, Quebec and Atlantic Canada at the end of 2021 that we wouldn’t be surprised to see prices accelerate even further at first.”
As Hogue pointed out, supply will “continue to be crucial to Canada’s housing story”.
“So far in the pandemic, supply has been dwarfed by supercharged demand,” he noted.
Hogue estimates that the Canadian market was short by 180,000 to 250,000 listings at the end of 2021.
“To reach a better balance, with exceptionally strong demand, active listings would need to at least triple,” the bank economist wrote.
He also noted that even small markets have seen “bidding wars for the first time”.
“We expect this to continue in the near term,” the economist projected.
Hogue’s paper is titled “The fever breaks: Canada's housing market will cool but stay strong in 2022”.
Hogue predicts a total of 579,600 Canadian home resales in 2022.
That would be the second highest volume in history, next to the “astounding 667,000 transactions in 2021”.
“The ongoing construction boom will bring much needed new supply to the market, helping to ease severe shortages,” he stated.
As for prices, Hogue expects the Canadian benchmark to post an annual increase of 6.2 percent in 2022.