Economists expect Canadian housing prices to show a 12% gain by the end of 2022

As you’ve probably noticed, Canada’s real estate market has been defying gravity recently, and there are signs of a future consequence.

However, while some expect a double-digit decrease soon, Capital Economics (ironically, this is the same company that has been predicting prices to drop drastically for many years – Mortgagelegko) says that in spite of certain weakness, housing prices will grow by 12% by the end of 2022.

According to Capital economist Stephen Brown, home sales and prices showed record increases this summer, but not all types of real estate are facing the same demand.

Although the Canada Real Estate Association does not provide data according to a housing type, Capital has found out from local real estate data that house sales are outpacing apartment sales.

In case of the GTA, the sales rose by 50% in August annually, while apartments reported only an 11% increase.

Year-to-date, house sales were up by 1%, while apartment sales fell by 17%. The sales-to-new-listing ratio for houses also points to a 10% prices gain, but in case of apartments, it’s only 5%.

There are several reasons for such a situation: working from home increasing demand for larger homes, a hike in unemployment among lower-income groups hitting the apartment rental market, and lower immigration reducing apartment demand, especially in Toronto and Vancouver.

Nevertheless, Capital says that apartments make up only some part of the market. Even in Toronto with numerous condos, apartments in normal times accounted for only over 25%. At the same time, the national sales-to-new-listing ratio suggests high prices growth.

Of course, everyone wants to know, how long the pandemic will last, whether work from home remains permanently or whether immigration returns to normal. But, aside from that, Capital bases its forecast on three factors of market fundamentals.

According to Capital, at least some of the switch to home work will remain, meaning the share of income Canadian buyers are ready to spend on a property will go up. The price of single-family houses will also probably continue to grow compared with apartments.

Second, mortgage rates will stay low for a long time, maybe even for years. RateSpy.com says the average five-year fixed rate went down to a record low of 1.99% in September, while it was 3.04% at the end of 2019 and 3.74% – at the end of 2018. As a result, the price that an average household can afford rose by 13% from 2019 and by 24% from 2018. Meanwhile, the national real estate prices during the same period were up by only 4% since 2019 and 6% since 2018.

The third factor points to apartments outside of Toronto and Vancouver being still an attractive investment. A CIBC poll shows that 25% of homeowners said lower interest rates have made them to search for an investment property.

“In other words, despite the challenges for apartment prices in Toronto and Vancouver, overall home prices can still go up sharply, mostly due to much lower borrowing costs. We expect a 12% increase by the end of 2022, which is much more than the consensus forecast of a less than 5% gain,” – noted Brown.