Some analysts are sounding alarm bells about a bubble in Canada’s housing market, citing record price increases, mounting household debt levels, and looming interest rate hikes.
After hockey, of course, one of Canada’s favourite national pastimes must be making housing market predictions.
Every month we have different experts weighing in with their own predictions for Canada’s housing market, and it’s hard to keep track of who’s saying what. Given that buying a home is usually the biggest financial transaction people will make, knowing where Canada’s housing market is headed is extraordinarily important.
“Nobody really knows what is going to happen (I wish I did, I would certainly be retired on a beach in St. Tropez drinking a Kir Royal), but we can compile what the experts are forecasting,” says Cristina Corti, Sales Representative for Sutton Group Incentive Realty Inc. in Collingwood. “We have been in the middle of a heated market where demand is high and inventory shows no sign of increasing to the levels needed to match that demand.”
Even with increased mortgage rates, many experts still predict that demand will not plateau, especially with immigration growth.
Prices continue to rise and break records across the country. According to the Parliamentary Budget Office, “at the end of 2021, the average house price nationally was $811,700—an increase of 43 percent from December 2019 and a 97 percent increase compared to January 2015.”
So… Will the real estate market crash in 2022?
For the housing market to crash, large amounts of supply need to flood into the market, driving prices down quickly.
We know that inflation, the rising cost of living, and rising house prices, have driven many people to take on more debt and larger mortgages, says Corti. Canadians borrowed $193 billion over the pandemic. All that debt, coupled with increasing interest rates, could persuade indebted homeowners to sell before having to renew their loans and mortgages. The fear is that this has the potential to lower prices quickly.
Although this is possible, the chance that interest rates will increase enough to induce a wave of homeowners to sell leading to a market crash seems unlikely, says Corti. Banks already apply a “stress test” to ensure people can meet their mortgage obligations. Rates would have to rise significantly above the 4.79% assumed in the stress tests to induce such a situation. The federal budget has also implemented new policies to help the housing crisis in Canada, which will likely impact the market in a way that prevents a housing crash.
What is the effect of the latest Federal Budget?
“I believe the Federal Budget measures announced on housing and real estate will be largely toothless in the near to medium-term.” says Corti, “Although the ongoing dialogue arising from the new government measures may have a small effect on consumer confidence, the impact of these measures will be long-term and will have a very modest impact on the direction of prices.”
The most important budget measures to note are:
- The creation of a CMHC (Canada Mortgage and Housing Corporation) housing acceleratory fund to reduce red tape and accelerate the approval process. “While a step in the right direction to increasing housing supply, this measure will take years to have any discernable impact on the overall housing supply.”
- Tax-Free Home Saving Accounts to help first-time buyers save for a down payment.
- First Time Home Buyer’s Tax Credit and further incentives to help Canadians purchase their first home. “These are great ideas, but they will increase demand for housing while leaving the problem of insufficient supply unresolved, and thus may exacerbate the existing problem,” adds Corti.
- Restrictions on foreign buyers, while long overdue, are limited and seem easy to circumvent.
In short, Government initiatives seem unlikely to seriously impact the conditions in the housing market. High prices are a function of inadequate supply and will take some time to rectify.
What about population growth in Ontario?
Did you know that of all the people moving into Ontario 47% of them end up moving into the GTA? The population is growing, and it is growing a lot. So, what does that mean for the housing market? Well, these people are going to need somewhere to live.
“Talking about a housing crash, and a bubble? Realistically, based on the current demand for housing vs. the actual supply of housing, and then adding in the growing population, I wouldn’t hold my breath on a market crash,” continues Corti.
We can’t predict the future.
Most experts and analysts seem to agree that the extreme price increases we have seen over the past year are not sustainable, but that doesn’t necessarily mean that prices are going to crash. Instead, prices could grow more slowly or plateau. ”That said, it’s difficult to imagine a housing market slump that would make prices broadly affordable again. Even a 30% drop in prices would only bring them back to pre-pandemic levels, and things were not exactly cheap in January 2020.”
We are also likely to see regional variances based on local economic conditions. If people who left cities at the start of the pandemic return in large numbers, home prices in smaller towns and cottage countries could fall while prices in cities rise. Similarly, prices in Toronto could increase further as economic recovery takes hold.
The Southern Georgian Bay area seems likely to continue to see increased immigration as people search for a better quality of life and the new hybrid work models pioneered during the pandemic become a permanent feature of work life. We are lucky in Collingwood, the Blue Mountains, Wasaga Beach and all the beautiful towns in the Southwestern Georgian Bay area because they offer an amazing 4 season lifestyle that never goes out of style. I believe that with the overcrowding of our larger cities more people will continue to move here to enjoy the fresh air and a healthier and sporty lifestyle.
“We learned so much from this pandemic. One of the most important lessons has been the privilege to live outdoors, spend time breathing fresh air and enjoy sports with family and friends. I strongly believe that many people have re-evaluated their lifestyle, and what is truly important to them,” says Corti, “Many people became more focused on health and a better way of living.”
While Toronto will continue to have a strong housing market due to immigration, Southwestern Georgian Bay will continue to be an attractive place to live, especially now following the pandemic when people demand a new life/work balance.
More about Cristina Corti
Cristina Corti relocated from Toronto to Collingwood, joining Sutton Group and holding dual real estate licenses from the Toronto Regional Real Estate Board and the Lakelands Association of Realtors. She will be completing her Ontario Brokers licencing in June 2022.
With an established ability to compete in a large metropolis like Toronto, and with the skills she developed in that hypercompetitive environment, she was well prepared for the onset of bidding wars and competitive offers in Collingwood. There has been a rise in bidding wars in the past years and Collingwood is no longer a stranger to the concept.
Cristina Corti is happy to respond to any questions or help you with your real estate needs. Reach her today toll-free at 1 (866) 871-1151, or local at 705-446-3991. You can also contact her online.