I'd like to wish you a very happy, healthy and prosperous 2022! 

Not many forecasters anticipated the extent of the housing market's performance in 2021. 

The year ended with both home sales and average prices up over 20% compared to the previous year, driven largely by historically tight housing supply and low interest rates. 

So, what can homeowners and homebuyers expect in 2022?

According to most forecasts, home prices are likely to continue to rise throughout the year, albeit at a more moderate pace compared to 2021. Home sales, meanwhile, are likely to pull back from last year’s record levels. 

"While price growth is not expected to be as extreme in 2022, many of the conditions that supported it right up until the end of 2021 will still be there on New Year’s Day," the Canadian Real Estate Association (CREA) told us in its year-end housing forecast for 2022.

One of those conditions, of course, is the ongoing tight supply of housing inventory, which remains at historic lows. The months of inventory measure has only dipped below two months four times in history–in February and March of 2021, and then again in October and November. 

While CREA suggests activity could calm down briefly early in the year, it added that this year’s spring market "will no doubt be an interesting one."

Interest Rate Hikes a Potential Headwind for Housing Demand

Demand remains strong from an "unobservable but no doubt large number of households waiting for new listings to show up," according to CREA. But anticipated interest rate hikes later in 2022 could start to deter new homebuyers looking to enter the market.

While the timing of the first interest rate hike and the pace thereafter remains unknown, markets are generally anticipating two to four quarter-point Bank of Canada interest rate hikes by the end of 2022. 

That would bring the overnight target rate to between 0.75% and 1.25%, up from its current 0.25%, which would increase interest costs for new and existing variable-rate mortgage holders. 

"Higher interest rates are likely on the way and our rate forecasts imply that they will exert a moderate drag on housing demand," economists from TD Bank say. 

Having said that, they added that "drum-tight" inventory levels in both the new and resale markets suggest a “strong year for price growth is in the cards for 2022.”

Economic Forecasts for 2022

Here’s a look at some of the key economic and housing forecasts for 2022:

  • Average home prices: +7.6% (CREA)
  • Home sales: -8.6% (CREA)
  • Inflation: 3.4% in 2022 and 2.3% in 2023 (Bank of Canada)
  • GDP: 4.3% in 2022 and 3.7% in 2023 (Bank of Canada)

If you're looking to refinance or purchase a home this year, I'd be pleased to discuss how this outlook might impact your plans and what options are available to you. 


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